<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LOUIS DREYFUS NATURAL GAS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OKLAHOMA 1311 73-1098614
(State or other (Primary standard (I.R.S. Employer
jurisdiction of industrial Identification No.)
incorporation or classification code
organization) number)
</TABLE>
14000 QUAIL SPRINGS PARKWAY, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73134
(405) 749-1300
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
MARK E. MONROE
14000 QUAIL SPRINGS PARKWAY, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73134
(405) 749-1300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
MICHAEL M. STEWART, ESQ. PETER D. LYONS, ESQ.
CROWE & DUNLEVY, SHEARMAN & STERLING
A PROFESSIONAL CORPORATION 599 LEXINGTON AVENUE
1800 MID-AMERICA TOWER NEW YORK, NEW YORK 10022
20 NORTH BROADWAY (212) 848-4000
OKLAHOMA CITY, OKLAHOMA 73102
(405) 235-7700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE
OF THE SECURITIES TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share..... 12,074,427 (1) (1) $68,923(2)
Depositary Shares, each representing a 1/200
interest in a share of Preferred Stock.... 800,000 (1) (1) $6,909(2)
Preferred Stock, par value $0.01 per
share..................................... 4,000 (1) (1) (3)
Common Stock issuable upon conversion of
Preferred Stock........................... 1,280,000 (4) (5) (5) (5)
------------------ ------------------ ------------------ ------------------
Total....................................... NA NA (1) $25,981(2)
</TABLE>
(FOOTNOTES ON NEXT PAGE)
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(1) Upon consummation of the merger described herein (the "Merger"), (i) each
outstanding share of common stock, par value $0.05 per share ("American
Common Stock"), of American Exploration Company ("American") will be
exchanged for 0.72 of a share of common stock of the Registrant and $3.00 in
cash, (ii) each outstanding share of $450 Cumulative Convertible Preferred
Stock, Series C of American ("American Preferred Stock") will be exchanged
for one share of preferred stock of the Registrant and (iii) each
outstanding depositary share representing a 1/200 interest in a share of
American Preferred Stock ("American Depositary Share") will be exchanged for
one depositary share representing an identical interest in a share of
preferred stock of the Registrant.
(2) Pursuant to Rule 457(f)(1) and (3) under the Securities Act of 1933, as
amended (the "Securities Act"), the registration fee has been calculated on
the basis of the high and low prices reported on the American Stock Exchange
on August 29, 1997 (or in the case of American Depository Shares on the most
recent date prior thereto upon which such shares were traded) of the
American Common Stock ($16.5625 per share) and the American Depositary
Shares ($28.50 per share) and the maximum number of shares of American
Common Stock (16,770,038) and American Depositary Shares (800,000) expected
to be canceled in the Merger, less the amount of cash ($3.00 per share of
American Common Stock) to be paid by the Registrant, all as if the Merger
were consummated on such date. A fee of $49,851 was paid on July 14, 1997
pursuant to Section 14(g) of the Securities Exchange Act of 1934, as
amended, in connection with the filing of preliminary proxy materials by the
Registrant. Pursuant to Rule 457(b) under the Securities Act, the
registration fee payable herewith has been reduced by such amount.
(3) Included in the fee payable with respect to the depositary shares. No
additional fee is payable.
(4) There is also being registered an indeterminable number of shares of Common
Stock as may become issuable pursuant to the antidilution provisions
governing the Preferred Stock.
(5) No additional consideration is payable upon conversion of the Preferred
Stock.
<PAGE>
LOUIS DREYFUS NATURAL GAS CORP.
14000 QUAIL SPRINGS PARKWAY, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73134
, 1997
Dear Stockholders of Louis Dreyfus Natural Gas Corp.:
Attached is a Notice of Special Meeting of Stockholders of Louis Dreyfus
Natural Gas Corp. ("LDNG") and an accompanying Joint Proxy Statement/Prospectus
which describes the matters to be acted upon at special meetings of the
stockholders of LDNG and American Exploration Company ("American"). At the
respective meetings, stockholders of LDNG and American will be asked to approve
the transactions contemplated by the Agreement and Plan of Reorganization, dated
as of June 24, 1997, as amended (the "Merger Agreement"), by and between LDNG
and American. The Merger Agreement provides for the acquisition of American by
LDNG through the merger of American with and into LDNG (the "Merger").
Stockholders are urged to review carefully the accompanying Joint Proxy
Statement/Prospectus which includes a detailed description of the Merger.
In the Merger, each outstanding share of Common Stock of American will be
converted into the right to receive 0.72 of a share of Common Stock of LDNG plus
$3.00 in cash, and each outstanding Depositary Share, each representing a 1/200
interest in a share of $450 Cumulative Convertible Preferred Stock, Series C of
American (the "American Preferred Stock"), will be converted into the right to
receive one (1) Depositary Share representing a 1/200 interest in a share of
$450 Cumulative Convertible Preferred Stock of LDNG having substantially the
same rights, privileges and restrictions, including dividend and conversion
rights, as the American Preferred Stock. Based on the number of shares of Common
Stock of American outstanding today, an aggregate of approximately 11.3 million
shares of Common Stock of LDNG will be issued and $47.1 million paid by LDNG in
the Merger to holders of Common Stock of American (assuming no exercise of
dissenters' appraisal rights). Such Common Stock of LDNG will represent
approximately 29% of the shares of LDNG Common Stock outstanding immediately
following the consummation of the Merger.
The Merger will create a larger independent oil and gas company with a
long-lived base of proved reserves, a large inventory of development drilling
opportunities, significant exploration potential, talented personnel and the
financial resources to maintain an aggressive exploration and development
drilling program and pursue new opportunities.
The proposed Merger requires, among other conditions, the approval of the
matters described in the accompanying Joint Proxy Statement/Prospectus by the
stockholders of LDNG and American. LDNG's principal stockholder owning
approximately 72% of the outstanding shares of Common Stock of LDNG has agreed
to vote in favor of the Merger, and, therefore, approval of the Merger by the
stockholders of LDNG at the Special Meeting of Stockholders of LDNG is assured.
FOR THE REASONS DETAILED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, THE BOARD OF DIRECTORS OF LDNG HAS DETERMINED THAT THE
MERGER AGREEMENT AND THE MERGER ARE IN THE BEST INTERESTS OF LDNG AND ITS
STOCKHOLDERS. THE BOARD OF DIRECTORS OF LDNG HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND RECOMMENDS THAT LDNG'S STOCKHOLDERS VOTE FOR
APPROVAL OF THE PROPOSED TRANSACTION.
Because of the significance to LDNG of the proposed Merger, your
participation at the Special Meetings of Stockholders of LDNG, in person or by
proxy, is important. Even if you plan to attend the meeting, we hope you will
complete, sign, date and return your proxy promptly in the enclosed envelope
that has been provided for your convenience. This will not limit your right to
vote in person or to attend the meeting. You may revoke your proxy by following
the procedures set forth in the accompanying Joint Proxy Statement/Prospectus.
Sincerely,
Mark E. Monroe
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
AMERICAN EXPLORATION COMPANY
1331 LAMAR, SUITE 900
HOUSTON, TEXAS 77010
, 1997
Dear Stockholders of American Exploration Company:
Attached is a Notice of Special Meeting of Stockholders of American
Exploration Company ("American") and an accompanying Joint Proxy
Statement/Prospectus which describes the matters to be acted upon at special
meetings of the stockholders of American and Louis Dreyfus Natural Gas Corp.
("LDNG"). At the respective meetings, stockholders of American and LDNG will be
asked to approve the transactions contemplated by the Agreement and Plan of
Reorganization, dated as of June 24, 1997, as amended (the "Merger Agreement"),
by and between LDNG and American. The Merger Agreement provides for the merger
of American with and into LDNG (the "Merger"). Stockholders are urged to review
carefully the accompanying Joint Proxy Statement/Prospectus which includes a
detailed description of the Merger.
In the Merger, each outstanding share of Common Stock of American will be
converted into the right to receive 0.72 of a share of Common Stock of LDNG plus
$3.00 in cash, and each outstanding Depositary Share, each representing a 1/200
interest in a share of $450 Cumulative Convertible Preferred Stock, Series C of
American (the "American Preferred Stock"), will be converted into the right to
receive one (1) Depositary Share representing a 1/200 interest in a share of
$450 Cumulative Convertible Preferred Stock of LDNG having substantially the
same rights, privileges and restrictions, including dividend and conversion
rights, as the American Preferred Stock. Based on the number of shares of Common
Stock of American outstanding today, an aggregate of approximately 11.3 million
shares of Common Stock of LDNG will be issued and $47.1 million paid by LDNG in
the Merger to holders of Common Stock of American (assuming no exercise of
dissenters' appraisal rights). Such Common Stock of LDNG will represent
approximately 29% of the shares of LDNG Common Stock outstanding immediately
following the consummation of the Merger.
Your Board of Directors and I believe that the Merger will create a larger
independent oil and gas company with a long-lived base of proved reserves, a
large inventory of development drilling opportunities, significant exploration
potential, talented personnel and the financial resources to maintain an
aggressive exploration and development drilling program and pursue new
opportunities.
The proposed Merger requires, among other conditions, the approval of the
matters described in the accompanying Joint Proxy Statement/Prospectus by the
stockholders of American and LDNG.
FOR THE REASONS DETAILED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER
AGREEMENT AND THE MERGER ARE IN THE BEST INTERESTS OF AMERICAN AND ITS
STOCKHOLDERS. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND RECOMMENDS THAT AMERICAN'S STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER.
Because of the significance to American of the proposed Merger, your
participation at the Special Meeting of Stockholders of American, in person or
by proxy, is important. Even if you plan to attend the meeting, we hope you will
complete, sign, date and return your proxy promptly in the enclosed envelope
that has been provided for your convenience. This will not limit your right to
vote in person or to attend the meeting. You may revoke your proxy by following
the procedures set forth in the accompanying Joint Proxy Statement/Prospectus.
Sincerely,
Mark Andrews
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
LOUIS DREYFUS NATURAL GAS CORP.
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 8, 1997
--------------------------
To the Stockholders of Louis Dreyfus Natural Gas Corp.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of Louis Dreyfus Natural Gas Corp., an Oklahoma corporation ("LDNG"),
will be held on October 8, 1997, commencing at 10:00 a.m., local time, at the
offices of LDNG, 14000 Quail Springs Parkway, Suite 600, Oklahoma City,
Oklahoma, to consider and act upon the following matters which are described in
more detail in the accompanying Joint Proxy Statement/ Prospectus:
1. To consider and act upon a proposal to approve and adopt the
Agreement and Plan of Reorganization, dated as of June 24, 1997, as amended
(the "Merger Agreement"), by and between LDNG and American Exploration
Company, a Delaware corporation ("American"), providing for, among other
things, the merger of American with and into LDNG (the "Merger").
2. To consider and act upon such other business as may properly be
brought before the Special Meeting or any adjournment or postponement
thereof.
The close of business on August 18, 1997, has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Special Meeting and any adjournment or postponement thereof. A complete list of
the stockholders entitled to vote at the Special Meeting will be open to the
examination of any stockholder, for any purpose germane to the Special Meeting,
during ordinary business hours for a period of 10 days prior to the date of the
Special Meeting at the offices of LDNG at 14000 Quail Springs Parkway, Suite
600, Oklahoma City, Oklahoma 73134, and at the time and place of the Special
Meeting. Holders of LDNG Common Stock are not entitled to dissenters' appraisal
rights under the Oklahoma General Corporation Act in respect of the Merger.
When the proxies are returned properly executed, the shares represented
thereby will be voted in accordance with the indicated instructions. However, if
no instructions have been specified on the returned proxy, the shares
represented thereby will be voted "FOR" the approval of the Merger and the
Merger Agreement. Any stockholder giving a proxy has the right to revoke such
proxy, at any time before it is voted, by filing with the Secretary of LDNG
either an instrument revoking the proxy or a duly executed proxy bearing a later
date. Proxies also may be revoked by attending the Special Meeting and voting in
person.
THE BOARD OF DIRECTORS OF LDNG HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF LDNG, HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT AND THE MERGER AT THE SPECIAL
MEETING.
By Order of the Board of Directors
LOUIS DREYFUS NATURAL GAS CORP.
Kevin R. White
SECRETARY
Oklahoma City, Oklahoma
, 1997
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. TO
ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE MARK AND DATE THE
ENCLOSED PROXY CARD, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF LDNG, SIGN
EXACTLY AS YOUR NAME APPEARS THEREON AND RETURN IMMEDIATELY.
<PAGE>
AMERICAN EXPLORATION COMPANY
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 8, 1997
--------------------------
To the Stockholders of American Exploration Company:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of American Exploration Company, a Delaware corporation ("American"),
will be held on October 8, 1997, commencing at 10:00 a.m., local time, at the
Waldorf Astoria Hotel, 301 Park Avenue, New York, New York, to consider and act
upon the following matters which are described in more detail in the
accompanying Joint Proxy Statement/Prospectus:
1. To consider and act upon a proposal to approve and adopt the
Agreement and Plan of Reorganization, dated as of June 24, 1997, as amended
(the "Merger Agreement"), by and between American and Louis Dreyfus Natural
Gas Corp., an Oklahoma corporation ("LDNG"), providing for, among other
things, the merger of American with and into LDNG (the "Merger").
2. To consider and act upon such other business as may properly be
brought before the Special Meeting or any adjournment or postponement
thereof.
The close of business on August 18, 1997, has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Special Meeting and any adjournment or postponement thereof. A complete list of
the stockholders entitled to vote at the Special Meeting will be open to the
examination of any stockholder, for any purpose germane to the Special Meeting,
during ordinary business hours for a period of 10 days prior to the date of the
Special Meeting at the offices of American at 1331 Lamar, Suite 900, Houston,
Texas 77010, and at the time and place of the Special Meeting. Holders of Common
Stock of American are entitled to certain dissenters' appraisal rights under the
Delaware General Corporation Law in respect of the Merger.
When the proxies are returned properly executed, the shares represented
thereby will be voted in accordance with the indicated instructions. However, if
no instructions have been specified on the returned proxy, the shares
represented thereby will be voted "FOR" approval of the Merger and the Merger
Agreement. Any stockholder giving a proxy has the right to revoke such proxy, at
any time before it is voted, by filing with the Secretary of American either an
instrument revoking the proxy or a duly executed proxy bearing a later date.
Proxies also may be revoked by attending the Special Meeting and voting in
person.
THE BOARD OF DIRECTORS OF AMERICAN HAS DETERMINED THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF AMERICAN, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE MERGER, AND UNANIMOUSLY RECOMMENDS
APPROVAL OF THE MERGER BY THE STOCKHOLDERS OF AMERICAN.
By Order of the Board of Directors
AMERICAN EXPLORATION COMPANY
T. Frank Murphy
SECRETARY
Houston, Texas
, 1997
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. TO
ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE MARK AND DATE THE
ENCLOSED PROXY CARD, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF AMERICAN,
SIGN EXACTLY AS YOUR NAME APPEARS THEREON AND RETURN IMMEDIATELY. STOCKHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES WHEN RETURNING PROXIES. IF THE MERGER
AGREEMENT IS ADOPTED AND THE MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE
NOTIFIED AND FURNISHED INSTRUCTIONS ON HOW AND WHEN TO SURRENDER THEIR STOCK
CERTIFICATES.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
LOUIS DREYFUS NATURAL GAS CORP.
AND
AMERICAN EXPLORATION COMPANY
----------------
JOINT PROXY STATEMENT/PROSPECTUS
---------------------
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Louis Dreyfus Natural Gas Corp., an Oklahoma corporation ("LDNG"), in connection
with the solicitation of proxies by the Board of Directors of LDNG (the "LDNG
Board") for use at a special meeting of stockholders of LDNG (the "LDNG Special
Meeting") to be held on October 8, 1997, at the offices of LDNG, 14000 Quail
Springs Parkway, Suite 600, Oklahoma City, Oklahoma, commencing at 10:00 a.m.,
local time, and at any adjournment or postponement thereof. At the LDNG Special
Meeting, the stockholders of LDNG will consider and vote upon a proposal to
approve the Agreement and Plan of Reorganization, dated as of June 24, 1997, as
amended (the "Merger Agreement"), by and between LDNG and American Exploration
Company, a Delaware corporation ("American"), providing for, among other things,
the merger of American with and into LDNG (the "Merger"). Louis Dreyfus Natural
Gas Holdings Corp., an indirectly wholly owned subsidiary of S.A. Louis Dreyfus
et Cie owning approximately 72% of the outstanding shares of common stock, par
value $.01 per share, of LDNG ("LDNG Common Stock"), has agreed to vote in favor
of the Merger, thereby assuring approval of the Merger by the stockholders of
LDNG at the LDNG Special Meeting.
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of American in connection with the solicitation of proxies by the
Board of Directors of American (the "American Board") for use at a special
meeting of stockholders of American (the "American Special Meeting") to be held
on October 8, 1997, at the Waldorf Astoria Hotel, 301 Park Avenue, New York, New
York, commencing at 10:00 a.m., local time, and at any adjournment or
postponement thereof. At the American Special Meeting, the stockholders of
American will consider and vote upon a proposal to approve the Merger Agreement
and the Merger.
As a result of the Merger, (a) each outstanding share of common stock, par
value $.05 per share, of American ("American Common Stock") will be converted
into the right to receive 0.72 of a share of LDNG Common Stock and $3.00 in cash
and (b) each outstanding depositary share ("American Depositary Share"), each
representing a 1/200 interest in a share of $450 Cumulative Convertible
Preferred Stock, Series C, par value $1.00 per share, of American ("American
Preferred Stock"), will be converted into the right to receive one depositary
share ("LDNG Depositary Share"), each representing a 1/200 interest in a share
of $450 Cumulative Convertible Preferred Stock, par value $.01 per share, of
LDNG ("LDNG Preferred Stock"). The LDNG Preferred Stock has been authorized
solely for purposes of the Merger and has substantially the same rights,
preferences, privileges and restrictions, including dividend and conversion
rights, as the American Preferred Stock. See "Description of LDNG Capital
Stock."
Holders of LDNG Common Stock do not have dissenters' appraisal rights in
respect of the Merger under the Oklahoma General Corporation Act (the "Oklahoma
Act"). Holders of American Common Stock will have dissenters' appraisal rights
in respect of the Merger, but holders of American Depositary Shares will not
have such appraisal rights. See "The Merger-- Dissenters' Rights" and Section
262 of the Delaware General Corporation Law (the "Delaware Act") attached hereto
as Annex D.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of LDNG
with respect to shares of LDNG Common Stock, LDNG Preferred Stock and LDNG
Depositary Shares to be issued in the Merger in exchange for outstanding shares
of American Common Stock, American Preferred Stock and American Depositary
Shares as described in this Joint Proxy Statement/Prospectus.
--------------------------
FOR A DISCUSSION OF CERTAIN CONSIDERATIONS REGARDING THE BUSINESSES AND
OPERATIONS OF LDNG AND AMERICAN THAT SHOULD BE EVALUATED BEFORE VOTING ON THE
PROPOSALS DESCRIBED HEREIN AT THE LDNG SPECIAL MEETING OR THE AMERICAN SPECIAL
MEETING, SEE "RISK FACTORS" BEGINNING ON PAGE 24.
--------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/ PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and accompanying forms of proxy are
first being mailed to stockholders of LDNG and of American on or about
, 1997.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1997.
<PAGE>
AVAILABLE INFORMATION
LDNG and American are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements, information statements and
other information with the Securities and Exchange Commission (the
"Commission"). The reports, proxy statements, information statements and other
information filed by LDNG and by American with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also may be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov. LDNG Common Stock is listed on the New York
Stock Exchange ("NYSE"). Reports, proxy and information statements and other
information relating to LDNG can be inspected at the offices of the NYSE at 20
Broad Street, New York, New York 10005. American Common Stock and American
Depositary Shares are listed on the American Stock Exchange ("AMEX"). Reports,
proxy and information statements and other information relating to American can
be inspected at the offices of the AMEX at 86 Trinity Place, New York, New York
10006.
LDNG has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities to be issued pursuant to the Merger Agreement. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this Joint
Proxy Statement/Prospectus or in any document incorporated by reference in this
Joint Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference. The Registration
Statement, including exhibits filed as a part thereof, are available for
inspection and copying at the Commission's offices as described above.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which have been filed by LDNG with the Commission
pursuant to the Exchange Act, are incorporated by reference into this Joint
Proxy Statement/Prospectus and are deemed to be a part hereof: (a) LDNG's Annual
Report on Form 10-K for the year ended December 31, 1996, as amended (the "LDNG
1996 Form 10-K"); (b) LDNG's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, as amended; (c) LDNG's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997; (d) LDNG's Current Report on Form 8-K, dated June
24, 1997; and (e) the description of the LDNG Common Stock contained in LDNG's
Registration Statement on Form 8-A dated October 19, 1993.
The following documents, which have been filed by American with the
Commission pursuant to the Exchange Act, are incorporated by reference into this
Joint Proxy Statement/Prospectus and are deemed to be a part hereof: (a)
American's Annual Report on Form 10-K for the year ended December 31, 1996 (the
"American 1996 Form 10-K"); (b) American's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997; (c) American's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997; (d) American's Current Report on Form 8-K,
dated June 24, 1997; (e) the description of the American Common Stock contained
in American's Registration Statements on Form 8-A filed on April 30, 1984,
November 16, 1987 and October 1, 1993; and (f) the description of the American
Preferred Stock and
ii
<PAGE>
American Depositary Shares contained in American's Registration Statement on
Form 8-A/A filed on April 5, 1994.
All reports subsequently filed by LDNG and American pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the LDNG Special Meeting or the
American Special Meeting, respectively, shall be deemed to be incorporated by
reference into this Joint Proxy Statement/Prospectus and are deemed to be a part
hereof from the date of filing of such reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus 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. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference) are available to any person, including any beneficial owner, to whom
this Joint Proxy Statement/Prospectus is delivered, upon written or oral
request, without charge, directed in the case of documents relating to LDNG, to
Kevin R. White, the Secretary of LDNG, at 14000 Quail Springs Parkway, Suite
600, Oklahoma City, Oklahoma 73134, telephone (405) 749-1300, or, in the case of
documents relating to American, to T. Frank Murphy, the Secretary of American,
at 1331 Lamar, Suite 900, Houston, Texas 77010, telephone (713) 756-6000. In
order to ensure timely delivery of the documents prior to the respective Special
Meetings, any request should be made by October 1, 1997.
------------------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY LDNG,
AMERICAN OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS UNLAWFUL OR TO OR FROM ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... ii
INCORPORATION OF DOCUMENTS BY REFERENCE.................................................................... ii
SUMMARY.................................................................................................... 1
General.................................................................................................. 1
Louis Dreyfus Natural Gas Corp........................................................................... 1
American Exploration Company............................................................................. 1
The Merger............................................................................................... 2
Recommendations of the Boards of Directors of LDNG and American and Reasons for the Merger............... 2
Opinions of Financial Advisors........................................................................... 3
Conversion Procedures.................................................................................... 4
Management of LDNG After the Merger...................................................................... 5
Description of Other Terms of the Merger Agreement....................................................... 5
Material Federal Income Tax Consequences................................................................. 5
Accounting Treatment..................................................................................... 6
The Special Meetings..................................................................................... 6
Dissenters' Rights....................................................................................... 7
LDNG Securities to be Issued in the Merger............................................................... 7
Interests of Certain Persons in the Merger............................................................... 7
Risk Factors............................................................................................. 8
Forward-Looking Statements or Information................................................................ 9
Comparative Market Price Information for Common Stock.................................................... 10
Comparative Per Share Data............................................................................... 11
Selected Historical Financial Data--LDNG................................................................. 12
Selected Historical Financial Data--American............................................................. 14
Unaudited Pro Forma Selected Financial Data.............................................................. 16
Selected Historical Operating Data--LDNG................................................................. 18
Selected Historical Operating Data--American............................................................. 19
Unaudited Pro Forma Selected Operating Data.............................................................. 20
Summary Oil and Gas Reserves Data........................................................................ 21
Pro Forma Acreage........................................................................................ 22
Productive Well Summary.................................................................................. 22
Recent Development....................................................................................... 23
RISK FACTORS............................................................................................... 24
Integration of Significantly Increased Operations........................................................ 24
Changes in Exploration and Development Mix............................................................... 24
Ability to Achieve Savings............................................................................... 24
Fixed Exchange Ratio..................................................................................... 25
Certain Accounting Consequences of the Merger............................................................ 25
Interests of Certain Persons in the Merger............................................................... 25
Effects of Changing Oil and Gas Prices; Hedging Risks.................................................... 25
Customer Concentration................................................................................... 27
Estimates of Reserves and Future Net Cash Flows.......................................................... 28
Certain Operational Risks................................................................................ 28
Operating Hazards and Uninsured Risks.................................................................... 28
Governmental and Environmental Regulation................................................................ 29
Competition.............................................................................................. 29
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American Gas Contract Litigation......................................................................... 29
Control by S.A. Louis Dreyfus et Cie of All Matters Upon Which Common Stockholders Vote; Potential Change
in Control............................................................................................. 30
Relationship with S.A. Louis Dreyfus et Cie.............................................................. 30
THE SPECIAL MEETINGS....................................................................................... 30
Date, Place and Time of Special Meetings................................................................. 30
Matters to be Considered at the Special Meetings......................................................... 30
Record Dates............................................................................................. 31
Votes Required........................................................................................... 31
LDNG Proxies; Voting and Revocation; Other Matters....................................................... 31
American Proxies; Voting and Revocation; Other Matters................................................... 32
Solicitation of Proxies.................................................................................. 33
Dissenters' Rights....................................................................................... 33
THE MERGER................................................................................................. 36
General.................................................................................................. 36
Background of the Merger................................................................................. 36
Joint Reasons for the Merger............................................................................. 38
Recommendation of the LDNG Board and Reasons for the Merger.............................................. 38
Opinion of Financial Advisor to LDNG..................................................................... 40
Recommendation of the American Board and Reasons for the Merger.......................................... 45
Opinion of Financial Advisor to American................................................................. 47
Merger Consideration; Effects of the Merger on Securities of American.................................... 54
Effective Time of the Merger............................................................................. 56
Procedures for Exchange of American Stock Certificates................................................... 56
Procedures for Exchange of American Depositary Shares.................................................... 58
Listing on the New York Stock Exchange................................................................... 58
Restrictions on Resales by Affiliates of American........................................................ 58
Interests of Certain Persons in the Merger............................................................... 59
LDNG Financing Related to the Merger..................................................................... 63
Accounting Treatment..................................................................................... 63
Material Federal Income Tax Consequences................................................................. 63
THE MERGER AGREEMENT....................................................................................... 67
The Merger............................................................................................... 67
Merger Consideration..................................................................................... 67
Effective Time of the Merger............................................................................. 67
Representations and Warranties........................................................................... 67
Conduct of Business of American and LDNG Pending the Merger.............................................. 68
Access to Assets, Personnel and Information.............................................................. 70
NYSE Listing............................................................................................. 70
Waivers, Consents and Approvals; Additional Arrangements................................................. 70
Agreements of Affiliates................................................................................. 70
No Solicitation of Alternative Transactions.............................................................. 71
Special Meetings; Joint Proxy Statement Prospectus....................................................... 71
Public Announcements..................................................................................... 72
Indemnification of Directors and Officers of American.................................................... 72
American Employee Matters................................................................................ 72
Employment and Retention Agreements With Executive Officers of American.................................. 73
American Rights Agreement................................................................................ 73
Restructuring of the Merger.............................................................................. 73
Conditions to Consummation of the Merger................................................................. 73
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Termination Rights and Termination Fees.................................................................. 74
Payment of Expenses...................................................................................... 77
Amendment and Waiver..................................................................................... 77
Agreement of LDNG Stockholder............................................................................ 77
INFORMATION ABOUT THE COMBINING COMPANIES.................................................................. 78
Louis Dreyfus Natural Gas Corp........................................................................... 78
Outlook for Fiscal Year 1997............................................................................. 78
Price Range of LDNG Common Stock and Dividend Policy..................................................... 79
American Exploration Company............................................................................. 80
Price Range of American Common Stock and Dividend Policy................................................. 81
UNAUDITED PRO FORMA FINANCIAL STATEMENTS................................................................... 82
DESCRIPTION OF AMERICAN CAPITAL STOCK...................................................................... 91
Authorized and Outstanding Capital Stock................................................................. 91
American Common Stock.................................................................................... 91
American Preferred Stock................................................................................. 91
American Depositary Shares............................................................................... 99
DESCRIPTION OF LDNG CAPITAL STOCK.......................................................................... 104
Authorized and Outstanding Capital Stock................................................................. 104
LDNG Common Stock........................................................................................ 104
LDNG Preferred Stock..................................................................................... 104
LDNG Depositary Shares................................................................................... 105
COMPARISON OF STOCKHOLDER RIGHTS........................................................................... 105
Authorized Capital Stock................................................................................. 106
"Blank Check" Preferred Stock............................................................................ 106
Business Combinations With Interested Stockholders....................................................... 106
Stockholder Rights Plan.................................................................................. 107
Business at Meetings of Stockholders..................................................................... 107
LEGAL MATTERS.............................................................................................. 107
EXPERTS.................................................................................................... 107
PROPOSALS OF STOCKHOLDERS.................................................................................. 108
APPENDIX A--Agreement and Plan of Reorganization, as amended............................................... A-1
APPENDIX B--Opinion of Salomon Brothers Inc................................................................ B-1
APPENDIX C--Opinion of Prudential Securities Incorporated.................................................. C-1
APPENDIX D-- Section 262 of the Delaware General Corporation Law Concerning Rights of Dissenting
Stockholders................................................................................... D-1
APPENDIX E--Definitions of Certain Oil and Gas Industry Terms.............................................. E-1
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SUMMARY
The following is only a summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus and does not purport to be complete.
Reference is made to, and this summary is qualified in its entirety by, the more
detailed information contained elsewhere in this Joint Proxy Statement/
Prospectus. As used in this Joint Proxy Statement/Prospectus, the term "LDNG"
refers to such corporation and, except where the context otherwise requires, its
subsidiaries, and the term "American" refers to such corporation and, except
where the context otherwise requires, its subsidiaries. All information
concerning LDNG included in this Joint Proxy Statement/Prospectus has been
furnished by LDNG and all information concerning American included in this Joint
Proxy Statement/Prospectus has been furnished by American. Definitions of
certain industry terms used in this Joint Proxy Statement/Prospectus are
included herein as Annex E. Stockholders are urged to read this Joint Proxy
Statement/Prospectus in its entirety.
UNLESS OTHERWISE INDICATED, ALL RESERVE INFORMATION IS AS OF DECEMBER 31,
1996. WHENEVER THE TERM "ON A PRO FORMA BASIS" IS USED HEREIN, UNLESS OTHERWISE
INDICATED, WITH RESPECT TO (I) OIL AND GAS RESERVES, WELLS, AND ACREAGE, IT
MEANS AS OF DECEMBER 31, 1996, GIVING EFFECT TO THE MERGER AS IF IT OCCURRED ON
SUCH DATE; (II) PRODUCTION, REVENUE, EXPENSE, EARNINGS OR CASH FLOW INFORMATION,
IT MEANS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30,
1997, GIVING EFFECT TO THE MERGER AS IF IT OCCURRED ON JANUARY 1, 1996; AND
(III) BALANCE SHEET INFORMATION, IT MEANS AS OF JUNE 30, 1997, GIVING EFFECT TO
THE MERGER AS IF IT OCCURRED ON JUNE 30, 1997.
GENERAL
At the LDNG Special Meeting and the American Special Meeting, holders of
LDNG Common Stock and American Common Stock and American Depositary Shares will
be asked to act upon proposals related to the merger of American with and into
LDNG pursuant to the terms of the Merger Agreement which are more particularly
described herein. If the Merger and related proposals are approved by the
requisite votes of such stockholders, American will be merged into LDNG, the
separate existence of American will cease and LDNG will succeed to all of the
assets, rights, liabilities and obligations of American. If the Merger and
related proposals are not approved by the requisite votes of such stockholders,
LDNG and American intend to continue to operate independently.
LOUIS DREYFUS NATURAL GAS CORP.
LDNG is an independent energy company engaged in the acquisition,
development and exploration of natural gas and oil properties, and in the
production and marketing of natural gas and crude oil. LDNG's reserve base is
primarily located in the Sonora area of West Texas, the Mid-Continent region,
the Permian Basin, and the Texas Gulf Coast. As of December 31, 1996, LDNG had
proved reserves of 990 Bcfe with a Present Value of $1.1 billion. LDNG operates
over 84% of its reserves, of which 86% is natural gas and 83% is proved
developed. LDNG has a long-lived asset base with a Reserve Life of 13.2 years at
December 31, 1996.
The address of LDNG's principal executive offices is 14000 Quail Springs
Parkway, Suite 600, Oklahoma City, Oklahoma 73134, and its telephone number is
(405) 749-1300.
For additional information concerning LDNG, see "Information About the
Combining Companies-- Louis Dreyfus Natural Gas Corp." and "Unaudited Pro Forma
Combined Financial Data."
AMERICAN EXPLORATION COMPANY
American is also an independent energy company engaged in the acquisition,
development and exploration of natural gas and oil properties, and in the
production and marketing of natural gas and crude oil. American's exploration
and development activities are primarily focused in the Gulf of Mexico, South
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Texas (with an emphasis on the Wilcox and Frio Trends), the Cotton Valley
Pinnacle Reef Trend in East Texas and the Smackover Trend in Southwest Arkansas.
As of December 31, 1996, American had proved reserves of 254 Bcfe with a Present
Value of $370.8 million. American operates approximately 58% of its reserves, of
which 66% is natural gas and 80% is proved developed. American also holds
approximately 370,000 net acres of undeveloped properties. American's Reserve
Life was 7.7 years at December 31, 1996.
The address of American's principal executive offices is 1331 Lamar, Suite
900, Houston, Texas 77010, and its telephone number is (713) 756-6000.
For additional information concerning American, see "Information About the
Combining Companies--American Exploration Company."
THE MERGER
Pursuant to the Merger Agreement, and subject to the conditions described
herein, American will be merged with and into LDNG, and LDNG will be the
surviving corporation. Upon consummation of the Merger, the separate existence
of American will cease and LDNG will succeed to all of the assets, rights,
liabilities and obligations of American. As the surviving corporation of the
Merger, LDNG is sometimes referred to herein as the "Surviving Corporation."
As a result of the Merger, (a) each share of American Common Stock will be
converted into the right to receive 0.72 of a share of LDNG Common Stock (the
"Conversion Number") and $3.00 in cash (the "Cash Consideration") and (b) each
American Depositary Share will be converted into the right to receive one LDNG
Depositary Share. Each LDNG Depositary Share will represent a 1/200 interest in
a share of LDNG Preferred Stock. The LDNG Preferred Stock has been authorized
solely for purposes of the Merger and has substantially the same rights,
preferences, privileges and restrictions, including dividend and conversion
rights, as the American Preferred Stock. See "Description of LDNG Capital
Stock."
Based upon the number of outstanding shares of American Common Stock as of
the date of this Joint Proxy Statement/Prospectus (assuming no holders of
American Common Stock exercise their dissenter's appraisal rights and without
regard to the settlement of fractional shares of LDNG Common Stock as described
elsewhere herein), an aggregate of approximately 11,307,385 shares of LDNG
Common Stock would be issued and $47,114,103 paid in the Merger. Such LDNG
Common Stock would represent approximately 29% of the shares of LDNG Common
Stock outstanding immediately following the consummation of the Merger.
It is anticipated that, if the matters described in the Joint Proxy
Statement/Prospectus are adopted at the LDNG Special Meeting and the American
Special Meeting and all other conditions to the merger have been satisfied or
waived, the Merger will become effective (the "Effective Time") as soon as
possible after such meetings have been held. If the Merger is not consummated on
or before November 15, 1997, LDNG and American each have the right (subject to
certain limitations) to terminate the Merger Agreement. See "The Merger
Agreement--Termination Rights and Termination Fees."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF LDNG AND AMERICAN AND REASONS FOR
THE MERGER
JOINT REASONS. Over the past two years, American and LDNG have worked
together closely on several projects. Through this association, each company has
gained an appreciation for their complementary strengths. For LDNG, these
strengths include a substantial, long-lived reserve base, a large inventory of
low-risk development drilling locations, and strong oil and gas operating and
product marketing capabilities. American, on the other hand, has a high quality,
although shorter-lived reserve base, a substantial inventory of high potential
exploratory prospects and strong prospect generating and technical skills.
The Merger will combine the complementary strengths and create a larger and
more balanced independent exploration and production company with a proved
reserve base totaling approximately 1.2 Tcfe, production exceeding 300 MMcfe per
day and substantial cash flow. The combined company will
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also have significant growth potential through a balance of low-risk development
(an estimated 1,200 potential development locations) and higher-risk exploration
drilling. The combined company will also have an improved balance sheet, higher
cash flow and the financial resources to maintain an aggressive drilling program
and pursue new opportunities. In addition, the combined company will have a
significantly increased public share float which is expected to improve trading
liquidity.
LDNG. The LDNG Board believes that the terms of the Merger Agreement and
the issuance of LDNG securities in connection with the Merger are fair to, and
in the best interests of, LDNG and its stockholders. Accordingly, the LDNG Board
has unanimously approved the Merger Agreement and the Merger and recommends that
holders of LDNG Common Stock vote FOR adoption and approval of the Merger
Agreement and the Merger. In reaching its decision to recommend approval of the
Merger, the LDNG Board considered a number of factors, including the fact that
the American oil and gas properties are located in, or in close proximity to,
geographic locations in which LDNG already owns proved reserves; the access to
the existing base of American exploratory prospects and qualified technical
staff that is provided by virtue of the Merger; the effect of the Merger on the
Reserve Life and reserve mix of LDNG's pro forma proved reserves; the increase
in size of LDNG's operations and properties afforded by the Merger; the
potential improved liquidity for LDNG Common Stock and broader base of
stockholders that is expected to result from the increase in number of shares of
LDNG Common Stock outstanding; the effects of the Merger on LDNG's financial
condition, earnings, cash flows and operating ratios; the fact that LDNG's
principal stockholder has agreed to vote in favor of the Merger and therefore
approval by the stockholders of LDNG is assured; and the written opinion of
LDNG's financial advisor dated June 24, 1997 that as of such date the
consideration to be paid in the Merger by LDNG to the holders of American Common
Stock was fair, from a financial point of view, to LDNG. See "The
Merger--Recommendation of the LDNG Board and Reasons for the Merger."
AMERICAN. The American Board believes that the terms of the Merger are fair
to, and in the best interests of, American and its stockholders. Accordingly,
the American Board has unanimously approved the Merger Agreement and the Merger
and recommends that holders of shares of American Common Stock vote FOR adoption
and approval of the Merger Agreement and the Merger. In reaching its decision to
recommend approval of the Merger, the American Board considered a number of
factors, including the fact that the Merger would achieve the expansion and
growth strategies established by the American Board; the attractiveness of
certain operational and property characteristics of LDNG; the benefits that
would be available through a larger enterprise, including larger market
capitalization, as well as anticipated enhanced liquidity of common stock of a
larger entity; the proposed management and Board of LDNG following the Merger,
including that three directors of American will serve on the LDNG Board
following the Merger; the anticipated financial effects of the Merger on the
balance sheet and cash flow of LDNG; the terms and conditions of the Merger,
including the provisions relating to American's ability to provide information
to other potential acquirors and the ability to terminate the Merger Agreement
under certain circumstances; the written opinion of American's financial advisor
dated June 24, 1997 that as of such date the Conversion Number and the Cash
Consideration were fair, from a financial point of view, to the holders of
American Common Stock; the premium over the market value of American's Common
Stock represented by the Merger consideration to be paid by LDNG; the fact that
LDNG's principal stockholder has agreed to vote in favor of the Merger, thereby
assuring approval by the LDNG stockholders; the existing relationships between
LDNG and American; and the tax consequences of the Merger to American
stockholders. See "The Merger--Recommendation of the American Board and Reasons
for the Merger."
OPINIONS OF FINANCIAL ADVISORS
LDNG engaged Salomon Brothers Inc ("Salomon") to act as financial advisor in
connection with the Merger and to render its opinion as to the fairness, from a
financial point of view, to LDNG of the consideration to be paid by LDNG in the
Merger to the holders of American Common Stock. Salomon delivered its written
opinion dated June 24, 1997, that, as of such date, the consideration to be paid
by
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LDNG in the Merger to the holders of American Common Stock was fair, from a
financial point of view, to LDNG. A copy of the opinion of Salomon, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex B to this Joint Proxy Statement/Prospectus and
is incorporated herein by reference. The summary of the opinion of Salomon set
forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion attached as Annex B hereto.
STOCKHOLDERS OF LDNG ARE URGED TO READ CAREFULLY THE OPINION IN ITS ENTIRETY.
For a more particular description of this opinion and information regarding fees
and expenses payable to Salomon by LDNG, see "The Merger--Opinion of Financial
Advisor to LDNG."
American engaged Prudential Securities Incorporated ("Prudential
Securities") to act as financial advisor in connection with the Merger and to
render its opinion as to the fairness, from a financial point of view, of the
Conversion Number and Cash Consideration to the holders of American Common
Stock. Prudential Securities delivered its written opinion dated June 24, 1997,
that, as of such date, the Conversion Number and the Cash Consideration were
fair, from a financial point of view, to the holders of American Common Stock. A
copy of the opinion of Prudential Securities, which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
as Annex C to this Joint Proxy Statement/Prospectus and is incorporated herein
by reference. The summary of the opinion of Prudential Securities set forth in
this Joint Proxy Statement/Prospectus is qualified in its entirety by reference
to the full text of such opinion attached as Annex C hereto. STOCKHOLDERS OF
AMERICAN ARE URGED TO READ CAREFULLY THE OPINION IN ITS ENTIRETY. For a more
particular description of this opinion and information regarding fees and
expenses payable to Prudential Securities by American, see "The Merger--Opinion
of Financial Advisor to American."
As described elsewhere herein under "The Merger--Background of the Merger,"
the Merger Agreement, as executed and delivered on June 24, 1997, contemplated
the merger of American with and into a wholly owned subsidiary of LDNG.
Subsequent to June 24, 1997, the Merger Agreement was amended to provide for the
Merger of American directly into LDNG rather than a wholly owned subsidiary. The
consideration to be paid by LDNG in the Merger to the holders of American Common
Stock was not affected by such amendment. The opinions of the respective
financial advisors to LDNG and American were rendered prior to the amendment of
the Merger Agreement and all references to the Merger therein and in the
summaries of such opinions contained herein necessarily relate to the Merger as
contemplated prior to such amendment. Neither LDNG nor American has requested
that the respective financial advisors update their opinions to take into
account the amendment to the Merger Agreement because neither LDNG nor American
believes that such amendment and the resulting change in the structure of the
Merger has any material effect on the financial terms of the Merger or the
fairness, from a financial point of view, to LDNG or the holders of American
Common Stock of the consideration to be paid by LDNG to the holders of American
Common Stock in the Merger.
CONVERSION PROCEDURES
As soon as practicable after the Effective Time of the Merger, LDNG will
cause ChaseMellon Shareholder Services, L.L.C., as transfer agent for shares of
LDNG Common Stock and depositary for the LDNG Depositary Shares (the "Exchange
Agent"), to mail to each record holder of American Common Stock and American
Depositary Shares as of the Effective Time a letter of transmittal to be used to
effect the exchange of certificates representing American Common Stock for
certificates representing LDNG Common Stock and the Cash Consideration and the
exchange of certificates representing American Depositary Shares for
certificates representing LDNG Depositary Shares, along with instructions for
using such letter of transmittal to effect such exchange (collectively, the
"Letter of Transmittal"). AMERICAN STOCKHOLDERS SHOULD NOT SURRENDER THEIR STOCK
CERTIFICATES UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED AND THEN SHOULD
SURRENDER THEIR STOCK
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CERTIFICATES ONLY ACCOMPANIED BY A PROPERLY COMPLETED AND EXECUTED LETTER OF
TRANSMITTAL. See "The Merger--Procedures for Exchange of American Common Stock
Certificates" and "--Procedures for Exchange of American Depositary Shares."
MANAGEMENT OF LDNG AFTER THE MERGER
The Merger Agreement provides that Mark Andrews, Chairman and Chief
Executive Officer of American, and two other directors of American acceptable to
LDNG to be determined prior to consummation of the Merger will be elected to the
LDNG Board upon consummation of the Merger. Pursuant to employment and retention
agreements with LDNG to be effective upon consummation of the Merger, Mr.
Andrews will serve as Vice Chairman of the LDNG Board, Elliott Pew, Senior Vice
President-Exploration of American, will serve as an executive officer of LDNG in
charge of the Gulf Coast region and other executive officers of American will be
retained by LDNG. See "The Merger--Interests of Certain Persons in the Merger."
DESCRIPTION OF OTHER TERMS OF THE MERGER AGREEMENT
The Merger Agreement contains various other terms and provisions, including
certain representations and warranties made by both LDNG and American, certain
covenants and agreements made by both LDNG and American (including agreements
relating to the conduct of business by LDNG and American pending consummation of
the Merger and agreements restricting American's ability to solicit or enter
into an agreement with respect to an alternative transaction or furnish
information to or negotiate with another party with respect to an alternative
transaction), certain conditions that must be satisfied or waived prior to
consummation of the Merger (including obtaining requisite stockholder approvals)
and termination rights (including termination fees that may become payable by
American under certain circumstances). Such provisions are summarized under "The
Merger Agreement." In addition, a copy of the Merger Agreement is included as
Annex A to this Joint Proxy Statement/Prospectus, and reference should be made
to such copy for the complete text of such provisions.
The Merger Agreement permits American to provide information to, and to
engage in discussions and negotiations with, other potential acquirors who make
unsolicited acquisition proposals and to terminate the Merger Agreement and pay
certain fees to LDNG in order to enter into another transaction that is more
favorable to American's stockholders from a financial point of view. See "The
Merger Agreement-- Termination Rights and Termination Fees."
The Merger Agreement is subject to termination at the option of either LDNG
or American if the Merger is not consummated on or before November 15, 1997, and
prior to such time upon the occurrence of certain specified events. The Merger
Agreement may be amended or supplemented at any time by agreement of LDNG and
American; provided, that, after any stockholder approval of the Merger, no
amendment may be made that by law requires further approval of the stockholders
of LDNG and American unless such further approval is first obtained. At any time
prior to the Effective Time, subject to certain restrictions, the parties may
waive any provision of the Merger Agreement. See "The Merger
Agreement--Amendment and Waiver."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In connection with the issuance of this Joint Proxy Statement/Prospectus,
American has received an opinion from its tax counsel, Shearman & Sterling, and
LDNG has received an opinion from its tax counsel, Crowe & Dunlevy, with respect
to the material federal income tax consequences of the Merger, including,
without limitation, that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986 (the "Code") and
that no gain or loss, except with respect to the amount of Cash Consideration
received (and cash in lieu of fractional shares), will be recognized by a holder
of American Common Stock or American Depositary Shares as a result of the
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Merger. For a discussion of these and other federal income tax considerations in
connection with the Merger, see "The Merger--Material Federal Income Tax
Consequences."
It is a condition to the closing of the Merger that such tax opinions be
confirmed as of the Closing Date of the Merger. If such condition is waived by
either American or LDNG, revised proxy solicitation materials disclosing the
waiver of the condition and other material disclosures in connection therewith,
including risks to investors resulting from such waiver, will be distributed to
stockholders of American and LDNG and previously returned proxies with respect
to the voting of shares at the Special Meetings will be canceled and new proxies
will be solicited. Neither LDNG nor American intends to waive the condition that
such confirming tax opinions be delivered.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase by LDNG in accordance with
generally accepted accounting principles. For a discussion of the effect of the
application of purchase accounting to this transaction, see "The
Merger--Accounting Treatment."
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of LDNG in connection with the solicitation of proxies by the LDNG Board for use
at the LDNG Special Meeting to be held on October 8, 1997, at the offices of
LDNG, 14000 Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof. At the LDNG Special Meeting, the stockholders of LDNG will consider and
vote upon a proposal to approve and adopt the Merger Agreement and the Merger.
The LDNG stockholders will also transact such other business as may properly be
brought before the LDNG Special Meeting. LDNG has established August 18, 1997,
as the record date for the determination of stockholders entitled to notice of
and to vote at the LDNG Special Meeting. Only holders of record of LDNG Common
Stock at the close of business on such date are entitled to vote at the LDNG
Special Meeting. On August 18, 1997, LDNG had outstanding and entitled to vote
27,805,000 shares of LDNG Common Stock, each of which is entitled to one vote
per share. The affirmative vote of the holders of a majority of the issued and
outstanding shares of LDNG Common Stock will be required to approve and adopt
the Merger Agreement and to approve the Merger. Louis Dreyfus Natural Gas
Holdings Corp., an indirectly wholly owned subsidiary of S.A. Louis Dreyfus et
Cie holding of record approximately 72% of the outstanding shares of LDNG Common
Stock, has entered into an agreement with LDNG and American (the "Stockholder
Agreement") pursuant to which it has agreed to vote in favor of the Merger
Agreement and the Merger. See "The Merger Agreement-- Agreement of LDNG
Stockholder." Accordingly, the approval of the Merger Agreement and the Merger
is assured without the affirmative vote of any other stockholder of LDNG.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of American in connection with the solicitation of proxies by the
American Board for use at the American Special Meeting to be held on October 8,
1997, at the Waldorf Astoria Hotel, 301 Park Avenue, New York, New York,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof. At the American Special Meeting, the stockholders of American will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
to approve the Merger. The American stockholders will also transact such other
business as may properly be brought before the American Special Meeting.
American has established August 18, 1997, as the record date for the
determination of stockholders entitled to notice of and to vote at the American
Special Meeting. Only holders of record of American Common Stock and American
Depositary Shares at the close of business on such date are entitled to vote at
the American Special Meeting. On August 18, 1997, American had outstanding and
entitled to vote 15,704,701 shares of American Common Stock and 800,000
Depositary Shares convertible into 1,333,333 shares of American Common Stock.
The affirmative vote of the holders of a majority of the issued and outstanding
shares of American Common Stock and American Depositary Shares, voting together
as a single class, will be
6
<PAGE>
required to approve and adopt the Merger Agreement and to approve the Merger.
When voting together as a single class, each share of American Common Stock is
entitled to one vote and each American Depositary Share is currently entitled to
1.6667 votes (the number of shares of American Common Stock into which an
American Depositary Share may be converted).
DISSENTERS' RIGHTS
HOLDERS OF AMERICAN COMMON STOCK ARE ENTITLED TO APPRAISAL RIGHTS IN
CONNECTION WITH THE MERGER UNDER SECTION 262 OF THE DELAWARE ACT. IN ORDER TO
EXERCISE APPRAISAL RIGHTS PURSUANT TO SECTION 262 OF THE DELAWARE ACT, HOLDERS
OF AMERICAN COMMON STOCK MUST EITHER VOTE AGAINST THE MERGER OR ABSTAIN FROM
VOTING AND MUST COMPLY WITH ALL OF THE OTHER PROCEDURAL REQUIREMENTS OF SUCH
SECTION. FAILURE TO SATISFY ANY OF THE REQUIREMENTS UNDER SECTION 262 OF THE
DELAWARE ACT MAY RESULT IN TERMINATION OR WAIVER OF SUCH RIGHTS. HOLDERS OF
AMERICAN COMMON STOCK INTENDING TO EXERCISE SUCH RIGHTS ARE ADVISED TO ACT
IMMEDIATELY.
For more information concerning such dissenters' appraisal rights, see "The
Special Meetings-- Dissenters' Rights."
LDNG SECURITIES TO BE ISSUED IN THE MERGER
In connection with the Merger, in addition to the aggregate Cash
Consideration to be paid in exchange for the outstanding shares of American
Common Stock, LDNG will issue shares of LDNG Common Stock, LDNG Preferred Stock
and LDNG Depositary Shares. For a description of the terms and relative rights
of the LDNG Common Stock, LDNG Preferred Stock and LDNG Depositary Shares, see
"Description of LDNG Capital Stock." LDNG Common Stock is listed for trading on
the NYSE. It is a condition to the obligations of American and LDNG to
consummate the Merger that the shares of LDNG Common Stock and LDNG Depositary
Shares to be issued in the Merger be approved for listing on the NYSE, subject
to official notice of issuance.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the American Board (which has recommended that the
stockholders of American vote in favor of the Merger) and executive officers of
American have interests in the Merger that are in addition to those of the
stockholders of American generally, including executive employment, retention
and severance arrangements. Certain of these interests are summarized below. For
more information concerning such interests, see "The Merger--Interests of
Certain Persons in the Merger."
At the Effective Time, LDNG will make the following payments to executives
of American in satisfaction of their rights under their existing employment and
severance agreements with American: Mark Andrews ($1,560,000); John Hogan
($925,000); Elliott Pew ($730,000); T. Frank Murphy ($390,667); Cindy Gerow
($318,667); and Harry Harper ($300,000). Severance payments to Mr. Andrews and
Ms. Gerow will be reduced to an amount that will not subject Mr. Andrews or Ms.
Gerow to tax under Section 4999 of the Code.
As of the date of this Joint Proxy Statement/Prospectus, directors and
executive officers of American beneficially owned an aggregate of 588,621 shares
of American Common Stock (or approximately 3.7% of the then outstanding American
Common Stock). In addition, as of the date of this Joint Proxy Statement/
Prospectus, directors and executive officers of American held options to
purchase an aggregate of 651,419 shares of American Common Stock of which
options to purchase 255,519 shares were exercisable. Pursuant to the Merger
Agreement, the remainder of these options will become fully vested and
exercisable immediately prior to or concurrently with the Effective Time. Except
as provided in the Andrews Employment Agreement (as described elsewhere herein),
all of these options will be canceled in
7
<PAGE>
accordance with the respective terms of the applicable stock compensation plans
or otherwise by appropriate action of American in consideration for the payment
of the Cash-Out Amount to the holder of each outstanding American stock option
as soon as practicable following the Effective Time. The method of determining
the Cash-Out Amount is described elsewhere herein under "The Merger--Interests
of Certain Persons in the Merger." If determined as of the date of this Joint
Proxy Statement/Prospectus, the Cash-Out Amount payable to executive officers of
American would be as follows: Mark Andrews ($1,138,475); John Hogan ($741,930);
Elliott Pew ($616,477); T. Frank Murphy ($272,727); Cindy Gerow ($258,341); and
Harry Harper ($171,563). In lieu of receiving the Cash-Out Amount, Mr. Andrews
may elect to require LDNG to assume all or a portion of his American stock
options, with appropriate adjustments to the number of shares and the applicable
exercise price to account for the effects of the Merger.
LDNG has entered into an employment agreement with Mark Andrews (the
"Andrews Employment Agreement"), a retention agreement with Elliott Pew (the
"Pew Retention Agreement") and retention agreements with John M. Hogan, Cindy L.
Gerow and T. Frank Murphy (collectively, the "Executive Retention Agreements"),
which agreements are to become effective at the Effective Time. The following is
a brief summary of certain terms of these Agreements. In recognition of
extraordinary services to be performed in connection with the integration of
LDNG and American following the Effective Time, Mr. Andrews will receive a
special service recognition bonus in a cash lump sum as promptly as practicable
after the first anniversary of the Effective Date and Cindy Gerow will receive a
special service recognition bonus in a cash lump sum as soon as practicable
after the end of the 180-day period following the Effective Time. Mr. Andrews
and Mr. Pew will be granted as of the Effective Time options to purchase 100,000
and 50,000 shares of LDNG Common Stock, respectively. Such options will vest in
four equal annual installments on the first four anniversaries of the Effective
Date. Other terms of the Andrews Employment Agreement, the Pew Retention
Agreement and the Executive Retention Agreements, including, as applicable, base
salary, termination of employment and severance arrangements, are summarized
elsewhere herein. See "The Merger--Interests of Certain Persons in the Merger."
For a period of six years after the Effective Time, LDNG has agreed, to the
fullest extent permitted under applicable law, to indemnify and hold harmless
each present and former director or officer of American from and against
liabilities arising out of or pertaining to any action or omission by any such
person in his or her capacity as a director or officer of American (or certain
other related capacities), in each case occurring before the Effective Time, but
specifically including the transactions contemplated by the Merger Agreement.
See "The Merger Agreement--Indemnification of Directors and Officers of
American."
RISK FACTORS
In evaluating the Merger, stockholders of American and LDNG should consider,
among other factors, the following: (i) risks associated with LDNG's ability to
assimilate the oil and gas properties, operations and employees of American and
to realize savings and efficiencies related to the integration of the businesses
of LDNG and American; (ii) the different risk and potential benefit profile as
it relates to exploratory versus development drilling of the combined company
compared to that of LDNG or American separately; (iii) the consideration to be
received by stockholders of American is fixed and will not be adjusted due to
market conditions or fluctuations in the price of LDNG Common Stock or American
Common Stock; (iv) certain adverse accounting consequences of the Merger; (v)
certain members of the American Board and executive officers of American have
interests in the Merger that are in addition to those of stockholders of
American generally; (vi) risks associated with the effects of changing oil and
gas prices; (vii) risks associated with LDNG's hedging practices; (viii)
customer concentration and the effects of the loss of any significant purchaser
of oil and gas production; (ix) inherent uncertainty in estimates of reserves
and future cash flows; (x) risks and uncertainties associated with drilling for,
and production and transportation of, oil and gas; (xi) operating hazards and
risks that may not be fully
8
<PAGE>
insured; (xii) substantial governmental regulation of the oil and gas industry;
(xiii) the highly competitive nature of the oil and gas industry; (xiv) the
potential effects of a pending minimum take gas contract lawsuit involving
American; and (xv) the effective control of LDNG by S.A. Louis Dreyfus et Cie.
These and other potential risks are discussed in greater detail elsewhere
herein. See "Risk Factors."
FORWARD-LOOKING STATEMENTS OR INFORMATION
ALL STATEMENTS IN THIS DOCUMENT AND DOCUMENTS INCORPORATED BY REFERENCE
HEREIN CONCERNING LDNG AND/OR AMERICAN OTHER THAN PURELY HISTORICAL INFORMATION
(COLLECTIVELY "FORWARD-LOOKING STATEMENTS") ARE BASED ON THE BELIEFS AND
ASSUMPTIONS OF MANAGEMENT OF LDNG AND/OR AMERICAN, DERIVED FROM THE INFORMATION
CURRENTLY AVAILABLE TO MANAGEMENT. THESE STATEMENTS ASSUME, AMONG OTHER THINGS,
THAT NO SIGNIFICANT CHANGES WILL OCCUR IN THE OPERATING ENVIRONMENT FOR LDNG'S
OR AMERICAN'S OIL AND GAS PROPERTIES. FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, ESTIMATES OF RESERVES, FUTURE NET REVENUES AND PRESENT
VALUE, FUTURE FIXED-PRICE CONTRACT PRICES AND VOLUMES AND THE INFORMATION
CONCERNING POSSIBLE OR ASSUMED FUTURE RESULTS OF OPERATIONS OF LDNG AND AMERICAN
SET FORTH (1) UNDER "SUMMARY--RECENT DEVELOPMENT," "THE MERGER--BACKGROUND OF
THE MERGER," "--JOINT REASONS FOR THE MERGER," "--RECOMMENDATION OF THE LDNG
BOARD AND REASONS FOR THE MERGER," "--RECOMMENDATION OF THE AMERICAN BOARD AND
REASONS FOR THE MERGER," "--FINANCIAL ADVISOR TO LDNG," AND "--OPINION OF
FINANCIAL ADVISOR TO AMERICAN," "INFORMATION ABOUT THE COMBINING
COMPANIES--OUTLOOK FOR FISCAL YEAR 1997," AND "UNAUDITED PRO FORMA FINANCIAL
STATEMENTS," (2) UNDER "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN EACH COMPANY'S REPORTS
INCORPORATED BY REFERENCE HEREIN AND (3) IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE PRECEDED
BY, FOLLOWED BY OR THAT INCLUDE THE WORDS "BELIEVES," "EXPECTS," "ANTICIPATES,"
"INTENDS," "PLANS," "ESTIMATES," OR SIMILAR EXPRESSIONS.
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS AND STOCKHOLDER VALUES
OF LDNG, AMERICAN AND THE COMBINED COMPANY MAY DIFFER MATERIALLY FROM THOSE
EXPRESSED IN THESE FORWARD-LOOKING STATEMENTS. MANY OF THE FACTORS THAT WILL
DETERMINE THESE RESULTS AND VALUES ARE BEYOND LDNG'S AND AMERICAN'S ABILITY TO
CONTROL OR PREDICT. STOCKHOLDERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON ANY
FORWARD-LOOKING STATEMENTS. IN ADDITION, LDNG AND AMERICAN DO NOT HAVE ANY
INTENTION OR OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS AFTER THEY
DISTRIBUTE THIS JOINT PROXY STATEMENT/PROSPECTUS, EVEN IF NEW INFORMATION,
FUTURE EVENTS OR OTHER CIRCUMSTANCES HAVE MADE THEM INCORRECT OR MISLEADING. FOR
THOSE STATEMENTS, LDNG AND AMERICAN CLAIM THE PROTECTION OF THE SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS CONTAINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995.
STOCKHOLDERS OF LDNG AND AMERICAN SHOULD UNDERSTAND THAT THE FOLLOWING
IMPORTANT FACTORS, IN ADDITION TO THOSE DISCUSSED ELSEWHERE HEREIN AND IN THE
DOCUMENTS WHICH ARE INCORPORATED BY REFERENCE INTO THIS JOINT PROXY
STATEMENT/PROSPECTUS, COULD AFFECT THE FUTURE RESULTS OF THE COMBINED COMPANY
AND COULD CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS: (1) THE EFFECT OF ECONOMIC CONDITIONS; (2) THE
ABILITY OF LDNG AND AMERICAN TO SUCCESSFULLY INTEGRATE THEIR OPERATIONS; (3) THE
IMPACT OF COMPETITIVE PRODUCTS AND PRICING; (4) CHANGES IN LAWS AND REGULATIONS,
INCLUDING CHANGES IN ACCOUNTING STANDARDS AND ENVIRONMENTAL REGULATIONS
AFFECTING THE OIL AND GAS INDUSTRY; (5) OPPORTUNITIES THAT MAY BE PRESENTED TO
AND PURSUED BY THE COMBINED COMPANY; (6) COMMODITY PRICE RISK; (7) DRILLING,
RESERVE, OPERATIONS AND PRODUCTION RISK, AND (8) RISKS ASSOCIATED WITH LONG-TERM
FIXED-PRICE PHYSICAL DELIVERY CONTRACTS, ENERGY SWAPS, COLLARS, FUTURES
CONTRACTS, BASIS SWAPS, OPTIONS OR OTHER HEDGING TRANSACTIONS (COLLECTIVELY
"FIXED-PRICE CONTRACTS") WHICH MAY HAVE BEEN OR MAY IN THE FUTURE BE ENTERED
INTO BY LDNG OR AMERICAN. MANY OF THESE RISKS ARE DESCRIBED ELSEWHERE HEREIN.
MOREOVER, LDNG OR AMERICAN MAY MAKE MATERIAL ACQUISITIONS, ENTER INTO FINANCING
TRANSACTIONS, OR MODIFY ITS POSITIONS IN EXISTING FIXED-PRICE CONTRACTS BY
ENTERING INTO NEW FIXED-PRICE CONTRACTS OR TERMINATING EXISTING FIXED-PRICE
CONTRACTS. NONE OF THESE CAN BE PREDICTED WITH CERTAINTY AND, ACCORDINGLY, ARE
NOT TAKEN INTO CONSIDERATION IN THE FORWARD-LOOKING STATEMENTS MADE HEREIN. FOR
ALL OF THE FOREGOING REASONS, ACTUAL RESULTS MAY VARY MATERIALLY FROM
9
<PAGE>
THE FORWARD-LOOKING STATEMENTS AND THERE IS NO ASSURANCE THAT THE ASSUMPTIONS
USED ARE NECESSARILY THE MOST LIKELY.
COMPARATIVE MARKET PRICE INFORMATION FOR COMMON STOCK
LDNG Common Stock is traded on the NYSE under the symbol "LD." American
Common Stock is traded on the AMEX under the symbol "AX."
The following table shows, for each of June 24, 1997 (the last trading day
prior to the public announcement of the execution of the Merger Agreement), and
August 29, 1997 (the latest practicable date prior to the date of this Joint
Proxy Statement/Prospectus), (a) the last reported sales price of the LDNG
Common Stock, as reported by the NYSE, (b) the last reported sales price of the
American Common Stock, as reported by the AMEX, and (c) the equivalent value for
the American Common Stock assuming conversion of the American Common Stock into
shares of LDNG Common Stock (valued at the market price on the indicated date)
and the Cash Consideration pursuant to the Merger.
<TABLE>
<CAPTION>
AMERICAN
COMMON STOCK
------------------------
LDNG EQUIVALENT
COMMON STOCK HISTORICAL VALUE(1)
-------------- ----------- -----------
<S> <C> <C> <C>
June 24, 1997............................................................. $ 17.875 $ 14.375 $ 15.870
August 29, 1997........................................................... $ 19.125 $ 16.875 $ 16.770
</TABLE>
- ------------------------
(1) Calculated by multiplying the market price per share of the LDNG Common
Stock on the indicated day by 0.72, which represents the fraction of a share
of LDNG Common Stock issuable in the Merger in exchange for each share of
American Common Stock, plus the Cash Consideration.
For information relating to market prices of and dividend policies with
respect to LDNG Common Stock and American Common Stock, see "Information About
the Combining Companies--Price Range of LDNG Common Stock and Dividend Policy"
and "--Price Range of American Common Stock and Dividend Policy." STOCKHOLDERS
OF AMERICAN AND LDNG ARE URGED TO OBTAIN CURRENT QUOTATIONS FOR EACH OF THESE
SECURITIES.
Following the Merger, LDNG Common Stock will continue to be traded on the
NYSE. Following the Merger, American Common Stock will cease to be traded on the
AMEX and there will be no further market for such stock.
10
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of LDNG and
American and unaudited pro forma combined per share data giving effect to the
proposed Merger on a purchase accounting basis at the exchange rate of 0.72
shares of LDNG Common Stock and $3.00 cash for each share of American Common
Stock. This data should be read in conjunction with the selected historical
consolidated financial data and the unaudited pro forma financial statements and
the notes thereto included elsewhere herein and the separate historical
consolidated financial statements of LDNG and American and the notes thereto
incorporated by reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
HISTORICAL--LDNG
Net income per common share(1)................................... $ .76 $ .66
Book value per common share(2)................................... 9.49 10.14
Cash dividends per common share(3)............................... -- --
HISTORICAL--AMERICAN
Net income (loss) per common share(1)............................ $ (.84) $ (.17)
Book value per common share(2)................................... 7.03 6.87
Cash dividends per common share(3)............................... -- --
PRO FORMA COMBINED NET INCOME PER SHARE (UNAUDITED)
Pro forma net income per common share of LDNG(4)(5).............. $ .09 $ .30
Equivalent pro forma combined net income per American common
share(6)....................................................... .08 .26
PRO FORMA COMBINED BOOK VALUE PER SHARE (UNAUDITED)
Pro forma book value per common share of LDNG(7)................. $10.79 $11.26
Equivalent pro forma combined book value per American common
share(6)....................................................... 9.66 10.07
</TABLE>
- ------------------------------
(1) The historical net income (loss) per common share is based upon the weighted
average number of common shares of stock of LDNG and American outstanding
for each period, respectively. Primary and fully diluted net income (loss)
per common share are the same for both periods presented, for both
companies.
(2) The historical book value per common share is computed by dividing
stockholders' equity (after deduction, in the case of American, for the
liquidation preference of the American Preferred Stock) by the number of
shares of Common Stock outstanding at the end of each period.
(3) No cash dividends to common stockholders were declared or paid by LDNG or
American during the periods presented. Accordingly, corresponding pro forma
cash dividends per common share information has been omitted.
(4) The unaudited pro forma combined net income per common share is based upon
the weighted average number of common shares outstanding of LDNG and
American for each period at the exchange rate of 0.72 shares of LDNG and
$3.00 cash for each share of American. SUCH PRO FORMA INFORMATION HAS BEEN
PREPARED PURSUANT TO REGULATIONS PRESCRIBED BY THE SECURITIES AND EXCHANGE
COMMISSION. THE PRO FORMA COMBINED NET INCOME PER SHARE DATA DOES NOT
CONSIDER THE EFFECTS OF THE COST REDUCTION AND FINANCING PLANS OF MANAGEMENT
EXPECTED TO BE IMPLEMENTED AFTER CLOSING, NOR DOES IT INCLUDE THE EFFECTS OF
CERTAIN PURCHASE ACCOUNTING ADJUSTMENTS EXPECTED TO BE RECORDED AT CLOSING.
THE FINANCIAL IMPACT OF SUCH PLANS AND PURCHASE ACCOUNTING ADJUSTMENTS IS
EXPECTED TO BE MATERIAL. THESE ARE DESCRIBED IN THE FOOTNOTES TO THE
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS. The unaudited pro forma net income per
common share of LDNG and American combined is qualified in its entirety by,
and should be read in conjunction with, such unaudited pro forma combined
financial statements, including the notes thereto.
(5) Does not include a one-time non-recurring impairment charge expected to be
recorded at the consummation of the Merger. See notes (a) and (b) to the
unaudited pro forma financial statements appearing elsewhere herein.
(6) The pro forma combined net income per equivalent American share amounts and
the pro forma book value per equivalent American share amounts are
calculated by multiplying the respective pro forma combined LDNG per share
amounts by the exchange rate of 0.72 shares of LDNG Common Stock and $3.00
cash for each share of American Common Stock.
(7) The pro forma combined book value per share is computed by dividing pro
forma combined stockholders' equity, after deduction for the liquidation
preference of the American Preferred Stock, by the pro forma number of
shares of stock outstanding at the end of the period, at the exchange rate
of 0.72 shares of LDNG Common Stock and $3.00 cash for each share of
American Common Stock.
11
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA--LDNG
The following table sets forth selected financial information of LDNG for
the five fiscal years in the period ended December 31, 1996 and for the six
months ended June 30, 1996 and 1997. Such financial information was derived from
the financial statements of LDNG. This data should be read in conjunction with
the consolidated financial statements of LDNG, the related notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the reports incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ----------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas sales............. $ 59,821 $ 92,912 $138,584 $163,366 $185,558 $83,639 $96,102
Other income (loss)(1)........ 630 2,269 1,953 (418) 3,947 2,027 9,900
-------- -------- -------- -------- -------- ------- -------
Total revenues............ 60,451 95,181 140,537 162,948 189,505 85,666 106,002
-------- -------- -------- -------- -------- ------- -------
Operating costs............... 16,217 26,715 33,713 35,352 44,615 21,544 21,865
General and administrative.... 6,448 11,822 15,309 16,631 16,325 8,371 7,891
Exploration costs............. -- -- -- -- 4,965 242 3,414
Depreciation, depletion and
amortization................ 25,148 38,649 53,321 57,796 65,278 31,724 32,251
Impairment of oil and gas
properties(2)............... -- -- 5,300 15,694 -- -- --
Interest...................... 9,939 14,364 16,856 21,736 26,822 13,657 12,519
-------- -------- -------- -------- -------- ------- -------
Total expenses.............. 57,752 91,550 124,499 147,209 158,005 75,538 77,940
-------- -------- -------- -------- -------- ------- -------
Income before income taxes.... 2,699 3,631 16,038 15,739 31,500 10,128 28,062
Income taxes.................. 820 1,371 5,292 4,722 10,398 3,342 9,822
-------- -------- -------- -------- -------- ------- -------
Net income.................... $ 1,879 $ 2,260 $ 10,746 $ 11,017 $ 21,102 $ 6,786 $18,240
-------- -------- -------- -------- -------- ------- -------
-------- -------- -------- -------- -------- ------- -------
Net income per share.......... $ .09 $ .11 $ .39 $ .40 $ .76 $ .24 $ .66
Weighted average common shares
outstanding................. 20,000 21,042 27,800 27,800 27,800 27,800 27,801
Cash dividends per common
share....................... $ -- $ .50 $ -- $ -- $ -- $ -- $ --
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating
activities.................. $ 22,272 $ 52,666 $ 80,894 $ 89,515 $101,761 $36,092 $53,956
Net cash used in investing
activities.................. 126,666 180,038 102,969 171,540 150,857 77,288 44,259
Net cash provided by (used in)
financing activities........ 98,450 138,559 13,701 80,629 55,261 50,252 (13,286)
EBITDAX(3).................... 40,311 59,169 94,040 111,572 128,565 55,751 76,246
Ratio of earnings to fixed
charges(4).................. 1.3x 1.2x 1.9x 1.7x 2.1x 1.7x 3.0x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------ JUNE 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and gas properties, net... $260,451 $432,842 $483,214 $584,900 $652,257 $670,878
Total assets.................. 290,354 481,488 528,261 634,937 733,613 738,176
Long-term debt, including
current portion............. 191,631 203,955 215,010 314,760 343,907 335,980
Stockholders' equity.......... 74,166 213,818 224,564 242,581 263,693 281,950
</TABLE>
- --------------------------
(1) Other income (loss) for the six months ended June 30, 1997 includes an $8.5
million gain recognized upon the sale of a non-core West Texas waterflood
property in January 1997.
12
<PAGE>
(2) The 1994 impairment was recorded in connection with the sale of
approximately one-half of the Company's ownership in an offshore property.
The 1995 impairment was recorded in connection with the adoption of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of" ("SFAS 121").
(3) EBITDAX is defined herein as income before interest, income taxes,
depreciation, depletion and amortization, impairments and exploration costs.
LDNG believes that EBITDAX is a financial measure commonly used in the oil
and gas industry as an indicator of a company's ability to service and incur
debt. However, EBITDAX should not be considered in isolation or as a
substitute for net income, cash flows provided by operating activities or
other data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
EBITDAX as presented herein may not be comparable to other similarly titled
measures of other companies.
(4) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represents net income before income taxes plus fixed charges,
less capitalized interest. "Fixed Charges" consist of interest expense,
including amortization of debt discount and financing costs, capitalized
interest and the portion of rental expense which LDNG believes is
representative of the interest component of rental expense.
13
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA--AMERICAN
The following table sets forth selected financial information of American
for the five fiscal years in the period ended December 31, 1996 and for the six
months ended June 30, 1996 and 1997. Such financial information was derived from
the financial statements of American. This data should be read in conjunction
with the consolidated financial statements of American, the related notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the reports incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Oil and gas sales............. $ 58,560 $ 49,589 $ 50,033 $ 70,768 $ 76,228 $ 33,173 $ 44,486
Other income (loss)........... 872 8,760 (1,293) 11,190 970 737 (43)
-------- -------- -------- -------- -------- -------- --------
Total revenues.............. 59,432 58,349 48,740 81,958 77,198 33,910 44,443
-------- -------- -------- -------- -------- -------- --------
Operating costs............... 23,910 19,727 25,932 29,443 25,681 12,388 11,897
General and administrative.... 12,155 8,285 11,115 8,304 7,205 3,607 4,040
Exploration costs............. 14,134 18,529 11,129 6,648 18,834 7,151 8,193
Provision for uninsured loss
on well blowout............. -- -- -- -- -- -- 2,770
Depreciation, depletion and
amortization................ 30,193 23,635 29,616 30,726 29,563 13,473 17,129
Impairment of proved oil and
gas properties(1)........... 39,295 -- 25,000 -- -- -- --
Interest...................... 9,485 6,847 6,638 5,481 4,239 1,818 2,154
-------- -------- -------- -------- -------- -------- --------
Total expenses.............. 129,172 77,023 109,430 80,602 85,522 38,437 46,183
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes, minority interest and
extraordinary item.......... (69,740) (18,674) (60,690) 1,356 (8,324) (4,527) (1,740)
Income taxes provision
(benefit)................... 108 505 (455) (121) 281 -- 3
Minority interest in
subsidiary.................. (949) 7 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item.......... (68,899) (19,186) (60,235) 1,477 (8,605) (4,527) (1,743)
Extraordinary gain on
extinguishment of debt...... 3,100 -- 5,419 2,456 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............. (65,799) (19,186) (54,816) 3,933 (8,605) (4,527) (1,743)
Preferred stock dividends..... -- 75 1,800 1,800 1,800 900 900
-------- -------- -------- -------- -------- -------- --------
Net income (loss) to common
stock....................... $(65,799) $(19,261) $(56,616) $ 2,133 $(10,405) $ (5,427) $ (2,643)
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per common
share (primary and fully
diluted):
Loss before extraordinary
item...................... $ (10.73) $ (2.77) $ (7.70) $ (.03) $ (.84) $ (.46) $ (.17)
Net income (loss)........... (10.25) (2.77) (7.02) .18 (.84) (.46) (.17)
Weighted average common shares
outstanding................. 6,420 6,962 8,061 11,812 12,395 11,812 15,695
Cash dividends per common
share....................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating
activities.................. $ 14,237 $ 24,717 $ 7,747 $ 33,305 $ 35,371 $ 11,929 $ 24,222
Net cash provided by (used in)
investing activities........ (20,624) 9,011 (50,934) 21,581 (99,146) (33,353) (66,291)
Net cash provided by (used in)
financing activities........ 2,690 (32,380) 40,924 (57,363) 64,637 19,013 34,884
EBITDAX(2).................... 27,416 30,330 17,112 46,667 44,312 17,915 25,736
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------ JUNE 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Oil and gas properties, net... $194,898 $154,398 $189,944 $145,839 $207,198 $226,954
Total assets.................. 256,820 185,598 223,894 176,030 240,628 270,344
Long-term debt, including
current portion............. 129,178 63,594 100,994 40,000 60,000 96,000
Stockholders' equity.......... 85,160 86,406 87,710 94,480 130,379 127,858
</TABLE>
- ------------------------------
(1) The 1992 impairment was recorded in connection with negotiations for the
sale of certain properties, located primarily in Canada, which were
subsequently sold in 1993. The 1994 impairment was recorded in connection
with a change in accounting policy.
(2) EBITDAX is defined herein as income before interest, income taxes,
depreciation, depletion and amortization, impairments and exploration costs.
American believes that EBITDAX is a financial measure commonly used in the
oil and gas industry as an indicator of a company's ability to service and
incur debt. However, EBITDAX should not be considered in isolation or as a
substitute for net income, cash flows provided by operating activities or
other data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
EBITDAX as presented herein may not be comparable to other similarly titled
measures of other companies.
15
<PAGE>
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
The unaudited pro forma income statement data and other financial data of
LDNG and American for the year ended December 31, 1996 and for the six months
ended June 30, 1997 give effect to the Merger as if it had occurred on January
1, 1996. The unaudited pro forma balance sheet data of LDNG and American as of
June 30, 1997, give effect to the Merger as if it had occurred on June 30, 1997.
SUCH PRO FORMA INFORMATION HAS BEEN PREPARED PURSUANT TO REGULATIONS PRESCRIBED
BY THE SECURITIES AND EXCHANGE COMMISSION. THE UNAUDITED PRO FORMA INCOME
STATEMENT DATA AND STATEMENT OF CASH FLOWS DATA DO NOT CONSIDER THE EFFECTS OF
THE COST REDUCTION AND FINANCING PLANS OF MANAGEMENT EXPECTED TO BE IMPLEMENTED
AFTER CLOSING, NOR DOES IT INCLUDE THE EFFECTS OF CERTAIN PURCHASE ACCOUNTING
ADJUSTMENTS EXPECTED TO BE RECORDED AT CLOSING. THE FINANCIAL IMPACT OF SUCH
PLANS AND PURCHASE ACCOUNTING ADJUSTMENTS IS EXPECTED TO BE MATERIAL. THESE ARE
DESCRIBED IN THE FOOTNOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS INCLUDED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. The
unaudited pro forma selected financial data of LDNG and American is qualified in
its entirety by, and should be read in conjunction with, such unaudited pro
forma financial statements, including the notes thereto.
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
PRO FORMA INCOME STATEMENT DATA(1):
Oil and gas sales........................................... $261,786 $140,588
Other income................................................ 4,917 9,857
------------ --------
Total revenues............................................ 266,703 150,445
------------ --------
Operating costs............................................. 67,414 32,520
General and administrative.................................. 26,412 14,373
Exploration costs........................................... 23,799 10,407
Provision for uninsured loss on well blowout................ -- 2,770
Depreciation, depletion and amortization.................... 106,651 54,226
Interest.................................................... 33,976 16,040
------------ --------
Total expenses............................................ 258,252 130,336
------------ --------
Income before income taxes.................................. 8,451 20,109
Income taxes................................................ 3,211 7,642
------------ --------
Net income.................................................. 5,240 12,467
Preferred stock dividends................................... 1,800 900
------------ --------
Net income to common stock.................................. $ 3,440 $ 11,567
------------ --------
------------ --------
Net income per common share................................. $ .09 $ .30
Weighted average common shares outstanding.................. 39,103 39,105
Cash dividends per common share............................. $ -- $ --
PRO FORMA STATEMENT OF CASH FLOWS DATA(2):
Net cash provided by operating activities................... $134,217 $ 75,611
Net cash used in investing activities....................... 250,003 110,550
Net cash provided by financing activities................... 119,898 21,598
EBITDAX(3).................................................. 172,877 100,782
Ratio of earnings to combined fixed charges and preferred
stock dividends(4)........................................ 1.1x 2.0x
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1997
---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Oil and gas properties, net................................. $ 1,012,451
Total assets................................................ 1,122,205
Long-term debt, including current portion................... 486,376
Stockholders' equity........................................ 461,295
</TABLE>
- ------------------------------
(1) Does not include a one-time non-recurring impairment charge expected to be
recorded at closing. See notes (a) and (b) to the unaudited pro forma
financial statements appearing elsewhere herein.
(2) The pro forma statement of cash flows data reflects the combined operating,
investing and financing cash flows of LDNG and American, as adjusted by the
pro forma adjustments to the unaudited pro forma statements of income
appearing elsewhere herein.
(3) EBITDAX is defined herein as income before interest, income taxes,
depreciation, depletion and amortization, impairments and exploration costs.
LDNG believes that EBITDAX is a financial measure commonly used in the oil
and gas industry as an indicator of a company's ability to service and incur
debt. However, EBITDAX should not be considered in isolation or as a
substitute for net income, cash flows provided by operating activities or
other data prepared in accordance with generally accepted accounting
principles, or as a measure of a company's profitability or liquidity.
EBITDAX as presented herein may not be comparable to other similarly titled
measures of other companies.
(4) For purposes of calculating the pro forma ratio of earnings to combined
fixed charges and preferred stock dividends, "earnings" represents net
income before income taxes plus fixed charges less capitalized interest.
"Fixed Charges" consist of interest expense, including amortization of debt
discount and financing costs, capitalized interest, the portion of rental
expense which LDNG believes is representative of the interest component of
rental expense.
17
<PAGE>
SELECTED HISTORICAL OPERATING DATA--LDNG
The following table provides certain data relating to the operations of LDNG
for each of the five years in the period ended December 31, 1996 and for the six
months ended June 30, 1996 and 1997. This data should be read in conjunction
with the consolidated financial statements of LDNG, the related notes thereto,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the reports incorporated herein by reference in this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OIL AND GAS SALES (M$):
Wellhead oil sales............ $20,321 $34,542 $ 29,207 $ 28,973 $ 39,372 $17,991 $17,525
Effect of Fixed-Price
Contracts(1)................ -- 1,516 5,064 1,077 (3,198) (1,105) 322
------- ------- -------- -------- -------- ------- -------
Total oil sales............... $20,321 $36,058 $ 34,271 $ 30,050 $ 36,174 $16,886 $17,847
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Wellhead natural gas sales:
Sales under Sonora Gas
Contract(2)............... $ -- $ 4,108 $ 39,408 $ 49,500 $ -- $ -- $ --
Other sales................. 37,878 56,803 55,945 60,573 148,244 65,008 79,508
------- ------- -------- -------- -------- ------- -------
Total....................... 37,878 60,911 95,353 110,073 148,244 65,008 79,508
Effect of Fixed-Price
Contracts(1)................ 1,622 (4,057) 8,960 23,243 1,140 1,745 (1,253)
------- ------- -------- -------- -------- ------- -------
Total natural gas sales....... $39,500 $56,854 $104,313 $133,316 $149,384 $66,753 $78,255
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
PRODUCTION:
Oil production (MBbls)........ 1,082 2,106 1,873 1,695 1,849 915 837
Natural gas production (MMcf):
Sold under Sonora Gas
Contract(2)............... -- 1,076 10,247 12,692 -- -- --
Other production............ 22,158 29,464 32,835 38,572 63,910 30,969 31,605
------- ------- -------- -------- -------- ------- -------
Total....................... 22,158 30,540 43,082 51,264 63,910 30,969 31,605
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Net equivalent production
(MMcfe)................... 28,650 43,179 54,321 61,434 75,004 36,460 36,625
Oil production hedged by
Fixed-Price Contracts
(MBbls)..................... -- 650 1,698 1,464 1,241 645 362
Gas production hedged by
Fixed-Price Contracts
(BBtu)...................... 22,158 28,775 32,308 31,579 32,508 15,594 17,568
AVERAGE SALES PRICE:
Oil price (per Bbl):
Wellhead price.............. $ 18.78 $ 16.40 $ 15.59 $ 17.09 $ 21.29 $ 19.66 $ 20.95
Effect of Fixed-Price
Contracts(1).............. -- .72 2.71 .64 (1.73) (1.21) .38
------- ------- -------- -------- -------- ------- -------
Total....................... $ 18.78 $ 17.12 $ 18.30 $ 17.73 $ 19.56 $ 18.45 $ 21.33
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Natural gas price (per Mcf):
Sales under Sonora Gas
Contract(2)............... $ -- $ 3.82 $ 3.85 $ 3.90 $ -- $ -- $ --
Other wellhead sales........ 1.71 1.93 1.70 1.57 2.32 2.10 2.52
------- ------- -------- -------- -------- ------- -------
Average price............... 1.71 1.99 2.21 2.15 2.32 2.10 2.52
Effect of Fixed-Price
Contracts(1).............. .07 (.13) .21 .45 .02 .06 (.04)
------- ------- -------- -------- -------- ------- -------
Total....................... $ 1.78 $ 1.86 $ 2.42 $ 2.60 $ 2.34 $ 2.16 $ 2.48
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Natural gas equivalent price
(per Mcfe).................. $ 2.09 $ 2.15 $ 2.55 $ 2.66 $ 2.47 $ 2.29 $ 2.62
EXPENSES AND COSTS INCURRED
(PER MCFE):
Lease operating expenses...... $ .45 $ .50 $ .51 $ .47 $ .47 $ .47 $ .46
Production taxes.............. .12 .12 .11 .11 .12 .12 .14
General and administrative.... .23 .27 .28 .27 .22 .23 .22
Depreciation, depletion and
amortization--oil and gas
properties(3)............... .85 .85 .92 .88 .82 .82 .82
Finding Costs................. .67 .71 .92 .70 .71 n/a n/a
</TABLE>
- ------------------------------
(1) Effects of Fixed-Price Contracts represent the hedging results from the
Fixed-Price Contracts of LDNG.
(2) The Sonora Gas Contract is a wellhead take or pay gas contract which expired
in December 1995.
(3) Does not include impairment losses of $5.3 million and $15.7 million
recorded for the years ended December 31, 1994 and 1995, respectively.
18
<PAGE>
SELECTED HISTORICAL OPERATING DATA--AMERICAN
The following table provides certain data relating to the operations of
American for each of the five years in the period ended December 31, 1996 and
for the six months ended June 30, 1996 and 1997. This data should be read in
conjunction with the consolidated financial statements of American, the related
notes thereto, and Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the reports incorporated herein by
reference in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OIL AND GAS SALES (M$):
Wellhead oil sales.............................. $ 27,019 $ 20,177 $ 19,145 $ 28,212 $ 36,332 $ 16,723 $ 15,345
Effect of Fixed-Price Contracts(1).............. -- -- (44) 71 (5,543) (1,899) (882)
--------- --------- --------- --------- --------- --------- ---------
Total oil sales............................... $ 27,019 $ 20,177 $ 19,101 $ 28,283 $ 30,789 $ 14,824 $ 14,463
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Wellhead natural gas sales...................... $ 31,541 $ 30,009 $ 29,370 $ 41,041 $ 49,871 $ 20,228 $ 32,287
Effect of Fixed-Price Contracts(1).............. -- (597) 1,562 1,444 (4,432) (1,879) (2,264)
--------- --------- --------- --------- --------- --------- ---------
Total natural gas sales....................... $ 31,541 $ 29,412 $ 30,932 $ 42,485 $ 45,439 $ 18,349 $ 30,023
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRODUCTION:
Oil production (MBbls).......................... 1,488 1,261 1,241 1,680 1,789 887 777
Natural gas production (MMcf)................... 19,805 15,336 16,241 24,450 22,369 9,830 13,142
Net equivalent production (MMcfe)............... 28,733 22,902 23,687 34,530 33,103 15,152 17,806
Oil production hedged by Fixed-Price Contracts
(MBbls)....................................... -- -- 368 1,128 1,208 582 579
Gas production hedged by Fixed-Price Contracts
(BBtu)........................................ -- 2,295 4,125 11,445 10,423 6,007 6,210
AVERAGE SALES PRICE:
Oil price (per Bbl):
Wellhead price................................ $ 18.16 $ 16.01 $ 15.43 $ 16.79 $ 20.31 $ 18.84 $ 19.75
Effect of Fixed-Price Contracts(1)............ -- -- (.04) .04 (3.10) (2.14) (1.15)
--------- --------- --------- --------- --------- --------- ---------
Total......................................... $ 18.16 $ 16.01 $ 15.39 $ 16.83 $ 17.21 $ 16.70 $ 18.60
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Natural gas price (per Mcf):
Wellhead price................................ $ 1.59 $ 1.96 $ 1.80 $ 1.68 $ 2.23 $ 2.06 $ 2.46
Effect of Fixed-Price Contracts(1)............ -- (.04) .10 .06 (.20) (.19) (.18)
--------- --------- --------- --------- --------- --------- ---------
Total......................................... $ 1.59 $ 1.92 $ 1.90 $ 1.74 $ 2.03 $ 1.87 $ 2.28
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Natural gas equivalent price (per Mcfe)......... $ 2.04 $ 2.17 $ 2.11 $ 2.05 $ 2.30 $ 2.19 $ 2.50
EXPENSES AND COSTS INCURRED (PER MCFE):
Lease operating expenses........................ $ .68 $ .70 $ .90 $ .71 $ .63 $ .67 $ .53
Production taxes................................ .16 .16 .20 .14 .14 .14 .14
General and administrative...................... .42 .36 .47 .24 .22 .24 .23
Depreciation, depletion and amortization--oil
and gas properties(2)......................... .99 .96 1.18 .84 .84 .83 .93
Finding Costs................................... .98 2.74 .79 .77 1.02 n/a n/a
</TABLE>
- ------------------------------
(1) Effects of Fixed-Price Contracts represent the hedging results from the
Fixed-Price Contracts of American.
(2) Does not include impairment charges of $39.3 million and $25.0 million
recorded for the years ended December 31, 1992 and 1994, respectively.
19
<PAGE>
UNAUDITED PRO FORMA SELECTED OPERATING DATA
The unaudited pro forma selected operating data of LDNG and American gives
effect to the Merger as if it had occurred on January 1, 1996 and is derived
from the unaudited pro forma combined financial statements included elsewhere in
this Joint Proxy Statement/Prospectus. SUCH PRO FORMA INFORMATION HAS BEEN
PREPARED PURSUANT TO REGULATIONS PRESCRIBED BY THE SECURITIES AND EXCHANGE
COMMISSION. IT DOES NOT CONSIDER THE EFFECTS OF THE COST REDUCTION AND FINANCING
PLANS OF MANAGEMENT EXPECTED TO BE IMPLEMENTED AFTER CLOSING, NOR DOES IT
INCLUDE THE EFFECTS OF CERTAIN PURCHASE ACCOUNTING ADJUSTMENTS EXPECTED TO BE
RECORDED AT CLOSING. THE FINANCIAL IMPACT OF SUCH PLANS AND PURCHASE ACCOUNTING
ADJUSTMENTS IS EXPECTED TO BE MATERIAL. THESE ARE DESCRIBED IN THE FOOTNOTES TO
THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS. The unaudited pro forma
selected operating data is qualified in its entirety by, and should be read in
conjunction with, such unaudited pro forma combined financial statements,
including the notes thereto.
<TABLE>
<CAPTION>
SIX
YEAR MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------- ---------
<S> <C> <C>
PRO FORMA OIL AND GAS SALES (M$):
Wellhead oil sales....................................................................... $ 75,704 $ 32,870
Effect of Fixed-Price Contracts(1)....................................................... (8,741) (560)
------------- ---------
Total oil sales........................................................................ $ 66,963 $ 32,310
------------- ---------
------------- ---------
Wellhead natural gas sales............................................................... $ 198,115 $ 111,795
Effect of Fixed-Price Contracts(1)....................................................... (3,292) (3,517)
------------- ---------
Total natural gas sales................................................................ $ 194,823 $ 108,278
------------- ---------
------------- ---------
PRO FORMA PRODUCTION:
Oil production (MBbls)................................................................... 3,638 1,614
Natural gas production (MMcf)............................................................ 86,279 44,747
Net equivalent production (MMcfe)........................................................ 108,107 54,431
Oil production hedged by Fixed-Price Contracts (MBbls)................................... 2,449 941
Gas production hedged by Fixed-Price Contracts (BBtu).................................... 42,931 23,778
PRO FORMA AVERAGE SALES PRICE:
Oil price (per Bbl):
Wellhead price......................................................................... $ 20.81 $ 20.37
Effect of Fixed-Price Contracts(1)..................................................... (2.40) (.35)
------------- ---------
Total................................................................................ $ 18.41 $ 20.02
------------- ---------
------------- ---------
Natural gas price (per Mcf):
Wellhead price......................................................................... $ 2.30 $ 2.50
Effect of Fixed-Price Contracts(1)..................................................... (.04) (.08)
------------- ---------
Total................................................................................ $ 2.26 $ 2.42
------------- ---------
------------- ---------
Natural gas equivalent price (per Mcfe).................................................. $ 2.42 $ 2.58
PRO FORMA EXPENSES AND COSTS INCURRED (PER MCFE):
Lease operating expenses................................................................. $ .49 $ .46
Production taxes......................................................................... .13 .14
General and administrative............................................................... .24 .26
Depreciation, depletion and amortization - oil and gas properties........................ .93 .94
Finding Costs............................................................................ 1.15 n/a
</TABLE>
- ------------------------------
(1) Effects of Fixed-Price Contracts represent the hedging results from the
Fixed-Price Contracts of LDNG and American.
20
<PAGE>
SUMMARY OIL AND GAS RESERVES DATA
The following estimates of proved reserves for LDNG are based upon studies
prepared by LDNG's staff of petroleum engineers and reviewed by Ryder Scott
Company, independent petroleum engineers. The estimates of proved reserves for
American are based upon studies by Netherland, Sewell & Associates, Inc. and
William M. Cobb & Associates, Inc., both independent petroleum engineering
firms. Estimated recoverable proved reserves have been determined without regard
to any economic benefit that may be derived from Fixed-Price Contracts. Such
calculations were prepared using standard geological and engineering methods
generally accepted by the petroleum industry and in accordance with Securities
and Exchange Commission guidelines. Future net revenue is estimated by such
engineers using oil and gas prices in effect as of the end of each respective
year with price escalations permitted only for those properties which have
wellhead contracts allowing specific increases. Future operating costs estimated
in each study are based on historical operating costs incurred. Reserve quantity
estimates are calculated without regard to prices provided by Fixed-Price
Contracts. The amounts shown do not give effect to indirect expenses such as
general and administrative expenses, debt service, future income tax expense or
to depletion, depreciation and amortization.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the Company. The
reserve data set forth herein represents only estimates. Reserve engineering is
a subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact manner, and the accuracy of any reserve estimate
is a function of the quality of available data and of engineering and geological
interpretation and judgment. As a result, estimates of different engineers often
vary. In addition, results of drilling, testing and production subsequent to the
date
of an estimate may justify revision of such estimate. Accordingly, reserve
estimates often differ from the quantities of oil and gas that are ultimately
recovered. The meaningfulness of such estimates is highly dependent upon the
accuracy of the assumptions upon which they were based.
LDNG AND PRO FORMA. The following table reflects information regarding the
proved reserves of LDNG as of December 31, 1992, 1993, 1994, 1995 and 1996,
respectively, and the pro forma combined proved reserves of LDNG and American as
of December 31, 1996.
<TABLE>
<CAPTION>
HISTORICAL AS OF DECEMBER 31, PRO FORMA AS
----------------------------------------------------- OF DECEMBER
1992 1993 1994 1995 1996 31, 1996
--------- --------- --------- --------- --------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Estimated Proved Reserves(1):
Natural gas (MMcf)............................... 272,691 502,018 574,025 753,919 849,199 1,016,610
Oil (MBbls)...................................... 17,305 20,867 19,317 20,360 23,497 37,881
Total (MMcfe).................................... 376,521 627,222 689,924 876,076 990,179 1,243,894
Reserve Replacement Ratio.......................... 676% 714% 219% 430% 254% 441%
Reserve Life (in years)............................ 13.1 14.5 12.7 14.3 13.2 11.5
Estimated future net revenues including Fixed-Price
Contracts(1)(2).................................. $ 757,650 $1,167,940 $1,219,760 $1,531,501 $2,417,430 $3,007,462
Present Value including Fixed-Price
Contracts(1)(2).................................. 395,238 588,986 616,005 737,512 1,117,734 1,488,562
Present Value excluding Fixed-Price
Contracts(1)(2).................................. 294,441 455,362 358,766 524,354 1,303,709 1,689,251
</TABLE>
- ------------------------------
(1) Includes for 1996, data relating to LDNG's Levelland properties consisting
of 34 Bcfe of proved reserves which were sold in January 1997 for $27.1
million. Future net revenues and the Present Value attributable to the
Levelland properties were $68.5 million and $35.9 million, respectively, at
December 31, 1996.
(2) Estimated future net revenues and the Present Value give no effect to
federal or state income taxes attributable to estimated future net revenues.
21
<PAGE>
AMERICAN. The following table reflects information regarding the proved
reserves of American as of December 31, 1992, 1993, 1994, 1995 and 1996,
respectively.
<TABLE>
<CAPTION>
AS OF DECEMEBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Estimated Proved Reserves:
Natural gas (MMcf).......................................... 244,086 104,723 186,680 126,014 167,411
Oil (MBbls)................................................. 9,423 5,895 9,660 10,464 14,384
Total (MMcfe)............................................... 300,624 140,093 244,640 188,798 253,715
Reserve Replacement Ratio..................................... 78% 45% 544% 165% 361%
Reserve Life (in years)....................................... 10.5 6.1 10.3 5.5 7.7
Estimated future net revenues including Fixed-Price
Contracts(1)................................................ $ 361,985 $ 179,287 $ 245,226 $ 242,563 $ 590,032
Present Value including Fixed-Price Contracts(1).............. 185,493 104,761 142,983 142,992 370,828
Present Value excluding Fixed-Price Contracts(1).............. 185,493 104,761 142,080 145,711 385,542
</TABLE>
- ------------------------------
(1) Estimated future net revenues and the Present Value give no effect to
federal or state income taxes attributable to estimated future net revenues.
PRO FORMA ACREAGE
The following table sets forth LDNG's and American's developed and
undeveloped oil and gas lease acreage on a pro forma basis as of December 31,
1996.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
-------------------- --------------------
GROSS NET GROSS NET
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
United States:
Kansas.......................................................... 163,647 79,624 24,298 6,315
Montana......................................................... 260,605 43,828 151,074 52,970
New Mexico...................................................... 103,324 31,078 334,499 89,785
Oklahoma........................................................ 617,708 219,666 151,605 36,134
Texas........................................................... 584,011 242,241 869,951 333,549
Gulf of Mexico.................................................. 83,662 21,573 86,185 34,861
Other........................................................... 115,917 28,929 306,282 88,534
--------- --------- --------- ---------
1,928,874 666,939 1,923,894 642,148
--------- --------- --------- ---------
--------- --------- --------- ---------
International:
Canada(1)....................................................... 22,240 112 149,055 658
New Zealand(1).................................................. -- -- 725,992 32,307
--------- --------- --------- ---------
22,240 112 875,047 32,965
--------- --------- --------- ---------
1,951,114 667,051 2,798,941 675,113
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------------
(1) Acreage relates to overriding royalty interests.
PRODUCTIVE WELL SUMMARY
The following table sets forth LDNG's and American's ownership in productive
wells on a historical and pro forma basis as of December 31, 1996. Wells with
multiple completions are counted only once for purposes of the following table.
22
<PAGE>
<TABLE>
<CAPTION>
LDNG(1) AMERICAN PRO FORMA
------------ ----------- -------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Gas.......................................... 3,486 2,248 1,559 397 5,045 2,645
Oil.......................................... 3,826 485 2,017 316 5,843 801
----- ----- ----- ---- ------ -----
Total........................................ 7,312 2,733 3,576 713 10,888 3,446
----- ----- ----- ---- ------ -----
----- ----- ----- ---- ------ -----
</TABLE>
- ------------------------------
(1) Productive wells for LDNG include 837 gross (95 net) wells in the Levelland
area which were sold in January 1997.
RECENT DEVELOPMENT
On August 26, 1997, American announced a gas discovery based upon gas shows
and well log interpretation for the Jacobs Ranch #1 well, the first well drilled
by American to test the Lower Wilcox formation in the Yoakum Gorge area in
Lavaca County, Texas. American and LDNG own 52.5% and 35% working interests,
respectively, in approximately 60,000 gross undeveloped acres in this project
and have identified 17 Lower Wilcox prospects using proprietary 3-D seismic
data. The Jacobs Ranch #1 well was drilled to a total measured depth of 15,676
feet and logged approximately 180 feet of pay in multiple Lower Wilcox sands.
American owns a 65% working interest and LDNG owns a 35% working interest in
this discovery. Completion operations are expected to commence immediately and
initial production is anticipated in the fourth quarter of 1997.
23
<PAGE>
RISK FACTORS
The following matters should be considered carefully in connection with
evaluating the proposals to be considered at the American Special Meeting and
the LDNG Special Meeting.
INTEGRATION OF SIGNIFICANTLY INCREASED OPERATIONS
As a result of the Merger, LDNG's operations will be significantly increased
by the addition of approximately 3,576 gross (713 net) wells, of which over 500
are operated by American, having approximately 100 MMcfe of net daily
production. In addition to the ability of LDNG's management to successfully
address the risks regularly associated with oil and natural gas exploration and
production companies, LDNG's success after the Merger will depend, in part, on
the ability of LDNG's management successfully to assimilate the oil and gas
properties acquired pursuant to the Merger, to manage a significantly larger
organization, to continue its business strategy and to assimilate and utilize
effectively American's management and employees. Additionally, the degree of
success of the acquisition of American may be influenced by LDNG's ability to
take advantage of exploration and exploitation opportunities in American's
property base, and there can be no assurance that LDNG will be able to do so.
Consequently, an American stockholder who receives LDNG Common Stock or LDNG
Depositary Shares in the Merger will own an investment in a company with a
different risk profile than that of either American or LDNG. The respective
businesses of American and LDNG are described in the documents incorporated by
reference into this Joint Proxy Statement/Prospectus. See "Incorporation of
Documents by Reference" and "Information About the Combining Companies."
CHANGES IN EXPLORATION AND DEVELOPMENT MIX
American's recent business strategy has been to emphasize exploratory
drilling, whereas LDNG's recent business strategy has been to emphasize
development drilling. In 1997 American has budgeted $50 million or 62% of its
capital budget for exploration activities, whereas LDNG has budgeted $25 million
or 25% of its capital budget for exploration activities. While the actual future
expenditures on exploration activities may vary, it is expected that, on a
proportionate basis, such expenditures will exceed LDNG's 1997 budgeted
percentage but will be less than American's 1997 budgeted percentage.
Exploratory drilling involves more risk than development drilling because it is
designed to test formations which have not yet been assigned proved reserves,
but, if successful, results in potentially greater increases in proved reserves.
Consequently, after the Merger, the stockholders of both LDNG and American will
own an investment in a company with a different risk and potential benefit
profile as it relates to exploratory versus development drilling than that of
LDNG or American separately.
ABILITY TO ACHIEVE SAVINGS
The managements of LDNG and American have entered into the Merger Agreement
with the expectation that the Merger will result in opportunities to reduce
costs, primarily general and administrative costs, through elimination of
duplicate functions. Achieving these savings will depend on a number of factors
including, without limitation, the successful integration of LDNG's and
American's operations and general and industry-specific economic factors.
Additional unanticipated expenses may be incurred relating to the integration of
the businesses of LDNG and American, including the integration of exploration
and production activities and administrative functions. Although LDNG expects
that the elimination of duplicative expenses as well as other efficiencies
related to the integration of the businesses may offset additional expenses over
time, there can be no assurance that such net benefit will be achieved in the
near term, or at all. The failure to achieve such savings could have a material
adverse effect on the business, results of operations and financial condition of
the combined company.
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<PAGE>
FIXED EXCHANGE RATIO
Under the terms of the Merger Agreement, each share of American Common Stock
issued and outstanding at the Effective Time will be converted into the right to
receive 0.72 shares of LDNG Common Stock and $3.00 in cash and each American
Depositary Share will be exchanged for one LDNG Depositary Share. The Merger
Agreement does not contain any provisions for adjustment of the exchange ratio
or termination of the Merger Agreement based solely on fluctuations in the price
of LDNG Common Stock or American Common Stock. The market price of LDNG Common
Stock or American Common Stock upon the consummation of the Merger could be
lower than the market price of such stock on the date of the execution of the
Merger Agreement or the current market price. See "Information About the
Combining Companies--Price Range of LDNG Common Stock and Dividend Policy" and
"--Price Range of American Common Stock and Dividend Policy." Stockholders
should obtain current quotations for each of these securities.
CERTAIN ACCOUNTING CONSEQUENCES OF THE MERGER
The Merger is being accounted for as a purchase for financial reporting
purposes as required by generally accepted accounting principles. The Merger
will result in a significant increase in the recorded value of LDNG's oil and
gas properties and is expected to significantly increase the depreciation,
depletion and amortization costs incurred by LDNG after the Merger, and this
increase in depreciation, depletion and amortization costs will have a negative
impact on LDNG's reported earnings. On a per share pro forma basis for the year
ended December 31, 1996 and the six months ended June 30, 1997, earnings were
$0.09 per share and $0.30 per share compared to LDNG's historical earnings for
such periods of $0.76 and $0.66, respectively. SUCH UNAUDITED PRO FORMA EARNINGS
PER SHARE INFORMATION HAS BEEN PREPARED PURSUANT TO REGULATIONS PRESCRIBED BY
THE SECURITIES AND EXCHANGE COMMISSION. IT DOES NOT CONSIDER THE EFFECTS OF THE
COST REDUCTION AND FINANCING PLANS OF MANAGEMENT EXPECTED TO BE IMPLEMENTED
AFTER CLOSING, NOR DOES IT INCLUDE THE EFFECTS OF CERTAIN PURCHASE ACCOUNTING
ADJUSTMENTS EXPECTED TO BE RECORDED AT CLOSING. THE FINANCIAL IMPACT OF SUCH
PLANS AND PURCHASE ACCOUNTING ADJUSTMENTS IS EXPECTED TO BE MATERIAL. THESE ARE
DESCRIBED IN THE FOOTNOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS INCLUDED ELSEWHERE IN THIS JOINT PROXY STATEMENT/ PROSPECTUS.
Although LDNG management believes that the potential negative effect to future
earnings from the Merger is outweighed by the benefits of the Merger, the
reduction in LDNG's earnings attributable to the increase in depreciation,
depletion and amortization costs, viewed in isolation, may have a material
adverse effect on the market value of the LDNG Common Stock after the Merger.
Further, it is expected that LDNG will recognize a one-time non-recurring
impairment charge at consummation of the Merger. See "Unaudited Pro Forma
Financial Statements."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the American Board (which has recommended that the
stockholders of American vote in favor of the Merger) and executive officers of
American have interests in the Merger that are in addition to those of the
stockholders of American generally, including executive employment, retention
and severance arrangements. See "The Merger--Interests of Certain Persons in the
Merger."
EFFECTS OF CHANGING OIL AND GAS PRICES; HEDGING RISKS
LDNG's future financial condition and results of operations are dependent
upon the prices received for LDNG's oil and gas production. Oil and gas prices
have historically been volatile and are likely to continue to be volatile in the
future. In particular, from January 2, 1997 to June 30, 1997, the reported NYMEX
Daily Prompt Month Closing Prices for crude oil ranged from a high of $26.62 per
Bbl to a low of $18.53 per Bbl and for gas ranged from a high of $3.64 per Mcf
to a low of $1.78 per Mcf. Prices for oil and gas are subject to fluctuations in
response to relatively minor changes in supply, demand, market uncertainty and a
variety of additional factors that are beyond the control of LDNG. These factors
include political stability in the Middle East and elsewhere, the foreign supply
of oil and gas, the price of foreign
25
<PAGE>
imports, government regulations and taxes, the price and availability of
alternative fuels, weather conditions and the overall economic environment.
LDNG has entered into Fixed-Price Contracts covering a significant portion
of its anticipated future production from existing proved oil and gas reserves
and may enter into similar arrangements in the future. Such arrangements reduce
LDNG's risk to declines in oil and gas prices, but also limit LDNG's ability to
benefit from any increase in those prices. For the year ended December 31, 1996,
Fixed-Price Contracts covered 51% of LDNG's natural gas production and 67% of
its oil production. On a pro forma basis giving effect to the Merger,
Fixed-Price Contracts, including the Fixed-Price Contracts of American, covered
50% of natural gas production and 67% of oil production for the same period. As
of December 31, 1996 on a pro forma basis, Fixed-Price Contracts hedged 356 Bcf
of natural gas and 1.5 MMBbls of oil to be produced in future periods, which
constitutes 35% and 4% of estimated pro forma proved reserves of gas and oil,
respectively. LDNG's revenues are more sensitive to natural gas price changes
because approximately 86% of its proved reserves on an equivalent unit of
production basis at December 31, 1996 were natural gas. After the Merger, a
larger portion of LDNG's reserves will not be covered by Fixed-Price Contracts,
and, as a consequence, any substantial or extended decline in the price of oil
or gas would have a more significant effect on LDNG's financial condition and
results of operations. Extended periods of low prices for oil or natural gas
could affect LDNG's willingness to complete planned drilling activities and
would reduce its estimated reserves and future net revenues.
This Joint Proxy Statement/Prospectus contains estimates of the future net
revenues and present value of LDNG's Fixed-Price Contracts as of certain dates
that are computed based on the difference between the prices provided by the
Fixed-Price Contracts and forward market prices as of the specified date. Such
estimates do not necessarily represent the fair market value of LDNG's
Fixed-Price Contracts or the actual future net revenues that will be received.
The forward market prices for natural gas and oil are highly volatile, are
dependent upon supply and demand factors in such forward market, and may not
correspond to the actual market prices at the settlement dates of LDNG's
Fixed-Price Contracts. Such forward market prices are available in a limited
over-the-counter market and are obtained from a limited group of financial
institutions and marketing companies which routinely conduct large volumes of
forward market transactions, including Louis Dreyfus Energy Corp., an indirectly
wholly owned subsidiary of S.A. Louis Dreyfus et Cie.
LDNG's hedging practices are subject to a number of risks, including credit
and market risks.
CREDIT RISK OF FIXED-PRICE CONTRACT COUNTERPARTIES. The counterparties to
LDNG's Fixed-Price Contracts are comprised of independent power producers,
pipeline marketing affiliates, financial institutions, a municipality and S.A.
Louis Dreyfus et Cie, among others. Should a counterparty to a contract default
on a contract, there can be no assurance that LDNG would be able to enter into a
new contract with a third party on terms comparable to the original contract.
The loss of a contract would subject a greater portion of LDNG's oil and gas
production to market prices and could adversely affect the carrying value of
LDNG's oil and gas properties and the amount of borrowing capacity available
under LDNG's revolving credit facility.
RISKS RELATED TO NIAGARA MOHAWK. LDNG is a party to two Fixed-Price
Contracts, both long-term physical delivery contracts, with independent power
producers ("IPPs") which sell electrical power under firm, fixed-price contracts
to Niagara Mohawk Corporation ("NIMO"), a New York state utility. LDNG's
Fixed-Price Contracts with such IPPs covered an aggregate of 101 Bcf of natural
gas as of June 30, 1997. At June 30, 1997, the net present value of the
differential between the fixed prices provided by these contracts and forward
market prices, as adjusted for basis and discounted at 10%, was $134 million, or
71% of the net present value attributable to all of LDNG's Fixed-Price
Contracts. This premium in the fixed prices in these contracts is not reflected
in LDNG's financial statements until realized. Such contracts contributed $.9
million to 1996 revenues. The ability of such IPPs to perform their obligations
to LDNG is largely dependent on the continued performance by NIMO of its power
purchase obligations. NIMO has taken aggressive regulatory, judicial and
contractual actions in recent years seeking to curtail power purchase
26
<PAGE>
obligations, including its obligations to the IPPs that are counterparties to
LDNG's Fixed-Price Contracts described above, and has further stated that its
future financial prospects are dependent on its ability to resolve these
obligations, along with a number of other matters. On July 9, 1997, NIMO entered
into a Master Restructuring Agreement (the "MRA") with 16 IPPs, including LDNG's
counterparties. Pursuant to the MRA, the power purchase agreements between NIMO
and the IPPs would be terminated, restated or amended, in exchange for an
aggregate of $3.6 billion in cash, $50 million in notes or cash, 46 million
shares of NIMO common stock and certain fixed-price swap contracts. The
allocation of the consideration among the IPPs has not been disclosed. The
closing of the MRA is conditioned upon, among other things, NIMO and the IPPs
negotiating their individual restated and amended contracts, the receipt of all
regulatory approvals, the receipt of all consents by third parties necessary for
the transactions contemplated by the MRA (including the termination of the
existing power purchase contracts and the termination or amendment of all
related third party agreements), the IPPs entering into new third party
arrangements which will enable each IPP to restructure its projects on a
reasonably satisfactory economic basis, NIMO having completed all necessary
financing arrangements and NIMO and the IPPs having received all necessary
approvals from their respective boards of directors, shareholders and partners.
LDNG anticipates that preliminary discussions with its IPP counterparties will
commence in the third quarter of 1997, but is unable to determine the impact of
the MRA on LDNG at this time. The loss of a contract would subject a greater
portion of LDNG's oil and gas production to market prices, could adversely
affect the carrying value of LDNG's oil and gas properties and the amount of
borrowing capacity available under its bank credit facility and could otherwise
have an adverse effect on LDNG.
MARKET RISK. If LDNG's proved reserves are produced at rates less than
anticipated, the volumes specified under the Fixed-Price Contracts may exceed
production volumes. In such case, LDNG would be required to satisfy its
contractual commitments at market prices in effect for each settlement period,
which may be above the contract price, without a corresponding offset in
wellhead revenue for any excess volumes. While LDNG expects future production
volumes to be equal to or greater than the volumes provided in its contracts,
there can be no assurance that it will produce such volumes. The differential
between the floating price paid under each energy swap contract, or the cost of
gas to supply physical delivery contracts, and the price received at the
wellhead for LDNG's production is termed "basis" and is the result of
differences in location, quality, contract terms, timing and other variables.
The effective price realizations that result from LDNG's Fixed-Price Contracts
are affected by changes in basis. For the years ended December 31, 1994, 1995
and 1996, LDNG realized on an Mcf basis approximately 11%, 3% and 3% less than
the prices specified in its natural gas Fixed-Price Contracts, respectively, due
to basis. Such results do not include an unusual $4.3 million basis loss
recognized in the fourth quarter of 1995. For its oil production hedged by crude
oil Fixed-Price Contracts, LDNG realized approximately 8%, 7% and 4% less than
the specified contract prices for such years, respectively. Basis movements can
result from a number of variables, including regional supply and demand factors,
changes in LDNG's portfolio of Fixed-Price Contracts and the composition of
LDNG's producing property base. Basis movements are generally considerably less
than the price movements affecting the underlying commodity, but their effect
can be significant. LDNG actively manages its exposure to basis movements and
from time to time enters into contracts designed to reduce such exposure.
However, there can be no assurance that fluctuations in basis will not occur in
the future and that such fluctuations will not be significant.
For a further discussion of risks associated with Fixed-Price Contracts, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Fixed-Price Contracts" in the LDNG reports incorporated herein by
reference.
CUSTOMER CONCENTRATION
LDNG's and American's oil and gas sales at the wellhead are sold under
contracts with various purchasers. For the year ended December 31, 1994, gas
sales by LDNG to Lone Star Gas Company and GPM Gas Corporation approximated 28%
and 10% of LDNG's total revenues, respectively. For the year ended December 31,
1995, LDNG's gas sales to Lone Star Gas Company represented 30% of LDNG's
27
<PAGE>
total revenues and American's gas sales to Enron Corp. and certain subsidiaries
of KN Energy represented 19% and 10% of American's total revenues, respectively.
For the year ended December 31, 1996, LDNG's gas sales to Valero Industrial Gas
L.P., HPL Resources Corp. (an affiliate of Enron Corp.) and GPM Gas Corporation
represented 18%, 13% and 11% of LDNG's total revenues, respectively, and
American's gas sales to Enron Corp. and certain subsidiaries of KN Energy, Inc.
represented 26% and 13% of American's total revenues, respectively. On a pro
forma basis giving effect to the Merger, gas sales for the year ended December
31, 1996 to Enron Corp. or its affiliates and Valero Industrial Gas, L.P.
approximate 16% and 15%, respectively, of LDNG's pro forma total revenues, and
sales to each other purchaser would be less than 10% of pro forma total
revenues. While LDNG and American believe that alternative purchasers are
available, if necessary, to purchase its production at prices substantially
similar to those being received from current major customers of LDNG and
American, the loss of a significant customer could have a material adverse
effect on LDNG's and American's results of operations and financial condition.
ESTIMATES OF 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 LDNG and
American. The reserve data set forth herein represent only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact manner, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of different engineers often vary. These estimates are based on various
assumptions, including those prescribed by the Commission, and are inherently
imprecise. Actual future production, cash flows, taxes, development
expenditures, operating expenses and quantities of recoverable oil and gas
reserves may vary substantially from those assumed in the estimates. LDNG's and
American's reserves and future cash flows may be subject to revisions, based
upon production results, results of future development, oil and gas prices,
performance of counterparties under Fixed-Price Contracts, operating and
development costs and other factors. Any downward adjustment in LDNG's or
American's estimated reserves could adversely affect LDNG's future prospects
after the Merger.
CERTAIN OPERATIONAL RISKS
LDNG's and American's operations are subject to the risks and uncertainties
associated with drilling for, and production and transportation of, oil and gas.
LDNG and American must incur significant expenditures for the identification and
acquisition of properties and for the drilling and completion of wells. Drilling
activities are subject to numerous risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. Exploratory
drilling involves more risk than development drilling because it is designed to
test formations which have not yet been assigned proved reserves. LDNG's and
American's prospects for growth and profitability depend on their ability to
replace current reserves through drilling, acquisitions, or both. LDNG's and
American's ability to market their oil and gas production depends upon, among
other factors, the availability and capacity of oil and gas gathering systems
and pipelines, many of which are beyond LDNG's and American's control. In
addition, Federal and state regulation of oil and gas production and
transportation, general economic conditions, and changes in supply and in demand
could adversely affect LDNG's and American's ability to market their oil and gas
production.
OPERATING HAZARDS AND UNINSURED RISKS
LDNG's and American's operations are subject to the risks inherent in the
oil and gas industry, including the risks of fire, explosions, blow-outs, pipe
failure, abnormally pressured formations and environmental accidents such as oil
spills, gas leaks, salt water spills and leaks, ruptures or discharges of toxic
gases, the occurrence of any of which could result in substantial losses to LDNG
or American due to injury or loss of life, severe damage to or destruction of
property, natural resources and equipment, pollution or other environmental
damage, clean-up responsibilities, regulatory investigation and penalties
28
<PAGE>
and suspension of operations. LDNG's and American's operations may be materially
curtailed, delayed or canceled as a result of numerous factors, including the
presence of unanticipated pressure or irregularities in formations, accidents,
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment. In accordance with
customary industry practice, LDNG and American maintain insurance against some,
but not all, of the risks described above. There can be no assurance that the
levels of insurance maintained by LDNG or American will be adequate to cover any
losses or liabilities. LDNG and American cannot predict the continued
availability of insurance or its availability at commercially acceptable premium
levels.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The operations of LDNG and American are subject to numerous federal and
state laws and regulations relating to the drilling for and production of oil
and gas, the protection of the environment and worker health and safety,
including those relating to the discharge of pollutants into the environment,
the handling and disposal of solid and hazardous wastes and the cleanup of
properties contaminated by hazardous wastes and other materials. LDNG and
American have made and, after the Merger, LDNG will continue to make
expenditures to comply with environmental and health and safety requirements and
other applicable laws and regulations. LDNG and American believe that their
operations and facilities comply in all material respects with applicable laws
and regulations as currently in effect and that the existence and enforcement of
such laws and regulations have no more restrictive effect on their operations
than on other similar companies in the oil and gas industry. Nonetheless, such
laws and regulations affecting LDNG and American and the oil and gas industry as
a whole have generally become more stringent in recent years, often imposing
greater liability on an increasing number of parties. Because the requirements
imposed by such laws and regulations are frequently changed, LDNG and American
are unable to predict the effect or cost of compliance with such requirements or
their effects on oil and gas use or prices. In addition, legislative proposals
are frequently introduced in Congress and state legislatures which, if enacted,
might significantly affect the oil and gas industry. In view of the many
uncertainties that exist with respect to any legislative proposals, the effect
on LDNG and American of any legislation which might be enacted cannot be
predicted. There can be no assurance that laws or regulations enacted in the
future or changes to existing laws and regulations will not adversely affect
their business, financial condition or results of operations. For further
information concerning governmental and environmental regulations affecting LDNG
and American, see "Business" in the LDNG 1996 Form 10-K and "Business and
Properties" in the American 1996 Form 10-K incorporated herein by reference.
COMPETITION
The oil and gas industry is highly competitive. LDNG and American compete in
the areas of proved reserve and undeveloped acreage acquisitions and the
development, production and marketing of oil and gas, as well as contracting for
equipment and securing personnel, with major oil and gas companies, other
independent oil and gas concerns, gas marketing companies and individual
producers and operators. Many of these competitors have financial and other
resources which substantially exceed those available to LDNG and American.
Competition in the regions in which LDNG and American own properties may result
in occasional shortages or unavailability of drilling rigs and other equipment
used in drilling activities as well as limited availability and access to
pipelines. Such circumstances could result in curtailment of activities,
increased costs, delays or losses in production or revenues or cause interests
in oil and gas leases to lapse.
AMERICAN GAS CONTRACT LITIGATION
In February 1995, American was sued by KN Gas Supply Services, Inc.
("KNGSS") in the United States District Court in Denver, Colorado, in a lawsuit
relating to a life of lease, minimum take gas contract between American and
KNGSS in the Bowdoin Field in northern Montana for which American received an
average price of $3.52 per Mcf in 1996 with total 1996 revenues of $2.6 million.
KNGSS has
29
<PAGE>
requested declaratory judgment that it had the right to reduce the contract
price for gas produced subject to the contract to market levels from October 1,
1993 forward. KNGSS alleges that it has overpaid American and seeks a refund of
approximately $7.7 million for the period through September 30, 1996 and that it
has the right to reduce the future contract price to market prices. American
filed a Motion for Summary Judgment in this matter in July 1996 which was argued
before the Court on February 14, 1997. No decision has been rendered. If KNGSS
ultimately prevails in this lawsuit, American, and after the Merger, LDNG would
be adversely affected by the reduction in contract price.
CONTROL BY S.A. LOUIS DREYFUS ET CIE OF ALL MATTERS UPON WHICH COMMON
STOCKHOLDERS VOTE; POTENTIAL CHANGE IN CONTROL
S.A. Louis Dreyfus et Cie beneficially owns 74.2%, and after the Merger will
beneficially own approximately 53%, of the outstanding LDNG Common Stock and,
through its ability to elect all directors of LDNG, effectively controls all
matters upon which common stockholders vote and which relate to the management
of LDNG. Of the shares of LDNG Common Stock beneficially owned by S.A. Louis
Dreyfus et Cie, 17,000,000 have been pledged to certain banks to secure loans
made to S.A. Louis Dreyfus et Cie in the ordinary course of its business. A
default by S.A. Louis Dreyfus et Cie under the terms of such arrangements could
result in the sale of all or a portion of the pledged shares and a change in
control of LDNG.
RELATIONSHIP WITH S.A. LOUIS DREYFUS ET CIE
LDNG has in the past entered into significant intercompany transactions and
agreements with S.A. Louis Dreyfus et Cie and its subsidiaries incident to their
respective businesses and may continue to do so in the future. LDNG has entered
into a services agreement with a subsidiary of S.A. Louis Dreyfus et Cie
pursuant to which such subsidiary provides various services to LDNG upon
request. It is the intention of S.A. Louis Dreyfus et Cie and LDNG that LDNG
operate independently other than receiving services under the services
agreement. While S.A. Louis Dreyfus et Cie has advised LDNG that it does not
currently intend to engage in the acquisition and development of, or exploration
for, oil and gas except through its beneficial ownership of Common Stock of
LDNG, the nature of the respective businesses of S.A. Louis Dreyfus et Cie and
LDNG may give rise to conflicts of interest between them.
THE SPECIAL MEETINGS
DATE, PLACE AND TIME OF SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is being furnished to the stockholders
of LDNG in connection with the solicitation of proxies by the LDNG Board for use
at the LDNG Special Meeting to be held on October 8, 1997, at the offices of
LDNG, 14000 Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of American in connection with the solicitation of proxies by the
American Board for use at the American Special Meeting to be held on October 8,
1997, at the Waldorf Astoria Hotel, 301 Park Avenue, New York, New York,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
At the LDNG Special Meeting, the stockholders of LDNG will consider and vote
upon a proposal to approve and adopt the Merger Agreement and to approve the
Merger. The LDNG stockholders will also transact such other business as may
properly be brought before the LDNG Special Meeting.
At the American Special Meeting, the stockholders of American will consider
and vote upon a proposal to approve and adopt the Merger Agreement and to
approve the Merger. The American stockholders will also transact such other
business as may properly be brought before the American Special Meeting.
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RECORD DATES
LDNG has established August 18, 1997, as the record date for the
determination of stockholders entitled to notice of and to vote at the LDNG
Special Meeting. Only holders of record of LDNG Common Stock at the close of
business on such date are entitled to vote at the LDNG Special Meeting. On
August 18, 1997, LDNG had outstanding and entitled to vote 27,805,000 shares of
LDNG Common Stock, each of which is entitled to one vote per share. On such
date, there were approximately 100 holders of record of LDNG Common Stock. LDNG
estimates that on such date there were approximately 1,000 beneficial owners of
LDNG Common Stock.
American has established August 18, 1997, as the record date for the
determination of stockholders entitled to notice of and to vote at the American
Special Meeting. Only holders of record of American Common Stock and American
Depositary Shares at the close of business on such date are entitled to vote at
the American Special Meeting. On August 18, 1997, American had outstanding and
entitled to vote 15,704,701 shares of American Common Stock and 800,000
Depositary Shares convertible into 1,333,333 shares of American Common Stock. On
such date, there were approximately 4,134 holders of record of American Common
Stock and 18 holders of record of American Depositary Shares. American estimates
that on such date there were approximately 12,700 beneficial owners of American
Common Stock and 250 beneficial owners of American Depositary Shares.
VOTES REQUIRED
The affirmative vote of the holders of a majority of the issued and
outstanding shares of LDNG Common Stock will be required to approve and adopt
the Merger Agreement and to approve the Merger. Pursuant to the Stockholder
Agreement, Louis Dreyfus Natural Gas Holdings Corp., an indirectly wholly owned
subsidiary of S.A. Louis Dreyfus et Cie holding of record approximately 72% of
the outstanding shares of LDNG Common Stock, has agreed to vote in favor of the
Merger and the Merger Agreement. See "The Merger Agreement--Agreement of LDNG
Stockholder." Accordingly, the approval of the Merger Agreement and the Merger
is assured without the affirmative vote of any other stockholder of LDNG.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of American Common Stock and American Depositary Shares,
voting together as a single class, will be required to approve and adopt the
Merger Agreement and to approve the Merger. When voting together as a single
class, each share of American Common Stock is entitled to one vote and each
American Depositary Share is entitled to 1.6667 votes (the number of shares of
American Common Stock into which an American Depositary Share currently may be
converted).
As of the date of this Joint Proxy Statement/Prospectus, directors and
executive officers of American and their affiliates owned 3.7% of the
outstanding American Common Stock and 5.5% of the outstanding American
Depositary Shares.
LDNG PROXIES; VOTING AND REVOCATION; OTHER MATTERS
Shares of LDNG Common Stock represented by properly executed proxies
received by LDNG prior to or at the LDNG Special Meeting will be voted in
accordance with the instructions contained therein. Shares of LDNG Common Stock
represented by properly executed proxies for which no instruction is given will
be voted FOR the approval of the Merger Agreement and the Merger. An abstention
(or broker non-vote) has the same effect as a vote AGAINST the proposal
described in this Joint Proxy Statement/ Prospectus, but any abstaining
stockholder who is present at the LDNG Special Meeting, either in person or by
proxy (including broker non-voting), will be counted for purposes of determining
whether a quorum exists.
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Each holder of LDNG Common Stock is requested to complete, sign, date and
return promptly the enclosed proxy card in the postage paid envelope provided
for this purpose in order to ensure that such holder's shares are voted.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised. A proxy may be revoked by (a)
delivering to the Secretary of LDNG, at or before the taking of the vote at the
LDNG Special Meeting, a written notice of revocation bearing a later date than
the proxy, (b) duly executing a later-dated proxy relating to the same shares
and delivering it to the Secretary of LDNG before the taking of the vote at the
LDNG Special Meeting or (c) attending the LDNG Special Meeting and voting in
person (although attendance at the LDNG Special Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
later-dated proxy should be sent or delivered to Louis Dreyfus Natural Gas
Corp., 14000 Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma 73134,
Attn: Secretary. To be effective, a notice of revocation or later-dated proxy
must be received by the Secretary of LDNG before the taking of the vote at the
LDNG Special Meeting.
The LDNG Board is aware of no matters to be presented at the LDNG Special
Meeting other than those described in this Joint Proxy Statement/Prospectus. If
other matters are properly brought before the LDNG Special Meeting, it is the
intention of the persons named in the proxies to vote the shares to which said
proxies relate in accordance with the recommendations of the LDNG Board.
However, in the case of any proxy in which a vote against the Merger is
directed, such discretionary authority will not be used to vote such proxy in
favor of any proposal presented at the LDNG Special Meeting to adjourn the LDNG
Special Meeting in order to solicit additional votes.
AMERICAN PROXIES; VOTING AND REVOCATION; OTHER MATTERS
Shares of American Common Stock and American Depositary Shares represented
by properly executed proxies received by American prior to or at the American
Special Meeting will be voted in accordance with the instructions contained
therein. Shares of American Common Stock and American Depositary Shares
represented by properly executed proxies for which no instruction is given will
be voted FOR approval of the Merger Agreement and the Merger. An abstention (or
broker non-vote) has the same effect as a vote AGAINST the proposal described in
this Joint Proxy Statement/Prospectus, but any abstaining stockholder who is
present at the American Special Meeting, either in person or by proxy (including
broker non-voting), will be counted for purposes of determining whether a quorum
exists.
Each holder of American Common Stock and American Depositary Shares is
requested to complete, sign, date and return promptly the enclosed proxy card in
the postage paid envelope provided for this purpose in order to ensure that such
holder's shares are voted.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised. A proxy may be revoked by (a)
delivering to the Secretary of American, at or before the taking of the vote at
the American Special Meeting, a written notice of revocation bearing a later
date than the proxy, (b) duly executing a later-dated proxy relating to the same
shares and delivering it to the Secretary of American before the taking of the
vote at the American Special Meeting or (c) attending the American Special
Meeting and voting in person (although attendance at the American Special
Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or later-dated proxy should be sent or delivered to
American Exploration Company, 1331 Lamar, Suite 900, Houston, Texas 77010, Attn:
Secretary. To be effective, a notice of revocation or later-dated proxy must be
received by the Secretary of American before the taking of the vote at the
American Special Meeting.
The American Board is aware of no matters to be presented at the American
Special Meeting other than those described in this Joint Proxy
Statement/Prospectus. If other matters are properly brought before the American
Special Meeting, it is the intention of the persons named in the proxies to vote
the shares to which such proxies relate in accordance with the recommendations
of the American Board. However, in the case of any proxy in which a vote against
the Merger is directed, such discretionary authority will not be
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used to vote such proxy in favor of any proposal presented at the American
Special Meeting to adjourn the American Special Meeting in order to solicit
additional votes.
SOLICITATION OF PROXIES
The cost and expenses associated with printing this Joint Proxy
Statement/Prospectus will be borne equally by LDNG and American. Directors,
officers and employees of LDNG and American may solicit proxies from
stockholders of LDNG and American, respectively, in person or by telephone,
telegram or other means of communication. Such persons will not be additionally
compensated for such solicitation but will be reimbursed for reasonable
out-of-pocket expenses incurred in connection therewith. Arrangements will be
made with brokerage firms, nominees, fiduciaries and other custodians for
forwarding proxy solicitation materials to the beneficial owners of shares held
of record by such persons. LDNG and American will reimburse such persons for
their reasonable expenses incurred in connection therewith. All costs of the
solicitation of proxies will be borne by LDNG with respect to the holders of
LDNG Common Stock and by American with respect to the holders of American Common
Stock and American Depositary Shares.
AMERICAN STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR
PROXY CARDS. STOCK CERTIFICATES SHOULD NOT BE SUBMITTED FOR EXCHANGE BY AMERICAN
STOCKHOLDERS UNTIL A LETTER OF TRANSMITTAL IS RECEIVED. See "The
Merger--Procedures for Exchange of American Common Stock Certificates" and
"--Procedures for Exchange of American Depositary Shares."
DISSENTERS' RIGHTS
HOLDERS OF AMERICAN COMMON STOCK ARE ENTITLED TO APPRAISAL RIGHTS IN
CONNECTION WITH THE MERGER UNDER SECTION 262 OF THE DELAWARE ACT. IN ORDER TO
EXERCISE APPRAISAL RIGHTS PURSUANT TO SECTION 262 OF THE DELAWARE ACT, HOLDERS
OF AMERICAN COMMON STOCK MUST EITHER VOTE AGAINST THE MERGER OR ABSTAIN FROM
VOTING AND MUST COMPLY WITH ALL OF THE OTHER PROCEDURAL REQUIREMENTS OF SUCH
SECTION. FAILURE TO SATISFY ANY OF THE REQUIREMENTS UNDER SECTION 262 OF THE
DELAWARE ACT MAY RESULT IN TERMINATION OR WAIVER OF SUCH RIGHTS. HOLDERS OF
AMERICAN COMMON STOCK INTENDING TO EXERCISE SUCH RIGHTS ARE ADVISED TO ACT
IMMEDIATELY.
Holders of American Common Stock can decide to receive, instead of the
consideration offered by LDNG for their shares of American Common Stock, an
amount which the Court of Chancery of the State of Delaware decides is the "fair
value" of their shares of American Common Stock, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, as determined by such court. This right is known
as an "appraisal right." If a holder of American Common Stock wishes to exercise
his or her appraisal right he or she must not vote in favor of the Merger and
must meet certain other conditions. These conditions are set out in full in
Annex D and this summary is not meant to be a complete statement on appraisal
rights, but rather is only a guide for a stockholder who wishes to exercise his
or her appraisal right. Delaware law requires that American notify holders of
American Common Stock not less than 20 days prior to the American Special
Meeting that they have a right of appraisal and provide stockholders with a copy
of Section 262 of the Delaware Act ("Section 262"). This Joint Proxy
Statement/Prospectus constitutes that notice. If holders of American Common
Stock do not follow the procedures set out below and in Annex D, they will lose
their appraisal right.
Under Section 262, absent an agreement between American and holders of
American Common Stock as to "fair value," such "fair value" will be determined
in judicial proceedings, the result of which cannot be predicted.
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ALL REFERENCES IN THIS SUMMARY AND IN SECTION 262 TO A "STOCKHOLDER" OR TO A
"HOLDER" OF AMERICAN COMMON STOCK ARE TO THE RECORD HOLDERS OF THE AMERICAN
COMMON STOCK AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED. A PERSON HAVING A
BENEFICIAL INTEREST IN AMERICAN COMMON STOCK HELD OF RECORD IN THE NAME OF
ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE
RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY
MANNER TO PERFECT HIS OR HER APPRAISAL RIGHT.
A holder of American Common Stock wishing to exercise his or her appraisal
right must deliver to American, before the vote on the Merger at the American
Special Meeting, a written demand for appraisal of his or her American Common
Stock and must not vote in favor of the Merger or consent thereto in writing.
Because a duly executed proxy which does not contain voting instructions will,
unless revoked, be voted for the Merger, a holder of American Common Stock who
votes by proxy and who wishes to exercise his or her appraisal right must (i)
vote against the Merger, or (ii) abstain from voting on the Merger. A vote
against the Merger, in person or by proxy, will not in and of itself constitute
a written demand for appraisal satisfying the requirements of Section 262, and a
separate written demand for appraisal is required. In addition, a holder of
American Common Stock wishing to exercise his or her appraisal right must be the
record holder of such shares on the date the written demand for appraisal is
made and must continue to hold such shares of record until the Effective Time.
A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as his or her name appears on his or her stock
certificates, and must state that the stockholder intends thereby to demand
appraisal of his or her American Common Stock in connection with the Merger. If
the shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity,
and if the shares are owned of record by more than one person, as in a joint
tenancy and tenancy in common, the demand should be executed by or on behalf of
all joint owners. An authorized agent, including two or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners. A
record holder such as a broker who holds American Common Stock as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares held for one or more beneficial owners while not exercising such rights
with respect to the shares held for other beneficial owners; in such case,
however, the written demand should set forth the number of shares as to which
appraisal is sought and where no number of shares is expressly mentioned the
demand will be presumed to cover all American Common Stock held in the name of
the record owner. Stockholders who hold their American Common Stock in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such a nominee.
All written demands for appraisal pursuant to Section 262 should be sent or
delivered to American Exploration Company, 1331 Lamar, Suite 900, Houston, Texas
77010, Attention: Secretary. Written demands for appraisal pursuant to Section
262 must be received by American before the taking of the vote on the Merger,
scheduled for October 8, 1997.
Within ten days after the Effective Time, the Surviving Corporation of the
Merger must notify each holder of American Common Stock who has complied with
Section 262 and has not voted in favor of or consented to the Merger of the date
that the Merger has become effective. Within 120 days after the Effective Time,
but not thereafter, the Surviving Corporation or any holder of American Common
Stock who has so complied with Section 262 and is entitled to appraisal rights
under Section 262 may file a petition in the Court of Chancery of the State of
Delaware demanding a determination of the fair value of his or her American
Common Stock. The Surviving Corporation will have no obligation to file such a
petition, and neither American nor LDNG has any present intention to cause the
Surviving Corporation to file such a petition. Accordingly, it is the obligation
of the holders of American Common Stock to initiate all necessary action to
perfect their appraisal rights within the time prescribed in Section 262.
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Any holder of American Common Stock who has complied with the requirements
for exercise of appraisal rights will be entitled, upon written request, to
receive from the Surviving Corporation a statement setting forth the aggregate
number of American Common Stock not voted in favor of the Merger and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares.
If a petition for an appraisal is timely filed by a holder of American
Common Stock, the Court of Chancery is empowered to conduct a hearing on such
petition to determine those holders of American Common Stock who have complied
with Section 262 and who have become entitled to appraisal rights thereunder.
The Court of Chancery may require the holders of American Common Stock who
demanded appraisal of their shares to submit their stock certificates to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceeding; and if any stockholder fails to comply with such direction, the
Court of Chancery may dismiss the proceedings as to such stockholder.
After determining the holders entitled to appraisal, the Court of Chancery
will appraise the "fair value" of their American Common Stock, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. Stockholders considering seeking appraisal
should be aware that the fair value of their American Common Stock as determined
in an appraisal proceeding under Section 262 could be more than, the same as or
less than the Merger Consideration they would receive pursuant to the Merger if
they did not seek appraisal of their shares, and that investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. The Delaware Supreme Court has
stated the "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceeding. In addition, Delaware
courts have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court of
Chancery will also determine the amount of interest, if any, to be paid upon the
amounts to be received by persons whose shares of American Common Stock have
been appraised.
The costs of the appraisal action may be determined by the Court and taxed
upon the parties as the Court deems equitable. Each party must bear his or her
own other expenses of the proceeding, although the Court may order that all or a
portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
against the value of all the American Common Stock entitled to be appraised.
Any holder of American Common Stock who duly demands appraisal in compliance
with Section 262 will not, after the Effective Time, be entitled to vote his or
her shares for any purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other distributions payable
to holders of record as of a record date prior to the Effective Time).
If any stockholder who demands appraisal of his or her American Common Stock
under Section 262 fails to perfect, or effectively withdraws or loses, his or
her right to appraisal, the shares of such stockholder will be converted into
the right to receive the applicable consideration pursuant to the Merger
Agreement as described herein (without interest). A stockholder will fail to
perfect, or effectively loses or withdraws, his or her right to appraisal if no
petition for appraisal is filed within 120 days after the Effective Time, or if
the stockholder delivers to the Surviving Corporation a written withdrawal of
his or her demand for appraisal and an acceptance of the Merger, except that any
such attempt to withdraw made more than 60 days after the Effective Time will
require the written approval of the Surviving Corporation and, once a petition
for appraisal is filed, the appraisal proceeding may not be dismissed as to any
holder absent Court approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DELAWARE ACT FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
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THE MERGER
GENERAL
The Merger Agreement provides for a business combination between LDNG and
American in which American will be merged with and into LDNG. As a result of the
Merger, American's separate existence will cease and LDNG, as the Surviving
Corporation in the Merger, will continue its corporate existence under the laws
of the State of Oklahoma and will succeed to all of the assets, rights,
liabilities and obligations of American. The certificate of incorporation of
LDNG, as in effect immediately prior to the Effective Time, will become the
certificate of incorporation of the Surviving Corporation. The bylaws of LDNG,
as in effect immediately prior to the Effective Time, will become the bylaws of
the Surviving Corporation. In connection with the Merger, the holders of
American Common Stock will be issued shares of LDNG Common Stock and cash in
exchange for their American Common Stock and the holders of American Depositary
Shares will be issued LDNG Depositary Shares in exchange for their American
Depositary Shares. It is intended that the transaction be treated as a purchase
for accounting purposes and as a reorganization under Section 368(a) of the Code
for federal income tax purposes. The discussion in this Joint Proxy
Statement/Prospectus of the Merger and the description of the principal terms
and conditions of the Merger are subject to and qualified in their entirety by
reference to the Merger Agreement, a copy of which is included as Annex A to
this Joint Proxy Statement/Prospectus and which is incorporated into this Joint
Proxy Statement/Prospectus by reference.
BACKGROUND OF THE MERGER
In 1995, LDNG purchased oil and gas properties in the Sonora Area of Texas
from American and affiliated partnerships for the purchase price of $86.6
million. Also in 1995, LDNG and American entered into an agreement to
participate jointly in various exploration projects, including exploration in
the Yoakum Gorge area in Lavaca County, Texas where they hold an aggregate 87.5%
working interest in approximately 60,000 gross undeveloped acres. The companies
drilled 10 wells in this project during 1996 and plan to drill 50 additional
wells in 1997. As a result of these transactions, management of LDNG and
American became familiar with each other. For information concerning results of
one such well recently drilled in the Yoakum Gorge area, see "Summary--Recent
Development."
On April 28, 1997, John Hogan, the Chief Financial Officer of American,
called Mark E. Monroe, President and Chief Executive Officer of LDNG, and
suggested a meeting to discuss a possible combination of American and LDNG.
Messrs. Monroe and Hogan met on May 1, 1997 and at that meeting LDNG and
American agreed to exchange information about each other and to further evaluate
the possible advantages and disadvantages of a business combination.
LDNG and American executed a confidentiality agreement on May 5, 1997 and
representatives of senior management of each company, including Simon Rich, the
Chairman of LDNG, Mark Monroe, Richard Bross, Ronnie Irani, Jeff Bonney and
Kevin White on behalf of LDNG, and Mark Andrews, Chairman and Chief Executive
Officer of American, John Hogan, Elliott Pew, Cindy Gerow and Frank Murphy on
behalf of American, met on May 19, 1997, at which time the parties provided each
other with certain information about their business and properties. Subsequent
meetings were held on May 23, during the week of May 26, and on June 2 during
which such members of senior management of each company conducted further due
diligence with respect to the business and properties of the other and discussed
oil and gas reserve and net asset valuations. Management of LDNG also discussed
the possible combination with representatives of S.A. Louis Dreyfus et Cie and
on June 9, 1997, S.A. Louis Dreyfus et Cie indicated to management of LDNG its
support of continued pursuit of a business combination with American.
On June 10, 1997, Simon Rich met with Mark Andrews to discuss the proposed
valuation of the two companies and the type and amount of consideration proposed
to be paid to American's stockholders in the transaction. Mr. Andrews indicated
a willingness to present an acquisition proposal to the American Board.
Representatives of LDNG and American, principally Simon Rich and Mark Monroe of
LDNG and
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Mark Andrews and John Hogan of American, thereafter began discussions concerning
the structure of the proposed transaction and the drafting and negotiation of
the terms of the Merger Agreement.
Between May 20 and June 24, 1997, representatives of senior management of
LDNG, including Simon Rich, Mark Monroe, Ronnie Irani and Jeff Bonney, met
individually or by telephone with members of the LDNG Board to apprise them of
the proposed Merger and provided them with management's analyses of the reasons
for the transaction and the anticipated consequences.
On June 10, 1997, American retained Prudential Securities to render an
opinion concerning the fairness of the Conversion Number and the Cash
Consideration to the holders of American Common Stock from a financial point of
view. On June 16, 1997, LDNG retained Salomon to render an opinion concerning
the fairness, from a financial point of view, to LDNG of the consideration to be
paid by LDNG in the Merger to the holders of American Common Stock.
On June 18, 1997, the American Board, together with its legal and financial
advisors, met to discuss the proposed business combination. At the meeting,
members of American senior management, together with its legal and financial
advisors, reviewed the background of the proposed Merger, the potential benefits
of the Merger to the stockholders of American and the expected terms of the
Merger Agreement. The American Board authorized management to continue to
negotiate with representatives of LDNG.
Between June 18 and 24, 1997, representatives of LDNG and American,
principally Simon Rich and Mark Monroe of LDNG and Mark Andrews and John Hogan
of American, negotiated the terms of the transaction and finalized the terms of
the proposed Merger Agreement and the Stockholder Agreement.
At a meeting of the American Board on June 24, 1997, members of American
senior management, together with its legal and financial advisors, again
reviewed the background of the proposed Merger, the potential benefits of the
Merger to stockholders of American, financial and valuation analyses of the
transaction and the final terms of the Merger Agreement. Prudential Securities
delivered to the American Board its opinion that, based on the matters set forth
in its opinion, the consideration to be received by the holders of American
Common Stock pursuant to the Merger Agreement was fair to such holders from a
financial point of view. Shearman & Sterling, special counsel to American,
reviewed the other terms of the Merger Agreement with the American Board. After
considering the presentation of American senior management and its financial and
legal advisors and the presentation and opinion of Prudential Securities, as
well as the factors discussed under "The Merger--Joint Reasons for the Merger"
and "--Recommendation of the American Board and Reasons for the Merger," the
American Board unanimously determined that the Merger is fair to, and in the
best interests of, the stockholders of American, approved the Merger Agreement
and the transactions contemplated thereby, authorized the officers of American
to execute the Merger Agreement on behalf of American and approved a
recommendation that the stockholders of American vote in favor of approval of
the Merger and the Merger Agreement.
At a meeting of the LDNG Board of Directors on June 24, 1997, members of
LDNG senior management, together with its legal and financial advisors, reviewed
the background of the proposed Merger, the strategic rationale and the potential
benefits of the Merger to LDNG, financial and valuation analyses of the
transaction, and the final terms of the Merger Agreement. Salomon delivered to
the LDNG Board its opinion that, based on the matters set forth in its opinion,
the consideration proposed to be paid by LDNG in exchange for the shares of
American Common Stock pursuant to the Merger Agreement was fair to LDNG from a
financial point of view. Crowe & Dunlevy, counsel to LDNG, reviewed the other
terms of the Merger Agreement with the LDNG Board. After considering the
presentation of LDNG senior management and its financial and legal advisors and
the presentation and opinion of Salomon, as well as the factors discussed under
"The Merger--Joint Reasons for the Merger" and "--Recommendation of the LDNG
Board and Reasons for the Merger," the LDNG Board unanimously determined that
the Merger is fair to, and in the best interests of, the stockholders of LDNG,
approved the Merger Agreement and the transactions contemplated thereby,
authorized the officers of LDNG to execute the
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Merger Agreement on behalf of LDNG and approved a recommendation that the
stockholders of LDNG vote in favor of the issuance of LDNG Common Stock pursuant
to the Merger Agreement.
In the late afternoon of June 24, 1997, officers of LDNG and American
executed and delivered the Merger Agreement and Louis Dreyfus Natural Gas
Holdings Corp., LDNG and American executed and delivered the Stockholder
Agreement. The companies issued a joint press release announcing the execution
of the Merger Agreement.
At a meeting held on August 14, 1997, the American Board approved and by
unanimous written consent effective August 14, 1997 the LDNG Board approved an
amendment to the Merger Agreement. The Merger Agreement initially provided for
the merger of American with and into a wholly-owned subsidiary of LDNG. However,
the LDNG Board and the American Board, after consultations with management of
the respective companies, determined that it would be desirable and in the best
interests of the respective stockholders of LDNG and American that American be
merged directly into LDNG in order, among other things, to facilitate the
integration of the operations of American and LDNG after the Merger. On August
21, 1997, LDNG and American executed and delivered the First Amendment to the
Merger Agreement providing for such change in the structure of the Merger.
During its negotiations with LDNG, American neither sought nor received
alternative proposals from third parties concerning a business combination or
similar transaction.
JOINT REASONS FOR THE MERGER
Over the past two years, American and LDNG have worked together closely on
several projects. Through this association, each company has gained an
appreciation for their complementary strengths. For LDNG, these strengths
include a substantial, long-lived reserve base, a large inventory of low-risk
development drilling locations, and strong oil and gas operating and product
marketing capabilities. American, on the other hand, has a high quality,
although shorter-lived reserve base, a substantial inventory of high potential
exploratory prospects and strong prospect generating and technical skills.
The Merger will combine the complementary strengths and create a larger and
more balanced independent exploration and production company with a proved
reserve base totaling approximately 1.2 Tcfe, production exceeding 300 MMcfe per
day and substantial cash flow. The combined company will also have significant
growth potential through a balance of low-risk development (an estimated 1,200
potential development locations) and higher-risk exploration drilling. The
combined company will also have an improved balance sheet, higher cash flow and
the financial resources to maintain an aggressive drilling program and pursue
new opportunities. In addition, the combined company will have a significantly
increased public share float which is expected to improve trading liquidity.
RECOMMENDATION OF THE LDNG BOARD AND REASONS FOR THE MERGER
The LDNG Board believes that the terms of the Merger are fair to, and in the
best interests of, LDNG and its stockholders and has unanimously approved the
Merger Agreement and the Merger. The LDNG Board unanimously recommends that the
holders of LDNG Common Stock vote for approval of the Merger Agreement and the
Merger.
In reaching its decision to recommend approval of the Merger, the LDNG Board
considered a number of factors, including the following:
GEOGRAPHIC CONCENTRATION. One of LDNG's strategic objectives is to
concentrate its activities in core geographic areas in which it has experience
and expertise. Such geographic concentration permits LDNG to achieve economies
of scale and efficiencies in connection with its drilling, production and
marketing operations. There is substantial overlap between the LDNG and American
oil and gas properties. Approximately 70% of American's proved reserves are
located in, or in close proximity to, geographic locations in which LDNG already
own proved reserves, primarily in the Gulf Coast and Mid-Continent
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regions. In addition, LDNG and American are each participating in exploration
projects in South Texas and in the Cotton Valley Reef Trend in East Texas.
EXPLORATION POTENTIAL AND STAFF. LDNG has recently expanded its exploration
activity in order to enhance the potential for increasing shareholder value. In
1997, LDNG has budgeted $25 million or 25% of its capital budget for
exploration. The continued growth of LDNG's exploration program is dependent
upon LDNG's ability to acquire desirable prospects and employ qualified
personnel. The Merger affords LDNG access to American's existing base of
exploratory prospects and qualified technical staff, including Elliott Pew,
Senior Vice President--Exploration of American who has agreed to continue his
employment with LDNG following the Merger. American has a significant emphasis
on exploration focusing on three major areas: South Texas, the Cotton Valley
Reef Trend in East Texas and Texas state waters. In 1997, American has budgeted
$50 million or 62% of its total capital budget for exploration activities. On a
pro forma combined basis, the exploration budget would be 42% of LDNG's total
capital budget. In addition to a joint project at Yoakum Gorge, American has a
significant position in offshore Gulf of Mexico properties in Texas state waters
and in the Cotton Valley Reef Trend in east Texas which are believed to have
substantial exploration and exploitation potential. Management of LDNG has
reviewed the potential of American's exploratory prospects and believes it is
significant. LDNG also expects to retain a significant portion of the American
technical staff in Houston to assist it with the evaluation and management of
the increased drilling activity as a result of the Merger. Management of LDNG
believes that the technical staff of American has extensive experience in
prospect evaluation, drilling and development.
RESERVE LIFE AND PROPERTY MIX CONSIDERATIONS. LDNG's existing properties
have a Reserve Life of 13.2 years at year end 1996. American's Reserve Life at
year end 1996 was approximately 7.7 years, and on a pro forma basis LDNG's
Reserve Life would be 11.5 years of as of December 31, 1996. LDNG's management
believes that the addition of American's shorter life reserve and production
profile improves LDNG's property mix and cash flow available for reinvestment.
At year end 1996, LDNG's proved reserves were approximately 86% natural gas,
whereas American's proved reserves at such date were approximately 66% natural
gas. On a pro forma basis, LDNG's reserves would be approximately 82% natural
gas, consistent with LDNG's long-term strategy. The slightly higher percentage
of oil reserves reduces somewhat LDNG's dependence on natural gas prices.
SIZE, STOCK LIQUIDITY AND MARKET FOLLOWING. Management of LDNG also
believes the Merger is attractive because it will increase the size of LDNG's
operations and property value and potentially improve the trading
characteristics of the LDNG Common Stock by increasing its stockholder base. On
a pro forma basis, LDNG will have approximately 1.2 Tcfe of reserves producing
approximately 300 MMcfe per day. In addition, the Merger will increase the
number of publicly held outstanding shares of LDNG Common Stock from
approximately 7.2 million to 18.5 million. The increase in common shares
outstanding should improve the liquidity of the LDNG Common Stock. The
combination of increased size and broader base of stockholders is expected to
enhance LDNG's ability to attract additional coverage from research analysts.
FINANCIAL CONSIDERATIONS. The LDNG Board considered the anticipated effects
of the Merger on its balance sheet and financial condition, earnings, cash flows
and operating ratios. See "Unaudited Pro Forma Financial Statements." On a pro
forma basis as of June 30, 1997, the Merger is expected to decrease LDNG's long
term debt as a percentage of its total capitalization from 54% to 51%. This
improvement is expected to enhance LDNG's financial flexibility and improve its
ability to borrow additional funds for future acquisition or other purposes.
American's operating costs of $0.77 per Mcfe for the year ended December 31,
1996 are higher than LDNG's operating costs of $0.59 per Mcfe for the same
period. However, American's 1996 operating costs were significantly improved
from the 1995 operating cost level of $0.85 per Mcfe. On a pro forma basis,
LDNG's 1996 operating costs are $0.62 per Mcfe. LDNG management expects to take
actions to reduce American's operating costs to a level more consistent with
LDNG's historical results by consolidating field operations, implementing LDNG
cost control systems, and by more aggressive exploitation of American's proved
property base. The Merger will
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be dilutive to LDNG's earnings per share. On a pro forma basis, LDNG's earnings
for the year ended December 31, 1996 and the six months ended June 30, 1997
(which exclude a one-time non-recurring impairment charge expected to be
recorded at consummation of the Merger) are $5.2 million ($0.09 per share) and
$12.5 million ($0.30 per share), respectively, compared to LDNG's historical
earnings for the same periods of $21.1 million ($0.76 per share) and $18.2
million ($0.66 per share), respectively. SUCH UNAUDITED PRO FORMA EARNINGS PER
SHARE INFORMATION HAS BEEN PREPARED PURSUANT TO REGULATIONS PRESCRIBED BY THE
SECURITIES AND EXCHANGE COMMISSION. IT DOES NOT CONSIDER THE EFFECTS OF THE COST
REDUCTION AND FINANCING PLANS OF MANAGEMENT EXPECTED TO BE IMPLEMENTED AFTER
CLOSING, NOR DOES IT INCLUDE THE EFFECTS OF CERTAIN PURCHASE ACCOUNTING
ADJUSTMENTS EXPECTED TO BE RECORDED AT CLOSING. THE FINANCIAL IMPACT OF SUCH
PLANS AND PURCHASE ACCOUNTING ADJUSTMENTS IS EXPECTED TO BE MATERIAL. THESE ARE
DESCRIBED IN THE FOOTNOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS INCLUDED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. The
decrease in earnings and earnings per share is primarily the result of the
increase in depreciation, depletion and amortization expected to be incurred as
a result of the transaction. However, management of LDNG believes that the
potential negative effect of the Merger on earnings is outweighed by other
benefits of the Merger to LDNG.
APPROVAL OF PRINCIPAL STOCKHOLDER. The LDNG Board considered the fact that
Louis Dreyfus Natural Gas Holdings Corp., which holds approximately 72% of the
outstanding shares of LDNG Common Stock, had indicated its approval of the
Merger and had agreed to execute the Stockholder Agreement to vote in favor of
the Merger.
OPINION OF SALOMON. The LDNG Board considered the opinion rendered by
Salomon that as of the date of such opinion, the consideration to be paid in the
Merger by LDNG to the holders of American Common Stock was fair, from a
financial point of view, to LDNG.
The foregoing discussion of the information and factors considered by the
LDNG Board is not intended to be exhaustive but it is believed to include the
material factors considered by the LDNG Board. In reaching its determination to
approve and recommend the Merger, the LDNG Board did not assign any relative or
specific weights to the foregoing factors, and the individual directors may have
given different weights to different factors.
OPINION OF FINANCIAL ADVISOR TO LDNG
LDNG engaged Salomon to render its opinion as to the fairness, from a
financial point of view, to LDNG of the consideration to be paid by LDNG to the
holders of American Common Stock in the Merger. On June 24, 1997, in connection
with the LDNG Board's evaluation of the Merger Agreement and the contemplated
transaction, Salomon delivered its opinion that, as of such date and subject to
certain assumptions, factors and limitations as described below, the
consideration to be paid by LDNG in the Merger to the holders of American Common
Stock was fair, from a financial point of view, to LDNG. A copy of the opinion
of Salomon (the "Opinion"), which sets forth assumptions made, procedures
followed, matters considered and limitations on the review by Salomon in
rendering the Opinion, is attached as Annex B to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The summary of the
Opinion set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such Opinion. STOCKHOLDERS OF LDNG ARE
URGED TO READ CAREFULLY THE OPINION IN ITS ENTIRETY.
As described elsewhere herein under "The Merger--Background of the Merger,"
the Merger Agreement, as executed and delivered on June 24, 1997, contemplated
the merger of American with and into a wholly owned subsidiary of LDNG.
Subsequent to June 24, 1997, the Merger Agreement was amended to provide for the
Merger of American directly into LDNG rather than a wholly owned subsidiary. The
consideration to be paid by LDNG in the Merger to the holders of American Common
Stock was not affected by such amendment. The Opinion of Salomon was rendered
prior to the amendment of the Merger Agreement and all references to the Merger
therein and in the summary of the Opinion contained herein necessarily relate to
the Merger as contemplated prior to such amendment.
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LDNG has not requested that Salomon update the Opinion to take into account the
amendment to the Merger Agreement because LDNG does not believe that such
amendment and the resulting change in the structure of the Merger has any
material effect on the financial terms of the Merger or the fairness, from a
financial point of view, to LDNG of the consideration to be paid by LDNG to the
holders of American Common Stock in the Merger.
No limitations were imposed by LDNG on the scope of the investigation or the
procedures to be followed by Salomon in rendering the Opinion. Salomon was not
requested to and did not make any recommendation to the LDNG Board as to the
form or amount of the consideration to be paid for the American Common Stock in
the Merger, which was determined through arm's-length negotiations between LDNG
and American. In arriving at the Opinion, Salomon did not ascribe a specific
range of values to American, but made a determination as to the fairness, from a
financial point of view, to LDNG of the consideration to be paid to the
stockholders of American on the basis of the financial and comparative analyses
summarized below. The Opinion is for the use and benefit of the LDNG Board in
connection with its consideration of the Merger and does not constitute a
recommendation concerning how holders of LDNG Common Stock should vote with
respect to the issuance of LDNG Common Stock and other securities in connection
with the Merger. The Opinion does not address LDNG's underlying business
decision to effect the Merger.
In connection with rendering the Opinion, Salomon, among other things: (i)
reviewed the principal financial terms of the Merger set forth in the June 20,
1997 draft of the Merger Agreement, in the form provided to Salomon; (ii)
reviewed certain publicly available information concerning LDNG; (iii) reviewed
certain publicly available information concerning American; (iv) reviewed
certain publicly available information concerning the industry in which LDNG and
American operate; (v) reviewed and analyzed certain financial forecasts and
other non-public financial and operating data concerning the businesses and
operations of LDNG and American that were provided to Salomon by the managements
of LDNG and American, respectively; (vi) reviewed certain reserve and reserve
production estimates for American prepared by American, (vii) reviewed certain
reserve and reserve production estimates for LDNG prepared by LDNG, (viii)
reviewed and analyzed certain publicly available information with respect to
certain other companies that Salomon believed to be comparable in certain
respects to LDNG and American and the trading markets for such other companies'
securities; (ix) reviewed and analyzed certain publicly available and other
information concerning the trading of, and the trading market for, the LDNG
Common Stock and the American Common Stock; (x) reviewed the financial terms of
certain recent business combinations and acquisition transactions Salomon deemed
reasonably comparable to the Merger and otherwise relevant to its inquiry; (xi)
analyzed certain information concerning cost savings and combination benefits
expected to result from the Merger that was provided to Salomon by the
management of LDNG and (xii) considered such other information, financial
studies, analyses, investigations and financial, economic, market and trading
criteria as Salomon deemed relevant to its inquiry. Salomon also discussed the
foregoing with certain management of LDNG and American, including the past and
current business operations, financial condition and prospects of LDNG and
American, respectively, as well as other matters Salomon believed relevant to
its inquiry. The Opinion was necessarily based upon conditions as they existed
and could be evaluated as of the date of the Opinion. Salomon does not have any
obligation to update, revise or reaffirm its opinion.
In arriving at its Opinion, Salomon assumed and relied upon the accuracy and
completeness of the financial and other information reviewed by it for the
purpose of the Opinion and did not assume any responsibility for independent
verification of such information. With respect to the operating and financial
forecasts of LDNG and American, Salomon assumed that such forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the respective managements of LDNG and American, as the case
may be, and Salomon expressed no opinion with respect to such forecasts or the
assumptions on which they are based. In arriving at its Opinion, Salomon did not
assume any responsibility for conducting any independent evaluation or appraisal
of the assets (including properties and facilities) or liabilities of LDNG or
American.
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In connection with its presentation to the LDNG Board on June 24, 1997, and
in advising the LDNG Board of its opinion, Salomon performed a variety of
financial and comparative analyses, as summarized below. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances and, therefore, an opinion is not readily
susceptible to summary description. Furthermore, in arriving at the Opinion,
Salomon did not attribute any particular weight to any analysis and factor
considered by Salomon. Accordingly, Salomon 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 or incomplete view of the process underlying the Opinion. In
its analyses, Salomon made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of LDNG and American. Any estimates contained in
its analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
as set forth therein. In addition, analyses relating to the value of businesses
do not purport to be appraisals or to reflect the prices at which businesses may
actually be sold.
PURCHASE PRICE ANALYSIS. Salomon noted that the terms of the Merger
indicated an implied purchase price for each share of American Common Stock of
$15.42, based on an exchange ratio of 0.72 of a share of LDNG Common Stock per
share of American Common Stock, a $17.25 per share price for LDNG Common Stock
and cash consideration of $3.00 per share of American Common Stock. When
conducting its analyses and evaluating the fairness of the transaction, from a
financial point of view, to LDNG, Salomon compared this implied purchase price
to recent public trading prices for American Common Stock and reviewed the
multiples of (i) Firm Value (defined as market value of equity plus debt and
preferred stock minus cash) to EBITDAX (defined as income before interest,
income taxes, depreciation, depletion and amortization, impairments and
exploration costs), as estimated for 1997 and 1998, (ii) Firm Value to proved
and proved plus probable reserves and (iii) equity market value to cash flow
from operations before changes in working capital ("Cash Flow"), as estimated
for 1997 and 1998, represented by this implied purchase price.
DISCOUNTED CASH FLOW ANALYSES. Using a discounted cash flow analysis,
Salomon estimated the present value of the future cash flows that American could
be expected to generate from April 1, 1997 and beyond based on: (a) reserve
report information provided by American for proved reserves and the associated
production profile; (b) projected production profiles for development (probable)
and exploration properties, and (c) oil pricing scenarios using oil futures
prices as published by MERC through 2003, escalated at 3% thereafter, and gas
pricing scenarios using gas futures prices as published by NYMEX through 2003,
escalated at 3% thereafter. Based on Salomon's analysis of the weighted average
costs of capital ("WACCs") for comparable companies, Salomon used WACCs ranging
from 10% to 12% in its analysis. Salomon also assigned risk factor ranges for
proved, probable and exploratory reserves of 95-100%, 40-60% and 10-15%,
respectively. Using a 10% WACC, the estimated net present value of the future
cash flows that could be expected to be generated from such reserves ranged from
$322 million to $377 million. Using this analysis and adding estimated value for
undeveloped acreage and other assets, and deducting estimated market values for
long term debt, other liabilities and preferred stock, Salomon arrived at a net
asset value range for American of $12.61 to $16.11 per share.
Salomon also estimated the present value of the future cash flows that LDNG
could be expected to generate from April 1, 1997 and beyond based on: (a)
reserve report information provided by LDNG for proved reserves and the
associated production profile; (b) projected production profiles for development
(probable) and exploration properties, and (c) oil pricing scenarios using oil
futures prices as published by MERC through 2003, and gas pricing scenarios
using gas futures prices as published by NYMEX through 2003, escalated at 3%
thereafter. Based on Salomon's analysis of WACCs for comparable companies,
Salomon used WACCs ranging from 10% to 12% in its analysis. Salomon also
assigned risk factor ranges for proved, probable and exploratory reserves of
95-100%, 40-60% and 10-15%, respectively. Using a 10% WACC, the estimated net
present value of the future cash flows that could be expected to be generated
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from such reserves ranged from $900 million to $1,013 million. Using this
analysis and adding estimated value for undeveloped acreage and other assets,
and deducting estimated market values for long term debt, other liabilities and
preferred stock, Salomon arrived at a net asset value range for LDNG of $15.81
to $19.86 per share.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. Salomon examined
the trading history of the LDNG Common Stock and the American Common Stock in
terms of both price and volume during the period from January 1, 1996 through
June 20, 1997. Using publicly available information, Salomon also compared
selected financial data of LDNG and American with similar data of selected
publicly-traded companies engaged in the businesses considered by Salomon to be
comparable to those of LDNG and American in both the Mid-Continent and Gulf of
Mexico Regions (the "Comparable Companies"). Specifically, for the Mid-Continent
Region, Salomon included in its review Barrett Resources Corp., Comstock
Resources, Inc., Cross Timbers Oil Co., Devon Energy Corp., Hugoton Energy
Corp., KCS Energy, Inc., Parker and Parsley Petroleum Co., Swift Energy Co. and
Vintage Petroleum Inc. For the Gulf of Mexico Region, Salomon included in its
review Flores & Rucks, Inc., Forcenergy Inc., The Houston Exploration Co.,
Newfield Exploration Co. and Stone Energy Corp. An analysis of the ratio of Firm
Value at March 31, 1997 to estimated 1997 EBITDAX resulted in a median value of
6.2 times for the Comparable Companies in the Mid-Continent Region, a median
value of 5.7 times for the Comparable Companies in the Gulf of Mexico Region and
values of 5.7 times and 5.3 times for LDNG and American, respectively. The ratio
of Firm Value to estimated 1998 EBITDAX resulted in a median value of 5.5 times
for the Comparable Companies in the Mid-Continent Region, a median value of 4.6
times for the Comparable Companies in the Gulf of Mexico Region and values of
5.8 times and 4.5 times for LDNG and American, respectively. An analysis of the
ratio of equity market value at June 20, 1997 to estimated 1997 Cash Flow
resulted in a median value of 5.6 times for the Comparable Companies in the
Mid-Continent Region, a median value of 5.4 times for the Comparable Companies
in the Gulf of Mexico Region and values of 4.2 times and 4.1 times for LDNG and
American, respectively. The ratio of equity market value at June 20, 1997 to
estimated 1998 Cash Flow resulted in a median value of 5.1 times for the
Comparable Companies in the Mid-Continent Region, a median value of 4.2 times
for the Comparable Companies in the Gulf of Mexico Region and values of 4.2
times and 3.6 times for LDNG and American, respectively. The ratio of Firm Value
to proved reserves, in terms of dollars per Mcfe of proved reserves ("$/Mcfe"),
resulted in a median value of $1.02/Mcfe for the Comparable Companies in the
Mid-Continent Region, a median value of $1.84/Mcfe for the Comparable Companies
in the Gulf of Mexico Region and values of $0.82/Mcfe and $1.25/Mcfe for LDNG
and American, respectively.
Salomon calculated a range of implied public market equity values per share
of American Common Stock by performing an analysis that applied multiples,
selected based on considerations such as the respective median values for the
Comparable Companies and Salomon's knowledge of American and the industry, to
American's estimates of 1997 and 1998 Cash Flow, 1997 and 1998 EBITDAX and 1996
reserves. Using these considerations, Salomon applied ratios ranging from 5.5
times to 6.5 times for 1997 EBITDAX, 4.5 times to 5.5 times for 1998 EBITDAX,
5.0 times to 6.0 times for 1997 Cash Flow and 4.0 times to 5.0 times for 1998
Cash Flow and derived an implied public market equity value range for American
Common Stock of $15.00 to $18.00 per share as compared to a trading price of
$13.00 per share of American Common Stock as of June 20, 1997.
Salomon also calculated a range of implied public market equity values per
share of LDNG Common Stock by performing an analysis that applied multiples,
selected based on considerations such as the respective median values for the
Comparable Companies and Salomon's knowledge of LDNG and the industry, to LDNG's
estimates of 1997 and 1998 Cash Flow, 1997 and 1998 EBITDAX and 1996 reserves.
Using these considerations, Salomon applied ratios ranging from 5.5 times to 6.5
times for 1997 EBITDAX, 4.5 times to 5.5 times for 1998 EBITDAX, 5.0 times to
6.0 times for 1997 Cash Flow and 4.5 times to 5.5 times for 1998 Cash Flow and
derived an implied public market equity value range for LDNG Common Stock of
$18.00 to $21.00 per share as compared to a trading price of $17.25 per share of
LDNG Common Stock as of June 20, 1997.
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Because of the inherent differences between the businesses, operations and
prospects of LDNG and American and the businesses, operations and prospects of
the Comparable Companies, Salomon believes that a purely quantitative comparable
company analysis, without considering qualitative judgments concerning
differences between the financial and operating characteristics of LDNG,
American and the Comparable Companies that would affect the public trading
values of LDNG, American and such other companies, would not be particularly
meaningful in the context of the Merger.
ANALYSIS OF SELECTED COMPARABLE TRANSACTIONS. Salomon reviewed the prices
paid, to the extent publicly available, in selected acquisition transactions
which involved certain oil and gas companies similar to American and which took
place in 1996 and 1997. Salomon included in its review the following
transactions: Mesa Inc./WMC Ltd., Bellwether Exploration Co./Torch Energy
Advisors Inc., Comstock Resources, Inc./Black Stone Oil Co., et al., Contour
Production Co. LLP/Kelley Oil & Gas Corp., Devon Energy Corp./Kerr-McGee Corp.,
Enron Capital & Trade Resources Corp./CALPERS/Hardy Oil & Gas PLC, HS Resources,
Inc./Tide West Oil Co., Hunt Petroleum of Texas, Inc./W&T Offshore Inc./The
Columbia Gas System, Inc., KCS Energy, Inc./MidAmerican Energy Co. (a subsidiary
of MidAmerican Energy Holdings Co.)(InterCoast Energy Co.), Lomak Petroleum,
Inc./American Cometra, Inc., National Energy Group, Inc./Alexander Energy Corp.,
and Noble Affiliates, Inc. (Sub. Samedan Oil Corp.)/Energy Development Corp.
(Public Service Electric & Gas Co.) (the "Comparable Transactions"). Salomon
reviewed the multiples paid in the Comparable Transactions of transaction value
and adjusted transaction value (transaction value adjusted to exclude working
capital and other non-oil and gas assets) to the acquired companies' respective
proved reserves in terms of $/Mcfe based on a 6 to 1 gas to oil conversion
ratio. For the Comparable Transactions, an analysis of the ratio of transaction
values to proved reserves resulted in a median value of $1.03/Mcfe, and an
analysis of the ratio of adjusted transaction values to proved reserves resulted
in a median value of $0.96/Mcfe. For the Merger, an analysis of the ratio of
transaction value to proved reserves resulted in a value of $1.41/Mcfe, and an
analysis of the ratio of adjusted transaction value to proved reserves resulted
in a value of $1.32/Mcfe.
Salomon calculated a range of implied private market equity values per share
of American Common Stock by performing an analysis that applied multiples,
selected based on considerations such as the respective median values for the
Comparable Transactions and Salomon's knowledge of American and the industry, to
American's proved reserves. Using these considerations, Salomon applied
multiples ranging from $1.10/Mcfe to $1.50/Mcfe for the transaction value
analysis and from $0.95/Mcfe to $1.25/Mcfe for the adjusted transaction value
analysis and derived a private market equity value range for American Common
Stock of $13.00 to $17.00 per share.
Salomon also calculated a range of implied private market equity values per
share of LDNG Common Stock by performing an analysis that applied multiples,
selected based on considerations such as the respective median values for the
Comparable Transactions and Salomon's knowledge of LDNG and the industry, to
LDNG's proved reserves. Using these considerations, Salomon applied multiples
ranging from $0.70/Mcfe to $1.00/Mcfe for the transaction value analysis and
from $0.75/Mcfe to $0.95/Mcfe for the adjusted transaction value analysis and
derived a private market equity value range for LDNG Common Stock of $16.00 to
$23.00 per share.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
LDNG, American and the acquired businesses analyzed, Salomon believes that it is
inappropriate to rely solely on the quantitative results of the analysis without
also making qualitative judgments concerning differences between the
characteristics of the Comparable Transactions and the Merger that would affect
the acquisition values of American, LDNG and such acquired companies.
CONTRIBUTION ANALYSIS. Based on projections supplied to Salomon by the
managements of LDNG and American, Salomon compared the contributions of each of
LDNG and American to combined Firm Value and to reserves, annual production,
revenue, EBITDAX and Cash Flow. The analysis did not assume the
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realization of any cost savings or synergies from the Merger. The analysis
indicated a combined company Firm Value of $1,141 million with a 70.9% and 29.1%
contribution from LDNG and American, respectively, a combined company equity
value of $723.4 million with a 66.5% and 33.5% contribution from LDNG and
American, respectively, and that LDNG's contribution to the combined company for
the latest twelve month period, 1997 and 1998 would be (i) as to reserves, 80.8%
in terms of Bcfe for 1996; (ii) as to production, 69.4% in terms of Bcfe for
1996; (iii) as to revenue, 71.1%, 70.8% and 66.4%, respectively; (iv) as to
EBITDAX, 74.3%, 73.2% and 68.3%, respectively; and (v) as to Cash Flow, 69.4%,
69.7% and 66.6%, respectively.
Salomon is an internationally recognized investment banking firm that
provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
purposes. LDNG retained Salomon based on Salomon's expertise in the valuation of
companies and because of its substantial experience in transactions similar to
the Merger.
In connection with Salomon's services as financial advisor to LDNG, LDNG has
agreed to pay Salomon as compensation for its services a fee in the amount of
$125,000 upon rendering the Opinion, and an additional $125,000 upon filing of
the Joint Proxy Statement/Prospectus. LDNG has also agreed to reimburse Salomon
for certain reasonable out-of-pocket expenses incurred in connection with the
Merger (including reasonable fees and expenses of its legal counsel) and to
indemnify Salomon and certain related persons against certain liabilities and
expenses in connection with the Merger, including certain liabilities under the
federal securities laws.
Salomon has previously rendered certain investment banking and financial
advisory services to LDNG. In the ordinary course of business, Salomon may
actively trade the securities of American and LDNG for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
RECOMMENDATION OF THE AMERICAN BOARD AND REASONS FOR THE MERGER
The American Board believes that the terms of the Merger are fair to, and in
the best interests of, American and its stockholders and has unanimously
approved the Merger Agreement and the Merger. The American Board unanimously
recommends that American's stockholders vote for approval of the Merger
Agreement and the Merger.
In reaching its decision to recommend approval of the Merger, the American
Board considered a number of factors, including the following:
GROWTH STRATEGY. The American Board considered how the various aspects of
combining with LDNG would achieve the expansion and growth strategies that the
American Board had established, particularly, increasing reserves, production
and cash flow by expanding into new core areas that would provide a large
inventory of reinvestment projects. The American Board believes that the
complementary nature of the two companies will provide a strong foundation for a
successful growth strategy.
CHARACTERISTICS OF LDNG. The American Board considered many aspects of LDNG
to be attractive in the context of a merger with American, specifically the high
level of operational control, the strong operating and marketing skills, a large
inventory of low-risk development drilling prospects, the concentration of
reserves, the location of the properties and the long-lived nature of its
reserves. The American Board believes that these four factors combine to give
reinvestment projects on these properties a better chance of success. The
combined companies will hold interests in approximately 100,000 gross acres in
the Cotton Valley Reef Trend of East Texas where American is currently drilling
its first reef prospect in the Bear Grass area, with a working interest of 63%.
The combined companies will also hold interests in 50 exploration blocks in the
Gulf of Mexico totaling approximately 103,000 gross undeveloped acres, with a
particularly strong position in the Texas state waters area.
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BENEFITS OF A LARGER ENTERPRISE. The combined company will be a
substantially larger enterprise than American and will have a larger market
capitalization. The American Board considered that the Merger would create a
substantial pool of reserves and production capacity, and considered the
benefits of the potential economies of scale that might arise. In particular,
the American Board considered the benefits of purchasing power and operational
synergies and the fact that the combined entity should produce significantly
greater cash flows than American, which should be available to the combined
entity for growth through acquisitions, development and exploration. The
American Board also considered that American's stockholders should enjoy
enhanced liquidity as a result of the increased visibility expected to result
from heightened market research and institutional investor focus on a larger
combined entity. In addition, the American Board considered that the combined
company would form an entity with the resources and scale to pursue growth
opportunities and attract a broader range of investors.
MANAGEMENT. A strong management team drawn from both American and LDNG will
manage the combined entity. These managers have complementary skills that are
expected to facilitate the accomplishment of the Merger in an efficient and
cooperative manner and to enhance the ability of the combined entity to succeed
in its new role as one of the larger independent oil and gas companies. The
American Board also considered that three directors from the American Board will
join the LDNG Board.
FINANCIAL. The American Board reviewed a financial analysis of the impact
of the Merger on the balance sheet and cash flow of the combined company. The
American Board considered the fact that, as a result of the Merger, the credit
ratios of the combined entity are expected to be better than those of American
as a separate entity. The American Board considered the primary potential
benefits of better credit ratios to be a lower cost of capital and a greater
ability to withstand downturns in commodity prices and business cycle.
MERGER AGREEMENT. The American Board considered the terms and conditions of
the Merger Agreement, including without limitation, the consideration to be
received by American stockholders in the Merger and the stockholder approval
requirements of the Merger Agreement, American's ability to provide information
to other potential acquirors who make unsolicited acquisition proposals and
American's ability to terminate the Merger Agreement and pay certain fees to
LDNG in order to enter into another transaction that is more favorable to
American's stockholders from a financial point of view. See "The Merger
Agreement."
OPINION OF FINANCIAL ADVISOR. The American Board considered the opinion
rendered by Prudential Securities that the Conversion Number and Cash
Consideration are fair to holders of American Common Stock from a financial
point of view.
MERGER CONSIDERATION PREMIUM. The American Board considered that the merger
consideration to be paid by LDNG represented a premium over the market value of
American's Common Stock.
STOCKHOLDER AGREEMENT. The American Board also considered the terms of the
agreement of Louis Dreyfus Natural Gas Holdings Corp., which holds approximately
72% of the outstanding shares of LDNG Common Stock, to vote in favor of the
Merger and thereby ensuring the vote of LDNG stockholders in favor of the
Merger.
OTHER RELATIONSHIPS. The American Board considered the fact that American
and LDNG are currently partners in the Yoakum Gorge Wilcox project in south
Texas where they hold an aggregate 87.5 percent working interest in
approximately 60,000 gross acres. Approximately 50 exploratory wells are planned
in 1997 in the Yoakum Gorge area, including several high potential tests to the
Lower Wilcox formation. For information concerning results of one such well
recently drilled in the Yoakum Gorge area, see "Summary--Recent Development."
TAX CONSEQUENCES. The American Board considered the treatment of the Merger
as a tax free exchange of American Common Stock for LDNG Common Stock for
federal income tax purposes, except to the extent of the Cash Consideration
received.
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The foregoing discussion of the information and factors considered by the
American Board is not intended to be exhaustive but it is believed to include
the material factors considered by the American Board. In reaching its
determination to approve and recommend the Merger, the American Board did not
assign any relative or specific weights to the foregoing factors, and the
individual directors may have given different weights to different factors.
OPINION OF FINANCIAL ADVISOR TO AMERICAN
In its role as financial advisor to American, Prudential Securities was
requested by the American Board to render an opinion as to the fairness of the
Conversion Number and the Cash Consideration, from a financial point of view, to
holders of American Common Stock in connection with the acquisition of American
pursuant to the Merger Agreement. No limitations were imposed upon Prudential
Securities by the American Board with respect to the review undertaken or the
procedures followed in rendering such opinion. Prudential Securities delivered
its written opinion dated as of June 24, 1997 (the "Prudential Securities
Opinion") to the American Board to the effect that, as of such date, the
Conversion Number and the Cash Consideration were fair, from a financial point
of view, to the holders of American Common Stock.
As described elsewhere herein under "The Merger--Background of the Merger,"
the Merger Agreement, as executed and delivered on June 24, 1997, contemplated
the merger of American with and into a wholly owned subsidiary of LDNG.
Subsequent to June 24, 1997, the Merger Agreement was amended to provide for the
Merger of American directly into LDNG rather than a wholly owned subsidiary. The
consideration to be paid by LDNG in the Merger to the holders of American Common
Stock was not affected by such amendment. The Prudential Securities Opinion was
rendered prior to the amendment of the Merger Agreement and all references to
the Merger therein and in the summary of the Prudential Securities Opinion
contained herein necessarily relate to the Merger as contemplated prior to such
amendment. American has not requested that Prudential Securities update the
Prudential Securities Opinion to take into account the amendment to the Merger
Agreement because American does not believe that such amendment and the
resulting change in the structure of the Merger has any material effect on the
financial terms of the Merger or the fairness, from a financial point of view,
to the holders of American Common Stock of the consideration to be paid by LDNG
to the holders of American Common Stock in the Merger.
THE FULL TEXT OF THE PRUDENTIAL SECURITIES OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS SET FORTH AS ANNEX C TO THIS JOINT PROXY STATEMENT/ PROSPECTUS.
STOCKHOLDERS OF AMERICAN ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE
PRUDENTIAL SECURITIES OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONVERSION
NUMBER AND THE CASH CONSIDERATION AND DOES NOT ADDRESS ANY OTHER TERMS OF THE
MERGER. THE PRUDENTIAL SECURITIES OPINION WAS DELIVERED FOR THE INFORMATION OF
THE AMERICAN BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER
OF AMERICAN AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE AMERICAN SPECIAL
MEETING. THE SUMMARY OF THE PRUDENTIAL SECURITIES OPINION SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
In conducting its analysis and rendering the Prudential Securities Opinion,
Prudential Securities among other things: (i) reviewed the Merger Agreement;
(ii) reviewed certain publicly available historical financial and operating data
of American and LDNG, including certain public filings of each of American and
LDNG; (iii) reviewed with American and LDNG management certain information
relating to American and LDNG, including financial forecasts, prospects and
business plans for the fiscal years ending December 31, 1997 and 1998; (iv)
reviewed certain schedules regarding gas and oil swaps and futures contracts
entered into by LDNG provided by management of LDNG; (v) reviewed evaluation
reports of estimated oil and gas reserves of LDNG reviewed by Ryder Scott
Company and certain supplemental reports relating to such reserves prepared by
Netherland, Sewell & Associates, Inc., both of which are independent petroleum
reserve engineers; (vi) discussed with senior management of American the results
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of the American due diligence review of LDNG; (vii) reviewed the reported prices
and trading activity for the American Common Stock and the LDNG Common Stock, as
well as the reported prices and trading activity for the common stock of certain
publicly-traded companies Prudential Securities deemed reasonably similar to
American and LDNG; (viii) reviewed financial and operating data of American and
LDNG, as well as publicly available financial and operating data of certain
publicly-traded companies which Prudential Securities deemed reasonably similar
to American and LDNG; (ix) reviewed the financial terms and conditions of
certain recent transactions in the oil and gas exploration and production
industry which Prudential Securities deemed relevant; (x) analyzed certain pro
forma financial projections for the combined company prepared by American; (xi)
analyzed the pro forma impact of the Merger on cash flow from operations per
share and earnings per share of LDNG; and (xii) reviewed such other financial
studies, analyses and investigations as Prudential Securities deemed relevant to
its opinion.
The foregoing factors represent all of the material factors considered by
Prudential Securities. The Prudential Securities Opinion was necessarily based
upon information available to it, and on economic, financial, market and other
conditions as they existed and could be evaluated on the date of the opinion.
Although subsequent developments may affect its opinion, Prudential Securities
does not have any obligation to update, revise or reaffirm the Prudential
Securities Opinion.
Prudential Securities expressed no opinion as to what the value of the LDNG
Common Stock will be when issued pursuant to the Merger Agreement or the prices
at which the LDNG Common Stock will trade after the Merger. In addition, the
Prudential Securities Opinion does not evaluate the relative merits of the
Merger as compared to any other strategic plan or business combination or
opportunity which might be presented to American.
In the course of its review and analysis Prudential Securities relied upon
and assumed, without independent verification, the accuracy and completeness of
all financial data and other information that was provided by American and LDNG,
or that it obtained from documents publicly filed by those and other companies.
With respect to financial forecasts furnished by American and LDNG, Prudential
Securities assumed that the projections reflect the best currently available
estimates and judgments of the senior management of American and LDNG,
respectively, as to the future financial performance of American and LDNG.
Prudential Securities did not undertake any independent analysis to verify the
reasonableness of the assumptions underlying these forecasts. Prudential
Securities neither made nor obtained any independent appraisals of the assets or
liabilities of American or LDNG. Prudential Securities did not express any
opinion with respect to legal or tax matters relating to the Merger Agreement.
In preparing its opinion, Prudential Securities assumed that the Merger
qualifies (i) as a tax-free transaction under the Internal Revenue Code of 1986,
as amended, and (ii) for "purchase" accounting treatment.
In connection with preparing and rendering its opinion to the American Board
on June 24, 1997, Prudential Securities performed a variety of financial and
comparative analyses as summarized below. The preparation of a fairness opinion
is a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances. Accordingly, such an opinion is
not necessarily susceptible to partial analysis or summary description.
Prudential Securities believes that its analysis must be considered as a whole
and that selecting portions thereof or of the factors considered by it, without
considering all such analyses and factors, could create an incomplete view of
the evaluation process underlying the opinion. Prudential Securities made
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of American and LDNG. Any estimates contained in Prudential Securities'
analyses are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, analyses relating to the values of businesses and
securities do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainties.
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The projections furnished to Prudential Securities and used in formulating
the Prudential Securities Opinion were provided to Prudential Securities by the
management of each of American and LDNG. American and LDNG do not publicly
disclose internal management projections of the type provided to Prudential
Securities in connection with the review of the Merger and, accordingly, such
projections were not prepared with a view toward public disclosure. The
projections were based on numerous variables and assumptions which are
inherently uncertain, including without limitation, factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in such projections.
Prudential Securities performed an analysis of the Merger which assumed an
implied purchase price pursuant to terms of the Merger for each share of
American Common Stock of $15.96, based on a Conversion Number of 0.72 shares of
LDNG Common Stock per share of American Common Stock, a $18.00 per share price
for LDNG Common Stock which was the closing price of LDNG Common Stock on June
23, 1997, and Cash Consideration of $3.00 per share of American Common Stock.
Prudential Securities also examined the trading history of the American Common
Stock and the LDNG Common Stock in terms of both price and volume during the
period from June 17, 1996 through June 20, 1997.
For the relative contribution analysis, using pro forma financial
projections provided by management of American and LDNG, Prudential Securities
evaluated the pro forma combined company. Pro forma for the Merger, using a
$18.00 per share Common Stock price and 27.8 million shares outstanding for LDNG
and using a $14.125 per share American Common Stock price and 15.7 million
shares outstanding for American, and based on 0.72 shares of LDNG stock for each
share of American Stock and $3.00 in cash for each share of American Stock,
American comprises 33.4% of the combined equity market value.
REVIEW OF FINANCIAL INFORMATION CONCERNING AMERICAN AND LDNG
Prudential Securities reviewed (i) total revenues, costs and operating
expenses, income before interest, income taxes, depreciation, depletion and
amortization, impairments and exploration costs ("EBITDAX"), cash flow from
operations (defined as net income plus depreciation, depletion, and amortization
plus exploration and dry hole costs plus other non-cash charges before changes
in working capital) ("CFFO"), for the historical calendar years 1994 through
1996 and for the estimate calendar years 1997 and 1998 for each of American and
LDNG, (ii) costs and operating expenses and EBITDAX, expressed as a percentage
of revenue, for each company for the same periods, and (iii) total revenue, CFFO
and earnings per common share ("EPS"), expressed in terms of annual growth, in
percentage terms, for each company for the same periods. Prudential Securities
also reviewed, with respect to each of American and LDNG, proved reserves of oil
and natural gas, for the calendar years 1994 through 1996, and pre-tax future
net cash flows, as reviewed by the Commission, discounted at 10% ("SEC PV10%").
Prudential Securities also reviewed equity market capitalization and enterprise
value (defined as equity market capitalization, plus non-convertible debt,
minority interests, non-convertible preferred stock and out-of-the-money
convertible securities, less cash and cash equivalents) for each of American and
LDNG.
SUMMARY IMPLIED VALUATION OF LDNG
LDNG SELECTED COMPARABLE COMPANY ANALYSIS. In order to analyze the relative
public market valuations of LDNG and certain selected comparable oil and gas
exploration companies, Prudential Securities analyzed certain ratios indicative
of market value for LDNG and five selected publicly-traded companies whose lines
of business and operations made them, in Prudential Securities' judgment, as
nearly comparable to LDNG as practicable. An analysis of comparable companies is
not purely mathematical; rather it involves complex considerations and judgments
concerning similarities and differences in financial, operational and other
characteristics of potentially comparable companies. For purposes of this
analysis, Prudential Securities treated the following companies as comparable to
LDNG: Cross Timbers Oil and Gas Company; Devon Energy Corporation; Hugoton
Energy Corporation; KCS Energy, Inc.; and Snyder Oil Company (collectively the
"LDNG Comparables").
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Using publicly available financial data, Prudential Securities determined
the relationship for LDNG between its unlevered market value ("UMV") (defined as
market value of common equity plus total debt and redeemable preferred stock
minus available cash) and its EBITDAX, the relationship between its equity
market capitalization and its CFFO, the relationship between the total market
capitalization of its reserves ("TMCR") (defined as the UMV plus other long-term
liabilities minus non-cash working capital, minus net other tangible assets
minus undeveloped acreage) to its proved reserves measured in Mcfe and to its
pre-tax SEC PV10%. The LDNG Comparables were found to have high, low, mean and
median UMV to latest twelve months ("LTM") EBITDAX ratios of 7.5x, 5.8x, 6.6x
and 6.6x, respectively. The estimated high, low, mean and median UMV to 1997
EBITDAX ratios were 6.5x, 5.4x, 6.0x and 6.1x, respectively. The estimated high,
low, mean and median UMV to 1998 EBITDAX ratios were 6.4x, 4.4x, 5.3x and 5.1x,
respectively. LDNG's LTM, 1997 and 1998 UMV to EBITDAX ratios were 6.1x, 6.3x
and 6.4x, respectively. The high, low, mean and median equity market
capitalization to LTM CFFO ratios for the LDNG Comparables were 6.3x, 4.8x, 5.8x
and 6.1x, respectively. The estimated high, low, mean and median equity market
capitalization to 1997 CFFO ratios were 6.2x, 4.5x, 5.5x and 5.6x, respectively.
The estimated high, low, mean and median equity market capitalization to 1998
CFFO ratios were 6.1x, 3.9x, 4.9x and 4.3x, respectively. LDNG's equity market
capitalization to LTM, 1997 and 1998 CFFO ratios were 4.4x, 4.6x and 4.7x,
respectively. The high, low, mean and median TMCR to proved reserves values for
the LDNG Comparables were $1.14, $0.94, $1.02 and $0.99, respectively. LDNG's
TMCR to proved reserves value was $0.82. The LDNG Comparables were found to have
high, low, mean and median TMCR to SEC PV10% percentages of 111.3%, 75.8%, 90.4%
and 87.3%, respectively. LDNG's TMCR to SEC PV10% value was 72.6%. The LDNG
selected comparable company analysis resulted in high, low, and mean values per
share of $24.69, $16.55 and $20.49, respectively.
LDNG SELECTED COMPARABLE TRANSACTION ANALYSIS. Prudential Securities
calculated a range of implied equity values for LDNG by reviewing certain
publicly available financial data and other information relating to (i)
comparable company transactions, announced between August 1996 and May 1997,
including: Columbia Gas System, Inc./Alamco Inc., Texas Pacific Group/Belden &
Blake Corporation, Mesa, Inc./Parker & Parsley Petroleum, Mesa, Inc./Greenhill
Petroleum Corporation, KCS Energy, Inc./ InterCoast Oil and Gas, Devon Energy
Corporation/Kerr-McGee Corporation, and Tom Brown, Inc./ Presidio Oil Company
(the "LDNG Comparable Company Transactions") and (ii) 28 transactions, announced
between January 1995 and March 1997, involving property sales (the "LDNG
Comparable Property Transactions"). For purposes of this analysis, Prudential
Securities selected companies whose lines of business and operations, or
properties the locations of which made them, in the judgment of Prudential
Securities, as nearly comparable to LDNG as practicable. An analysis of
comparable transactions is not purely mathematical; rather it involves complex
considerations and judgments concerning similarities and differences in
financial, operational and other characteristics of potentially comparable
transactions.
For the LDNG Comparable Company Transactions, Prudential Securities
determined the relationship between UMV and LTM EBITDAX, the relationship
between equity market capitalization and LTM CFFO, the relationship between TMCR
and proved reserves and between TMCR and pre-tax SEC PV10%. For the LDNG
Comparable Property Transactions, Prudential Securities determined the
relationship between TMCR and proved reserves. The LDNG Comparable Company
Transactions were found to have high, low, mean and median UMV to LTM EBITDAX
ratios of 8.1x, 4.0x, 6.8x and 7.5x, respectively. The high, low, mean and
median equity market capitalization to LTM CFFO ratios for the LDNG Comparable
Company Transactions were 8.1x, 4.0x, 6.0x and 5.9x, respectively. The high,
low, mean and median TMCR to proved reserves values for the LDNG Comparable
Company Transactions were $1.23, $0.48, $0.88 and $0.98, respectively. The LDNG
Comparable Company Transactions were found to have high, low, mean and median
TMCR to SEC PV10% percentages of 117.4%, 58.3%, 85.4% and 82.6%, respectively.
The LDNG selected comparable transaction analysis resulted in high, low, and
mean values per share of $32.12, $10.67 and $22.20, respectively. The high, low
and weighted average mean (based on transaction size) TMCR to proved reserves
values for all of the LDNG Comparable Property Transactions
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were $1.28, $0.56 and $0.79, respectively. The LDNG comparable property
transaction analysis, based on the weighted average mean purchase price for
property acquisitions comparable to all of LDNG's holdings, resulted in a value
per share of $17.05.
LDNG NET ASSET VALUE ANALYSIS. Prudential Securities also performed a net
asset value ("NAV") analysis of LDNG, including proved reserves, development
drilling, exploration potential, gas contracts, other assets, working capital,
other long-term liabilities and long-term debt. For this analysis, Prudential
Securities used reserve data prepared by LDNG to derive an estimated net asset
value in terms of SEC PV10% for LDNG's total reserves of oil and gas as of
December 31, 1996. LDNG's estimated future net cash flows from proved oil and
gas reserves as of December 31, 1996 were significantly impacted by oil and gas
prices at the end of 1996 that were higher than in recent years. Due to the
higher pricing environment, an adjustment was made to reflect normalized prices.
LDNG's pre-tax future net revenues from proved reserves were estimated using
flat prices of $2.20 per MMBtu and $20.00 per barrel of oil. An adjustment was
made to the SEC PV10% values at December 31, 1996 to reflect a normalized
pricing environment. In addition, adjustments were made for (a) divestitures of
reserves since December 31, 1996, (b) for adjustments to LDNG's estimated
reserves in accordance with the analysis of Netherland, Sewell & Associates,
Inc. and Ryder Scott Company, and (c) for unbooked reserves estimated by LDNG.
Additions to the total adjusted discounted value of proved reserves included
development drilling and exploration potential reserves as estimated by LDNG,
the estimated current discounted value of LDNG's long-term oil and gas
contracts, other assets and net working capital. Subtractions from the total
adjusted discounted value of proved reserves included adjustments for other
long-term liabilities and long-term debt, reflecting the amounts shown in LDNG's
report on Form 10-Q dated March 31, 1997 and for certain other minor
adjustments. The net asset value analysis of LDNG resulted in high, low and mean
values per share of $23.09, $16.61 and $19.85, respectively.
SUMMARY IMPLIED VALUATION OF AMERICAN
AMERICAN SELECTED COMPARABLE COMPANY ANALYSIS. In order to analyze the
relative public market valuations of American and certain selected comparable
oil and gas exploration companies, Prudential Securities analyzed certain ratios
indicative of market value for American and eight selected publicly-traded
companies whose lines of business and operations made them, in Prudential
Securities' judgment, as nearly comparable to American as practicable. An
analysis of comparable companies is not purely mathematical; rather it involves
complex considerations and judgments concerning similarities and differences in
financial, operational and other characteristics of potentially comparable
companies. For purposes of this analysis, Prudential Securities treated the
following companies as comparable to American: Chieftain International, Inc.;
Costilla Energy, Inc.; Forcenergy Inc.; Forest Oil Corporation; The Houston
Exploration Company; Newfield Exploration Company; Stone Energy Corporation; and
The Meridian Resource Corporation (collectively the "American Comparables").
Using publicly available financial data, Prudential Securities determined
the relationship between UMV and EBITDAX, the relationship between equity market
capitalization and CFFO and the relationship between TMCR and proved reserves
measured in Mcfe and its pre-tax SEC PV10%. The American Comparables were found
to have high, low, mean and median UMV to LTM EBITDAX ratios of 6.8x, 5.6x, 6.1x
and 6.0x, respectively. The estimated high, low, mean and median UMV to 1997
EBITDAX ratios were 5.8x, 4.6x, 5.2x and 5.1x, respectively. The estimated high,
low, mean and median UMV to 1998 EBITDAX ratios were 5.5x, 3.6x, 4.8x and 4.9x,
respectively. Using a LDNG Common Stock price of $18.00 per share, American's
implied UMV to LTM, 1997 and 1998 EBITDAX ratios were 5.9x, 6.7x and 5.5x,
respectively. The high, low, mean and median equity market capitalization to LTM
CFFO ratios for the American Comparables were 7.9x, 4.2x, 5.7x and 5.5x,
respectively. The estimated high, low, mean and median equity market
capitalization to 1997 CFFO ratios were 7.1x, 3.6x, 5.1x and 5.0x, respectively.
The estimated high, low, mean and median equity market capitalization to 1998
CFFO ratios were 5.5x, 2.6x, 4.4x and 4.7x, respectively. Using a LDNG Common
Stock price of $18.00 per share, the ratios of
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American's implied equity market capitalization to LTM, 1997 and 1998 CFFO were
5.2x, 5.8x and 4.9x, respectively. The high, low, mean and median TMCR to proved
reserves values for the American Comparables were $1.97, $0.98, $1.43 and $1.46,
respectively. Using a LDNG Common Stock price of $18.00 and the American reserve
reports, the implied TMCR to proved reserves value for American was $1.37. The
American Comparables were found to have high, low, mean and median TMCR to SEC
PV10% percentages of 97.1%, 62.6%, 85.8% and 90.1%, respectively. Using a LDNG
Common Stock price of $18.00 per share, American's TMCR to SEC PV10% value was
89.8%. The American selected comparable company analysis resulted in high, low,
and mean values per share of $19.15, $10.54 and $14.87, respectively.
Because the inherent differences between the businesses, operations and
prospects of American and the businesses, operations and prospects of the
companies included in the comparable group, Prudential Securities believed that
a purely quantitative comparable company analysis would not be particularly
meaningful in the context of the Merger. Prudential Securities believed that an
appropriate use of a comparable company analysis in this instance would involve
qualitative judgments concerning differences between the financial and operating
characteristics of American and the companies in the comparable group that would
affect the public trading values of LDNG, American and such other companies.
AMERICAN SELECTED COMPARABLE TRANSACTION ANALYSIS. Prudential Securities
calculated a range of implied equity values for American by reviewing certain
publicly available financial data and other information relating to (i)
comparable company transactions, announced between August 1996 and May 1997,
including: Columbia Gas System, Inc./Alamco Inc., Texas Pacific Group/Belden &
Blake Corporation, Mesa, Inc./Parker & Parsley Petroleum, Mesa, Inc./Greenhill
Petroleum Corporation, KCS Energy, Inc./ InterCoast Oil and Gas, Devon Energy
Corporation/Kerr-McGee Corporation, and Tom Brown, Inc./ Presidio Oil Company
(the "American Comparable Company Transactions") and (ii) 64 transactions,
announced between January 1995 and June 1997, involving property sales (the
"American Comparable Property Transactions"). For purposes of this analysis,
Prudential Securities selected companies whose lines of business and operations,
or properties the locations of which made them, in the judgment of Prudential
Securities, as nearly comparable to American as practicable. An analysis of
comparable transactions is not purely mathematical; rather it involves complex
considerations and judgments concerning similarities and differences in
financial, operational and other characteristics of potentially comparable
transactions.
For the American Comparable Company Transactions, using publicly available
financial data, Prudential Securities determined the relationship between UMV
and LTM EBITDAX, the relationship between equity market capitalization and LTM
CFFO, the relationship between TMCR and proved reserves and pre-tax SEC PV10%.
For the American Comparable Property Transactions, Prudential Securities
determined the relationship between TMCR and proved reserves. The American
Comparable Company Transactions were found to have high, low, mean and median
UMV to LTM EBITDAX ratios of 8.1x, 4.0x, 6.8x and 7.5x, respectively. Using a
LDNG Common Stock price of $18.00 per share, American's implied UMV to LTM
EBITDAX ratio was 5.9x. The high, low, mean and median equity market
capitalization to LTM CFFO ratios for the American Comparable Company
Transactions were 8.1x, 4.0x, 6.0x and 5.9x, respectively. Using a LDNG Common
Stock price of $18.00 per share, American's implied equity market capitalization
to LTM CFFO ratio was 5.2x. The high, low, mean and median TMCR to proved
reserves values for the American Comparable Company Transactions were $1.23,
$0.48, $0.88 and $0.98, respectively. Using a LDNG Common Stock price of $18.00
and the American reserve reports, the implied TMCR to proved reserves value for
American was $1.37. The American Comparable Company Transactions were found to
have high, low, mean and median TMCR to SEC PV10% percentages of 117.4%, 58.3%,
85.4% and 82.6%, respectively. The American selected comparable transaction
analysis resulted in high, low and mean values per share of $21.39, $8.13 and
$15.31, respectively. The American Comparable Property Transactions were divided
into two geographical groups to compare all of American's properties and
properties located in the Gulf of Mexico region, respectively. Using a LDNG
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Common Stock price of $18.00 per share, American's TMCR to SEC PV10% value would
be 89.8%. The high, low and weighted average mean (based on transaction size)
TMCR to proved reserves values for all of the American Comparable Property
Transactions were $1.28, $0.35 and $0.82, respectively. The high, low and
weighted average mean TMCR to proved reserves values for the American Comparable
Property Transactions located in the Gulf of Mexico region were $1.09, $0.59 and
$0.87, respectively. The American comparable property transaction analysis
resulted in high, low and mean values per share of $8.42, $7.69 and $8.05,
respectively.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
American and the acquired businesses analyzed, Prudential Securities believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis.
AMERICAN NET ASSET VALUE ANALYSIS. Prudential Securities also performed a
NAV analysis of American, including proved reserves, probable reserves,
potential reserves (exploration), the Bowdoin litigation, working capital, other
long-term liabilities, long-term debt and preferred stock. For this analysis,
Prudential Securities used reserve data prepared by Netherland, Sewell &
Associates, Inc. to derive an estimated net asset value in terms of SEC PV10%
for American's proved reserves of oil and gas as of December 31, 1996.
American's estimated future net cash flows from proved oil and gas reserves as
of December 31, 1996 were significantly impacted by oil and gas prices at the
end of 1996 that were higher than in recent years. Due to the higher pricing
environment an adjustment was made to reflect normalized prices. American
estimated its pre-tax future net revenues from proved reserves using flat prices
of $2.20 per MMBtu and $20.00 per barrel of oil. An adjustment was made to the
SEC PV10% values at December 31, 1996 to reflect American's estimates for a
normalized pricing environment. In addition, adjustments were made for
divestitures of reserves since December 31, 1996 and unbooked reserves, as
estimated by American, to derive a total adjusted discounted value of proved
reserves as of December 31, 1996. Additions to the adjusted discounted value of
total reserves included adjustments for probable and potential reserves as
estimated by American and future potential reserves related to its exploration
activities. Subtractions from the total adjusted discounted value of total
reserves included adjustments for net working capital, other long-term
liabilities, long-term debt and the market value of preferred stock, as noted in
American's report on Form 10-Q dated March 31, 1997 and certain other minor
adjustments. The net asset value analysis of American resulted in high, low and
mean values per share of $16.83, $10.99 and $14.15, respectively.
The American Board selected Prudential Securities as financial advisor to
American because it is an internationally recognized investment banking firm
that is regularly engaged in the evaluation of businesses and their securities
in connection with mergers and acquisitions and is familiar with American and
the oil and gas exploration and production industry. Pursuant to the terms of an
engagement letter dated June 10, 1997, between American and Prudential
Securities, Prudential Securities received a retainer fee of $50,000 and
$200,000 for delivery of the Prudential Securities Opinion. Pursuant to the
engagement letter, upon consummation of the Merger, Prudential Securities will
receive additional cash compensation of $500,000. In addition, American has
agreed to reimburse Prudential Securities for all out-of-pocket and incidental
expenses, including all reasonable fees and disbursements of Prudential
Securities' legal counsel and those of any advisor retained by Prudential
Securities, incurred in connection with the services provided by Prudential
Securities, and to indemnify and hold Prudential Securities and certain related
parties harmless to the full extent lawful from and against certain liabilities,
including certain liabilities under the federal securities laws or otherwise
relating to or arising out of its engagement. The terms of the fee arrangement
with Prudential Securities, which Prudential Securities and American believe are
customary in transactions of this nature, were negotiated at arm's length
between American and Prudential Securities, including the fact that a portion of
Prudential Securities' fee is contingent upon the consummation of the Merger.
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In the past, Prudential Securities has provided financing services for
American and received compensation for such services. In addition, Prudential
Securities makes a market in American common stock and, in the ordinary course
of business, may actively trade the securities of American and LDNG for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities. Prudential Securities also
provides equity research coverage for American.
MERGER CONSIDERATION; EFFECTS OF THE MERGER ON SECURITIES OF AMERICAN
AMERICAN COMMON STOCK. At the Effective Time, by virtue of the Merger and
without any action on the part of any holder thereof, but subject to the
treatment of fractional shares, each share of American Common Stock that is
issued and outstanding immediately prior to the Effective Time (other than
shares of American Common Stock held by holders of American Common Stock who
have perfected their dissenters' appraisal rights) will be converted into the
right to receive (a) 0.72 of a share of LDNG Common Stock, and (b) the Cash
Consideration in the amount of $3.00.
Each such share of American Common Stock, when so converted, will
automatically be canceled and retired, will cease to exist and will no longer be
outstanding, and the holder of any certificate representing any such shares will
cease to have any rights with respect thereto, except the right to receive the
shares of LDNG Common Stock to be issued in exchange therefor and the Cash
Consideration (along with any cash in lieu of a fractional share of LDNG Common
Stock and any unpaid dividends and distributions with respect to such shares of
LDNG Common Stock, both as discussed below), without interest, upon the
surrender of such certificate in accordance with the terms of the Merger
Agreement.
AMERICAN PREFERRED STOCK AND DEPOSITARY SHARES. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder thereof,
each share of American Preferred Stock that is issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive one share of LDNG Preferred Stock, and in accordance with the Deposit
Agreement (as defined herein), the American Depositary Shares will represent
interests in LDNG Preferred Stock and the holders of American Depositary Shares
will continue to have the same rights with respect to LDNG Preferred Stock as
they had prior to the Effective Time with respect to American Preferred Stock
under the terms of the Deposit Agreement. See "Description of American Capital
Stock--American Depositary Shares."
Each such share of American Preferred Stock, when so converted, will
automatically be canceled and retired, will cease to exist and will no longer be
outstanding, and the holders of any certificate representing any such shares
will cease to have any rights with respect thereto, except the right to receive
shares of LDNG Preferred Stock to be issued in exchange therefor (along with any
unpaid dividends and distributions with respect to such shares of LDNG Preferred
Stock, as discussed below), without interest, upon the surrender of such
certificates in accordance with the terms of the Merger Agreement.
The portion of the cumulative quarterly dividend with respect to the
American Preferred Stock for the quarter in which the Effective Time occurs that
has accrued as of the Effective Time will be included in the first cumulative
quarterly dividend to become payable with respect to the LDNG Preferred Stock
after the Effective Time.
AMERICAN TREASURY STOCK. At the Effective Time, by virtue of the Merger,
any shares of American Common Stock that are held as treasury stock will be
canceled and retired and will cease to exist, and no shares of LDNG Common
Stock, Cash Consideration or other consideration will be paid or payable in
exchange therefor.
AMERICAN EQUITY AWARDS. As of the date of this Joint Proxy
Statement/Prospectus, American had outstanding options to acquire 1,020,418
shares of American Common Stock (the "American Stock Options"). The American
Stock Options have previously been granted to employees of American pursuant to
American's existing stock compensation plans. Each American Stock Option will be
or become fully vested prior to or concurrently with the Effective Time and, to
the extent not theretofore exercised, will be
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canceled (except as otherwise provided in the Andrews Employment Agreement
described elsewhere herein) in accordance with the terms of the applicable
American stock option plan or otherwise by appropriate action by American, in
each case, in consideration of the payment by American to the holder thereof of
the applicable "Cash-Out Amount" determined as described below.
The "Cash-Out Amount" means (a) in the case of any American Stock Option
granted under the American 1983 or 1994 Stock Compensation Plans, the excess, if
any, of the "Determined Value" (as defined below) over the exercise price of
such American Stock Option, multiplied by the number of shares of American
Common Stock subject to such American Stock Option, and (b) in the case of any
American Stock Option granted under the American Amended and Restated 1983 or
1988 Stock Option Plan of Hershey Oil Corporation, the excess, if any, of the
"Effective Time Value" (as defined below) over the exercise price of such
American Stock Option, multiplied by the number of shares of American Common
Stock subject to such American Stock Option. "Determined Value" is defined in
the applicable plans as the higher of (a) the highest bid price per share of the
American Common Stock during the twelve months immediately preceding the
Effective Time (which amount will not be less than $17.25 per share based on the
highest bid price to date during the applicable period) or (b) the value of the
consideration paid by LDNG per share of American Common Stock in the Merger. The
"Effective Time Value" means the sum of (a) the Cash Consideration and (b) the
product determined by multiplying (i) 0.72 by (ii) the average of the per share
closing sales prices of the LDNG Common Stock on the NYSE over the 10 trading
days immediately preceding the Effective Time.
The restrictions applicable to each outstanding share of restricted American
Common Stock issued pursuant to American's stock compensation plans will lapse
as of the Effective Time. Each phantom stock unit issued pursuant to American's
phantom stock plan will become fully vested immediately prior to the Effective
Time and will be redeemed by payment to the holder thereof of cash in an amount
equal to the Effective Time Value, less the applicable amount per unit payable
by the holder.
AMERICAN WARRANTS. As of the date of this Joint Proxy Statement/Prospectus,
American had outstanding (a) warrants to purchase 1,247,837 shares of American
Common Stock at an exercise price of $15.01 per share issued initially to
certain institutional investors in connection with the issuance of American's
11% Senior Subordinated Notes due 2004 (the "Institutional Warrants") and (b)
warrants to purchase 356,489 shares of American Common Stock at an exercise
price of $20.20 per share issued in September 1992 to Prudential Insurance
Company of America (the "Prudential Warrants" and, together with the
Institutional Warrants, the "American Warrants").
All American Warrants will remain outstanding following the Effective Time
and, at the Effective Time, without any action on the part of American or any
holder thereof, will be assumed by LDNG. Following such assumption, each
American Warrant will be exercisable on the same terms and conditions as applied
immediately prior to the Effective Time, except as described below.
Each American Warrant will be exercisable for one share of LDNG Common Stock
at an exercise price per share equal to the lesser of (a) the exercise price in
effect immediately prior to the Effective Time multiplied by a fraction the
numerator of which is the market price per share (as defined in the American
Warrant) of LDNG Common Stock as of the Effective Time and the denominator of
which is the market price per share (as defined in the American Warrant) of the
American Common Stock as of the Effective Time or (b) the market price per share
of LDNG Common Stock as of the Effective Time, subject in each case to further
adjustments from and after the Effective Time as provided pursuant to the terms
of the American Warrant. In the case of the Institutional Warrants, in lieu of
the foregoing, at the election of a holder of an Institutional Warrant on or
before the later of (a) 30 days following the Effective Date and (b) 60 days
following the mailing date of this Joint Proxy Statement/Prospectus to such
holder, each Institutional Warrant will be exercisable for that number of shares
of LDNG Common Stock and the amount of Cash Consideration into which the number
of shares of American Common Stock subject to such Institutional Warrant
immediately prior to the Effective Time would have been converted had they been
issued and outstanding immediately prior to the Effective Time.
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AMERICAN 11% SENIOR SUBORDINATED NOTES DUE 2004. As of the date of this
Joint Proxy Statement/ Prospectus, American had outstanding $35 million in 11%
Senior Subordinated Notes due 2004. All of American's outstanding 11% Senior
Subordinated Notes due 2004 shall remain outstanding following the Effective
Time and, at the Effective Time, without action on the part of American or any
holder thereof, will be assumed by LDNG.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective immediately when certificates of merger are
accepted for filing by the respective Secretaries of the States of Delaware and
Oklahoma or at such time thereafter as is provided in such certificates of
merger. It is anticipated that, if the matters described in this Joint Proxy
Statement/ Prospectus are adopted and approved at the LDNG Special Meeting and
at the American Special Meeting and all other conditions to the Merger have been
satisfied or waived, the Effective Time will occur on the first business day
following the day on which both such meetings have been held (or such later date
as is agreed upon by LDNG and American).
PROCEDURES FOR EXCHANGE OF AMERICAN COMMON STOCK CERTIFICATES
GENERAL. Immediately prior to the Effective Time, LDNG shall deposit with
the Exchange Agent, for the benefit of the holders of shares of American Common
Stock and for exchange in accordance with the Merger Agreement, certificates
representing the shares of LDNG Common Stock to be issued, and funds necessary
to pay the Cash Consideration, in exchange for shares of American Common Stock.
Such shares of LDNG Common Stock, together with any dividends or distributions
with respect thereto, and such funds, are referred to as the "Exchange Fund."
As soon as reasonably practicable after the Effective Time, LDNG will cause
the Exchange Agent to mail to each record holder of a certificate representing
shares of American Common Stock as of the Effective Time a Letter of Transmittal
to be used to effect the exchange of certificates representing American Common
Stock for certificates representing LDNG Common Stock and the applicable Cash
Consideration, including instructions for using such Letter of Transmittal to
effect such exchange. When a holder surrenders a certificate representing
American Common Stock to the Exchange Agent, along with a properly completed and
executed Letter of Transmittal and any other required documents, such holder
will be entitled to receive a certificate representing the number of whole
shares of LDNG Common Stock and cash in the amount of the Cash Consideration
that such holder has the right to receive as a result of the Merger, along with
any cash in lieu of fractional shares of LDNG Common Stock to which he would
otherwise be entitled and any unpaid dividends and distributions that he has the
right to receive (less taxes required to be withheld, if any). If such holder is
an "affiliate" of American (as such term is defined in Rule 144 under the
Securities Act), one of the required documents to effect the exchange will be an
executed agreement relating to certain resale restrictions (as described under
"The Merger--Restrictions on Resales by Affiliates of American"), unless
previously delivered to LDNG. HOLDERS OF AMERICAN COMMON STOCK SHOULD NOT
SURRENDER THEIR CERTIFICATES UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED AND
THEN SHOULD SURRENDER THEIR CERTIFICATES ONLY ACCOMPANIED BY A PROPERLY
COMPLETED AND EXECUTED LETTER OF TRANSMITTAL.
After the Effective Time, there will be no further registration of transfers
on the Surviving Corporation's stock transfer books of the shares of American
Common Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, a certificate representing American Common Stock is
presented to LDNG or American's or LDNG's transfer agent for any reason, it
shall be canceled and exchanged as described above. If a holder of American
Common Stock has transferred ownership of such American Common Stock but such
transfer is not registered in the transfer records of American as of the
Effective Time, a certificate representing the appropriate number of shares of
LDNG Common Stock and the appropriate Cash Consideration (along with any cash in
lieu of a fractional share and any unpaid dividends and distributions that such
holder has the right to receive, less taxes required to be withheld, if
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any) may be issued or paid to the transferee if the certificate representing
shares of American Common Stock, when presented for exchange, is accompanied by
all documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid.
TREATMENT OF FRACTIONAL SHARES. No fractional shares of LDNG Common Stock
will be issued in the Merger. When a holder of American Common Stock surrenders
a certificate representing shares of American Common Stock in exchange for a
certificate representing shares of LDNG Common Stock, such holder will also
receive an amount of cash (without interest) determined by multiplying (a) the
average of the per share closing sales price of the LDNG Common Stock over the
10 trading days immediately preceding the Effective Time by (b) the fraction of
a share of LDNG Common Stock to which such holder of American Common Stock would
otherwise be entitled. LDNG will make available to the Exchange Agent, in
addition to cash necessary to fund the Cash Consideration, the amount of cash
necessary to make such payments.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions with respect to LDNG Common Stock issued in the Merger will be
paid until the holder of American Common Stock entitled thereto surrenders his
certificate for exchange as described above. Upon such surrender, (a) the
surrendering holder will be paid, without interest, the amount of dividends or
other distributions (having a record date after the Effective Time but on or
prior to surrender and a payment date on or prior to surrender) theretofore paid
with respect to the number of whole shares of LDNG Common Stock that such holder
is entitled to receive (less the amount of any withholding taxes that may be
required with respect thereto), and (b) at the appropriate payment date, the
surrendering holder will be paid, without interest, the amount of dividends or
other distributions (having a record date after the Effective Time but on or
prior to surrender and a payment date subsequent to surrender) payable with
respect to the number of whole shares of LDNG Common Stock that such holder
receives (less the amount of any withholding taxes that may be required with
respect thereto).
TERMINATION OF EXCHANGE FUND. Any shares of LDNG Common Stock and any cash
held by the Exchange Agent that remain unclaimed by the former stockholders of
American one year following the Effective Time will be delivered to LDNG upon
demand. Thereafter, any former stockholders of American who have not theretofore
complied with the exchange procedures set forth in the Merger Agreement may look
only to LDNG for payment of their claim for LDNG Common Stock, the Cash
Consideration, any cash in lieu of fractional shares of LDNG Common Stock and
any dividends or distributions with respect to LDNG Common Stock (all without
interest). Notwithstanding the above, neither LDNG, American, the Exchange Agent
nor any other person will be liable to any former holders of American Common
Stock for any amount properly delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law. Any amounts remaining
unclaimed by former holders of American Common Stock for a period of three years
following the Effective Time (or such earlier date immediately prior to the time
at which such amounts would otherwise escheat to or become property of any
governmental entity) will, to the extent permitted by applicable law, become the
property of LDNG, free and clear of any claims or interest of any such holders
or their successors, assigns or personal representatives previously entitled
thereto.
NO INTEREST. No interest will be payable under any circumstances by LDNG,
the Exchange Agent or any other person with respect to any shares of LDNG Common
Stock, the Cash Consideration, any cash in lieu of fractional shares or any cash
in payment of unpaid dividends or distributions.
LOST, STOLEN OR DESTROYED AMERICAN CERTIFICATES. If any certificate
representing shares of American Common Stock has been lost, stolen or destroyed,
the Exchange Agent will nevertheless issue in exchange therefor the shares of
LDNG Common Stock and the Cash Consideration (along with any cash in lieu of
fractional shares and any unpaid dividends or distributions, less taxes required
to be withheld, if any) deliverable with respect thereto, so long as the person
claiming that such certificate has been lost, stolen or destroyed makes an
affidavit of that fact and, if required by LDNG, posts a bond in such reasonable
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amount as LDNG may direct as indemnity against any claim that may be
subsequently made against LDNG with respect to such lost, stolen or destroyed
certificate.
PROCEDURES FOR EXCHANGE OF AMERICAN DEPOSITARY SHARES
Immediately prior to the Effective Time, LDNG shall deposit with the
Exchange Agent (which shall replace the current depositary as permitted by the
Deposit Agreement and which thereafter will serve as depositary pursuant to the
Deposit Agreement) in accordance with the Deposit Agreement certificates
representing the LDNG Preferred Stock to be issued in exchange for the American
Preferred Stock in the Merger. As soon as reasonably practicable after the
Effective Time, the Exchange Agent will mail to each holder of an American
Depositary Share as of the Effective Time a Letter of Transmittal to be used to
effect the exchange of certificates representing LDNG Depositary Shares for
certificates representing American Depositary Shares, including instructions for
using such Letter of Transmittal to effect such exchange. When a holder
surrenders a certificate representing American Depositary Shares to the Exchange
Agent, along with a properly completed and executed Letter of Transmittal and
any other required documents, such holder will receive a certificate
representing the number of whole LDNG Depositary Shares to which such holder is
entitled. If such holder is an "affiliate" of American (as such term is defined
in Rule 144 under the Securities Act), one of the required documents to effect
the exchange will be an executed agreement relating to certain resale
restrictions (as described under "The Merger--Restrictions on Resales by
Affiliates of American"), unless previously delivered to LDNG. HOLDERS OF
AMERICAN DEPOSITARY SHARES SHOULD NOT SURRENDER THEIR CERTIFICATES UNTIL THE
LETTER OF TRANSMITTAL IS RECEIVED AND THEN SHOULD SURRENDER THEIR CERTIFICATES
ONLY ACCOMPANIED BY A PROPERLY COMPLETED AND EXECUTED LETTER OF TRANSMITTAL.
After the Effective Time, there will be no further registration of transfers
on the depositary's transfer books of the American Depositary Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, a certificate representing American Depositary Shares is presented to the
depositary for any reason, it shall be canceled and exchanged as described
above. If a holder of American Depositary Shares has transferred ownership of
such American Depositary Shares but such transfer is not registered in the
transfer records of the depositary as of the Effective Time, a certificate
representing the appropriate number of LDNG Depositary Shares may be issued or
paid to the transferee if the certificate representing American Depositary
Shares, when presented for exchange, is accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid in accordance with the Deposit Agreement.
LISTING ON THE NEW YORK STOCK EXCHANGE
LDNG Common Stock is currently listed for trading on the NYSE and it is
anticipated that such stock will continue to be traded thereon immediately
following consummation of the Merger. It is a condition to the obligations of
American and LDNG to consummate the Merger that the shares of LDNG Common Stock
to be issued in the Merger, the shares of LDNG Common Stock issuable upon
conversion of the LDNG Depositary Shares to be issued in the Merger, the shares
of LDNG Common Stock issuable upon exercise of the American Warrants assumed by
LDNG in connection with the Merger, and the LDNG Depositary Shares to be issued
in the Merger be approved for listing on the NYSE, subject to official notice of
issuance. An application has been filed for listing such shares on the NYSE.
RESTRICTIONS ON RESALES BY AFFILIATES OF AMERICAN
The shares of LDNG Common Stock and LDNG Depositary Shares to be issued in
the Merger have been registered under the Securities Act and, when so issued,
will be freely transferable, except by persons who are deemed to be "affiliates"
of American (as that term is defined in Rule 144 under the Securities Act).
Affiliates of American will be subject to certain restrictions imposed by Rule
145 under the Securities Act on their ability to resell any of the shares of
LDNG Common Stock and LDNG Depositary Shares they
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receive in the Merger. Generally, those restrictions prohibit an affiliate of
American from selling, within one year following the consummation of the Merger,
any of the shares of LDNG Common Stock or LDNG Depositary Shares that such
affiliate receives in the Merger other than, within any three-month period, a
number of shares that does not exceed the greater of (a) 1% of the total number
of shares of LDNG Common Stock or LDNG Depositary Shares, as the case may be,
then outstanding or (b) the average weekly trading volume of the LDNG Common
Stock or LDNG Depositary Shares, as the case may be, over a specified four-week
period. An affiliate of American will be relieved from those resale restrictions
if sales of the shares of LDNG Common Stock or LDNG Depositary Shares it
receives in the Merger are registered under the Securities Act.
The Merger Agreement provides that, within 30 days prior to the consummation
of the Merger, American will prepare and deliver to LDNG a list identifying all
persons who, at the time of the American Special Meeting, may be deemed to be
"affiliates" of American (as that term is used in paragraphs (c) and (d) of Rule
145 under the Securities Act). American is then required to use its best efforts
to cause each of such persons to execute and deliver to LDNG a written agreement
acknowledging the applicability of the Rule 145 resale restrictions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of American have certain interests
in the Merger that are in addition to the interests of stockholders of American
generally.
OWNERSHIP OF AMERICAN STOCK; STOCK OPTIONS. As of the date of this Joint
Proxy Statement/Prospectus, directors and executive officers of American
beneficially owned an aggregate of 588,621 shares of American Common Stock (or
approximately 3.7% of the then outstanding American Common Stock), including
American Restricted Shares (as defined below).
In addition, as of the date of this Joint Proxy Statement/Prospectus,
directors and executive officers of American held options to purchase an
aggregate of 651,419 shares of American Common Stock of which options to
purchase 255,519 shares were exercisable. Pursuant to the Merger Agreement, the
remainder of these options will become fully vested and exercisable immediately
prior to or concurrently with the Effective Time. Except as provided in the
Andrews Employment Agreement (as described below), all of these options will be
canceled in accordance with the respective terms of the applicable stock
compensation plans or otherwise by appropriate action of American in
consideration for the payment of the Cash-Out Amount to the holder of each
outstanding American stock option as soon as practicable following the Effective
Time. The "Cash-Out Amount" means (i) in the case of any American stock option
granted under the American Exploration 1983 or 1994 Stock Compensation Plan, the
excess, if any, of the "Determined Value" (as defined below) over the exercise
price of such stock option, multiplied by the number of shares of American
Common Stock subject to the option and (ii) in the case of any American stock
option granted under the American Amended and Restated 1983 or 1988 Stock Option
Plan of Hershey Oil Corporation, the excess, if any, of the "Effective Time
Value" (as defined below) over the exercise price of the option multiplied by
the number of shares of American Common Stock subject to such option.
"Determined Value" is defined in the applicable plans as the higher of (a) the
highest bid price per share of the American Common Stock during the twelve
months immediately preceding the Effective Time (which amount will not be less
than $17.25 per share based on the highest bid price to date during the
applicable period) or (b) the value of the consideration paid by LDNG per share
of American Common Stock in the Merger. The "Effective Time Value" means the sum
of (i) the Cash Consideration and (ii) the product determined by multiplying (x)
0.72 by (y) the average of the per share closing sales prices of the LDNG Common
Stock on the NYSE over the 10 trading days immediately preceding the Effective
Time.
As of the date of this Joint Proxy Statement/Prospectus, executive officers
of American held an aggregate of 18,825 shares of restricted American Common
Stock ("American Restricted Shares") and an aggregate of 517 American restricted
phantom stock units ("American Restricted Units"). The Merger Agreement provides
that the restrictions applicable to each American Restricted Share outstanding
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immediately prior to the Effective Time will lapse as of the Effective Time and
that each American Restricted Unit outstanding immediately prior to the
Effective Time will become fully vested immediately prior to or concurrently
with the Effective Time and will be redeemed as soon as practicable following
the Effective Time by payment to the holder thereof of an amount in cash equal
to the Effective Time Value, less the applicable amount payable per unit by the
holder.
CERTAIN PAYMENTS. At the Effective Time, LDNG will make the following
payments to executives of American in satisfaction of their rights under their
existing employment and severance agreements with American: Mark Andrews
($1,560,000); John Hogan ($925,000); Elliott Pew ($730,000); T. Frank Murphy
($390,667); Cindy Gerow ($318,667); and Harry Harper ($300,000). Severance
payments to Mr. Andrews and Ms. Gerow will be reduced to an amount that will not
subject Mr. Andrews or Ms. Gerow to tax under Section 4999 of the Code.
EMPLOYEE AGREEMENTS. LDNG has entered into an employment agreement with
Mark Andrews (the "Andrews Employment Agreement"), a retention agreement with
Elliott Pew (the "Pew Retention Agreement") and retention agreements with John
M. Hogan, Cindy L. Gerow and T. Frank Murphy (collectively, the "Executive
Retention Agreements"), which agreements are to become effective at the
Effective Time.
EMPLOYMENT AGREEMENT WITH MARK ANDREWS. Pursuant to the Andrews Employment
Agreement, Mr. Andrews will serve as the Vice Chairman of the Board of Directors
of LDNG for an initial term of three years. Thereafter, the Andrews Employment
Agreement will automatically be renewed for one additional year on each
anniversary of the Effective Time unless either party provides the other with
written notice of its or his, as the case may be, intent not to extend the
agreement's term at least three months prior to the renewal date. The Andrews
Employment Agreement provides that, following the Effective Time, Mr. Andrews
will serve on the Board of Directors of LDNG and as a member of the LDNG
Executive Committee, and LDNG has agreed to nominate Mr. Andrews for reelection
to such positions at the 1998 Annual Meeting of Stockholders of LDNG. Pursuant
to the Andrews Employment Agreement, Mr. Andrews and LDNG have agreed that,
promptly after the first anniversary of the Effective Time, they will negotiate
in good faith to establish new or additional duties, titles and responsibilities
for Mr. Andrews. In the event that the parties are unable to reach an agreement
that is reasonably satisfactory to Mr. Andrews with respect to the establishment
of such new or additional duties, titles and responsibilities and a commensurate
adjustment in Mr. Andrews' compensation and benefits within 90 days after the
first anniversary of the Effective Time, either Mr. Andrews or LDNG may, under
the Andrews Employment Agreement, elect within 30 days following the end of such
90 day period to terminate Mr. Andrews' employment (a "Special Termination"), in
which case Mr. Andrews will become a consultant to LDNG.
While Mr. Andrews is actively employed by LDNG, he will receive an annual
base salary of $350,000, which will be reviewed no less than annually by the
Compensation Committee of the LDNG Board which may increase (but in no event
decrease) such annual base salary by such amounts as the Compensation Committee
deems proper. Such initial base salary will be equal to the current base salary
of Mr. Andrews at American. Mr. Andrews will also participate in any bonus plan
or program adopted by LDNG to the same extent provided to other senior
executives. In addition, effective as of the Effective Time, Mr. Andrews will be
granted an option to purchase 100,000 shares of LDNG Common Stock, vesting in
four equal annual installments on the first four anniversaries of the Effective
Time. While he is employed by LDNG, Mr. Andrews will participate in all
incentive compensation, savings and retirement, and welfare plans, policies and
programs generally applicable to other LDNG senior executives. During his active
employment and any consulting period, LDNG will continue the $2.5 million life
insurance policy currently maintained on Mr. Andrews' life for the benefit of
his family. In addition, in recognition of the extraordinary services to be
performed by Mr. Andrews in connection with the integration of LDNG and American
following the Effective Time, he will be paid $250,000 as a special service
recognition bonus (the "Special Service Bonus") in a cash lump sum as promptly
as practicable after the first anniversary of the Effective Time.
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Pursuant to the terms of the Andrews Employment Agreement, Mr. Andrews may
elect on or prior to the Effective Time to require LDNG to assume all or a
portion of Mr. Andrews' American stock options. Each assumed stock option will
become fully vested prior to or concurrently with the Effective Time and will be
converted at the Effective Time into an option to purchase shares of LDNG Common
Stock, with appropriate adjustments to the number of shares and the applicable
exercise price to account for the effects of the Merger.
If Mr. Andrews' employment is terminated on his death or disability, without
"Cause" or for "Good Reason" (as such terms are defined below) or as a result of
a Special Termination, LDNG will pay to Mr. Andrews a pro-rata bonus for the
year of termination and, if not previously paid, the Special Service Bonus. In
addition, all unvested stock options held by Mr. Andrews will immediately vest.
Mr. Andrews will continued to participate in all welfare benefits plans for six
months after termination and will be entitled to reimbursement of COBRA premiums
for up to an additional 18 months and the use of one or more executive out
placement services designated by Mr. Andrews at LDNG's expense. In the event
that Mr. Andrews' employment is terminated on account of his death or disability
he will receive an additional lump sum cash payment equal to three times the sum
of (x) his base salary and (y) the average annual bonus paid to or accrued for
Mr. Andrews by American or LDNG in respect of the three calendar years preceding
the termination of employment.
In the event of the termination of Mr. Andrews' employment without Cause,
for Good Reason or as a result of a Special Termination, LDNG will engage Mr.
Andrews as a consultant for a period (the "Consulting Period") commencing on the
date of termination and ending on the third anniversary thereof. As compensation
for such services, Mr. Andrews will be paid a consulting fee at an annual rate
of $500,000, payable in monthly installments.
For purposes of the Andrews Employment Agreement, "Cause" means (i) the
willful and continued failure of Mr. Andrews to perform substantially his duties
(other than a failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to him
by the Chairman of the LDNG Board, which demand will specifically identify the
manner in which the Chairman believes that he has not substantially performed
his duties, or (ii) the willful engaging in illegal or gross misconduct in
connection with the performance of his duties under the Andrews Employment
Agreement which is materially injurious to LDNG. For purposes of the Andrews
Employment Agreement, "Good Reason" means the occurrence of any of the following
without Mr. Andrews' express written consent: (i) a change in his duties, titles
of offices, any removal from or failure to re-elect Mr. Andrews to any of such
positions, or a change in reporting responsibilities, as set forth in the
Andrews Employment Agreement; (ii) a reduction in base salary or the failure to
increase such salary by an amount which at least equals, on a percentage basis,
the mean average percentage increase in base salary for all senior officers of
LDNG (other than Mr. Andrews) during such year or the failure of LDNG to
continue to provide prompt payment (or reimbursement) of all reasonable expenses
incurred by Mr. Andrews in connection with his professional and business
activities; (iii) any relocation of Mr. Andrews' principal place of business
from Houston, Texas, excepting reasonable business travel; (iv) the failure of
LDNG to obtain assumption of the Andrews Employment Agreement, without
limitation or reduction, by any successor; (v) any purported termination of Mr.
Andrews' employment which is not effected pursuant to the terms of the Andrews
Employment Agreement; (vi) the failure of LDNG to pay or reimburse Mr. Andrews
for any expenses incurred as provided in the Andrews Employment Agreement; or
(vii) the filing of a voluntary or involuntary petition of bankruptcy by or
against LDNG or the insolvency of LDNG.
The Andrews Employment Agreement also contains noncompetition, nondisclosure
and nonsolicitation of employees covenants that apply during Mr. Andrews' active
employment and the Consulting Period, if any.
RETENTION AGREEMENT WITH ELLIOTT PEW. The Pew Retention Agreement has a
term commencing as of the Effective Time and terminating on the second
anniversary thereof. Effective as of the Effective Time, Mr. Pew will be granted
an option to purchase 50,000 shares of LDNG Common Stock, vesting in four
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equal annual installments on the first four anniversaries of the Effective Time.
The Pew Retention Agreement does not establish Mr. Pew's base salary during the
term of the Agreement but provides that Mr. Pew may terminate his employment for
Good Reason (as defined below) upon any reduction of his base salary (which
initially shall be equal to Mr. Pew's base salary with American immediately
prior to the Effective Time).
If, during the term, Mr. Pew's employment is terminated on his death or
disability, without "Cause" (as defined for purposes of the Andrews Employment
Agreement) or for "Good Reason" (as such term is defined below), all unvested
stock options held by Mr. Pew will immediately vest. Mr. Pew will continue to
participate in all welfare benefit plans for six months after termination and
will be entitled to reimbursement of COBRA premiums for up to an additional 18
months and the use of one or more executive out placement services designated by
Mr. Pew at LDNG's expense. In the event that Mr. Pew's employment is terminated
on his death or disability, he will receive an additional lump sum cash payment
equal to two times the greater of (1) the sum of (x) his base salary and (y) the
average annual bonus paid or to or accrued for him by American or LDNG in
respect of the three calendar years preceding the termination of employment
(excluding 1997) and (2) $243,333 (his "Total Compensation").
In the event of the termination of Mr. Pew's employment without Cause or for
Good Reason, LDNG will engage Mr. Pew as a consultant for a period (the
"Consulting Period") commencing on the date of termination and ending on the
second anniversary thereof. As compensation for such services, Mr. Pew will be
paid a consulting fee at an annual rate equal to his Total Compensation payable
in monthly installments.
For purposes of the Pew Retention Agreement, "Good Reason" means the
occurrence of any of the following without his express written consent: (i) a
reduction in base salary or the failure of LDNG to provide prompt payment (or
reimbursement) of all reasonable expenses incurred by Mr. Pew in connection with
his professional and business activities; (ii) any relocation of Mr. Pew's
principal place of business from Houston, Texas, excepting reasonable business
travel; (iii) the failure to include Mr. Pew in any benefit plan or arrangement
generally available to senior executives or the failure to provide him with the
number of paid vacation days, holidays and personal days to which he is
entitled; (iv) the failure of LDNG to obtain assumption of the Pew Retention
Agreement, without limitation or reduction, by any successor; (v) any purported
termination of his employment which is not effected pursuant to the terms of the
Pew Retention Agreement; (vi) the budgeting or expenditure of less than $25
million in oil and gas exploration activities during either of the calendar
years 1998 and 1999; or (vii) the filing of a voluntary or involuntary petition
of bankruptcy by or against LDNG or the insolvency of LDNG.
The Pew Retention Agreement also contains noncompetition, nondisclosure and
nonsolicitation of employees covenants that apply during Mr. Pew's active
employment and the Consulting Period, if any.
RETENTION AGREEMENTS WITH OTHER EXECUTIVE OFFICERS. The Executive Retention
Agreements with Messrs. Hogan and Murphy and Ms. Gerow are substantially similar
and are collectively described herein except where their terms materially
differ. The Executive Retention Agreements become effective as of the Effective
Time and provide that if LDNG terminates the executive's employment other than
for "Cause" (as defined for purposes of the Andrews Employment Agreement), LDNG
will engage such executive as a consultant for a period commencing on the date
of termination and ending on the first anniversary of the Effective Time. As
compensation for such consulting services, he or she will be paid a consulting
fee at a rate equal to his or her annual base salary, payable in monthly
installments. In addition, if the executive's employment is terminated other
than for Cause or if he or she resigns, he or she will be entitled to
reimbursement of COBRA premium payments for medical and dental insurance for up
to 18 additional months and the use of one or more executive out placement
services designated by him or her at LDNG's expense. The Executive Retention
Agreements do not establish or limit LDNG's ability to modify the base salary or
other compensation of the executives while employed in executive capacity by
LDNG, although it is the intention of LDNG to continue the base salaries of the
executives at the level currently paid by American.
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Ms. Gerow's Executive Retention Agreement provides that in recognition of
the extraordinary services to be performed by her in connection with the
integration of LDNG and American following the Effective Time, she will be paid
$100,000 as a special service recognition bonus in a cash lump sum as promptly
as practicable after the end of the 180 day period following the Effective Time.
Mr. Murphy's Executive Retention Agreement provides that if, within two years
after the Effective Time, LDNG terminates his employment other than for Cause or
if he resigns, and within one year thereafter he sells his current residence and
moves away from Houston, Texas, LDNG will pay him $25,000 for relocation costs
and will reimburse him for the loss, if any, he realizes as a result of the sale
of his current residence, up to a maximum of $25,000.
BOARD OF DIRECTORS. The Merger Agreement provides that Mark Andrews,
Chairman and Chief Executive Officer of American, and two other current
directors of American to be determined prior to consummation of the Merger will
be elected to the LDNG Board upon consummation of the Merger. In addition, LDNG
has agreed to cause such persons (or such substitute nominees as may be
designated by Mr. Andrews) to be nominated for reelection at the 1998 Annual
Meeting of Stockholders of LDNG, each to serve until his or her respective
successor is duly elected and qualifies. An indirectly wholly owned subsidiary
of S.A. Louis Dreyfus et Cie holding of record approximately 72% of the
outstanding shares of LDNG Common Stock has entered into an agreement with
American and LDNG providing that, if the Merger is consummated, it will vote all
of such shares in accordance with the recommendations of the LDNG Board in favor
of the reelection of such persons at the 1998 Annual Meeting of Stockholders.
See "The Merger Agreement--Agreement of LDNG Stockholder."
INDEMNIFICATION. For a period of six years after the Effective Time, LDNG
has agreed, to the fullest extent permitted under applicable law, to indemnify
and hold harmless each present and former director or officer of American from
and against liabilities arising out of or pertaining to any action or omission
by any such person in his or her capacity as a director or officer of American
(or certain other related capacities), in each case occurring before the
Effective Time, but specifically including the transactions contemplated by the
Merger Agreement. See "The Merger Agreement--Indemnification of Directors and
Officers of American."
LDNG FINANCING RELATED TO THE MERGER
The Cash Consideration of approximately $47.1 million (assuming no holders
of American Common Stock exercise their dissenters' appraisal rights and without
regard to the settlement of fractional shares in cash) to be paid by LDNG in
connection with the Merger is expected to be funded through existing
availability under LDNG's bank credit facility.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase in accordance with generally
accepted accounting principles. The purchase method requires that the cost of
the acquisition (i.e., cash, stock and net liabilities assumed), plus deferred
taxes related thereto, be allocated among the assets and liabilities acquired
based upon their fair value. The purchase method, when applied to oil and gas
exploration and production companies, prohibits the allocation of the purchase
price to goodwill. This practice tends to increase the amounts allocated to oil
and gas properties when intangibles of value are among the attributes considered
in determining the price to be paid. LDNG expects that it will record a one-time
non-recurring impairment charge at consummation of the Merger. For information
concerning anticipated accounting consequences of the Merger, see "Unaudited Pro
Forma Financial Statements."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL. In connection with the issuance of this Joint Proxy
Statement/Prospectus, American has received an opinion from its tax counsel,
Shearman & Sterling, and LDNG has received an opinion from its tax counsel,
Crowe & Dunlevy, with respect to the material federal income tax consequences of
the
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Merger. The opinions do not address all of the consequences of the Merger and,
in particular, do not address federal income tax considerations that may affect
the treatment of a stockholder of American which, at the Effective Time, already
owns some LDNG Common Stock, holds American Common Stock or American Depositary
Shares as part of a "straddle" or "conversion transaction," is not a U.S.
person, is a tax exempt entity, insurance company, securities dealer, financial
institution or an individual who acquired American Common Stock or American
Depositary Shares pursuant to an employee stock option or otherwise as
compensation, or exercises some form of control over American. Accordingly,
holders of American Common Stock and American Depositary Shares are urged to
consult their tax advisors regarding the federal income tax consequences of the
Merger under their particular circumstances. In addition, the opinions do not
address the tax consequences of the Merger under applicable foreign, state or
local laws, and American stockholders are therefore urged to consult their tax
advisors regarding the tax consequences of the Merger under such laws. The
opinions are based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations thereunder, and administrative rulings and court
decisions, as in effect on the date of this Joint Proxy Statement/Prospectus,
and all of which are subject to change, possibly with retroactive effect. No
ruling has been or will be requested from the Internal Revenue Service on any
tax matter relating to the tax consequences of the Merger. In rendering such
opinions, Shearman & Sterling and Crowe & Dunlevy received and relied upon
representations contained in certificates of American and LDNG.
MERGER. As of the date of this Joint Proxy Statement/Prospectus, Crowe &
Dunlevy has advised LDNG and Shearman & Sterling, special counsel, has advised
American that in their respective opinions:
(i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code;
(ii) each of LDNG and American will be a party to such reorganization
within the meaning of Section 368(b) of the Code;
(iii) no gain or loss will be recognized by LDNG or American as a result
of the Merger; and
(iv) no gain or loss, except with respect to the amount of Cash
Consideration received (and cash received in lieu of fractional shares),
will be recognized by a holder of American Common Stock as a result of the
Merger with respect to the shares of American Common Stock converted into
shares of LDNG Common Stock or the American Preferred Stock and American
Depositary Shares converted into LDNG Preferred Stock and LDNG Depositary
Shares.
It is a condition to closing of the Merger that the foregoing tax opinions
be confirmed as of the Closing Date. If such condition is waived by either
American or LDNG, revised proxy solicitation materials disclosing the waiver of
the condition and other material disclosures in connection therewith, including
risks to investors resulting from such waiver, will be distributed to
stockholders of American and LDNG and previously returned proxies with respect
to the voting of shares at the Special Meetings will be canceled and new proxies
will be solicited. Neither LDNG nor American intends to waive the condition that
the foregoing tax opinions be confirmed.
STOCKHOLDERS OF AMERICAN. As of the date of this Joint Proxy
Statement/Prospectus, Shearman &
Sterling, special counsel, has advised American that in their opinion:
(i) Gain, if any, realized by a holder of American Common Stock who
exchanges such holder's American Common Stock or American Depositary Shares
for LDNG Common Stock or LDNG Depositary Shares, respectively, will be
recognized only to the extent of the Cash Consideration received. No loss
will be recognized (except in connection with any cash received in lieu of a
fractional share interest in LDNG Common Stock) for federal income tax
purposes by holders of American Common Stock or American Depositary Shares
by reason of such exchange. If the American Common Stock is a capital asset
in the hands of such holder, any recognized gain will constitute either
capital gain subject to the provisions and limitations of the Code or, as
discussed below, a dividend;
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(ii) The tax basis of the LDNG Common Stock or LDNG Depositary Shares,
respectively, received by each holder of American Common Stock or American
Depositary Shares who exchanges American Common Stock or American Depositary
Shares for LDNG Common Stock or LDNG Depositary Shares, respectively, in the
Merger will be the same as the tax basis of the American Common Stock or
American Depositary Shares surrendered in exchange therefor, except in the
case of holders of American Common Stock such basis will be decreased by the
amount of Cash Consideration received and increased by the amount of gain or
dividend income recognized;
(iii) The holding period of the LDNG Common Stock or LDNG Depositary
Shares, respectively, received by each holder of American Common Stock or
American Depositary Shares in the Merger will include the period during
which the shares of American Common Stock or American Depositary Shares
surrendered in exchange therefor were held by the holder thereof; provided,
such American Common Stock or American Depositary Shares was held as a
capital asset by the holder at the Effective Time;
(iv) Cash received by a holder of American Common Stock in lieu of a
fractional share interest in LDNG Common Stock will be treated as received
for such fractional share interest, and, provided the fractional share
interest would have constituted a capital asset in the hands of such holder,
the holder will generally recognize capital gain or loss in an amount equal
to the difference between the amount of cash received and the portion of the
adjusted tax basis in the American Common Stock allocable to the fractional
share interest; and
(v) A holder of American Common Stock who holds American Common Stock as
a capital asset and exercises his or her dissenters' rights and receives
cash with respect to his or her American Common Stock will generally
recognize capital gain or loss upon such redemption equal to the difference
between the amount of the cash received by such stockholder and such
stockholder's tax basis in the American Common Stock surrendered therefor.
The exchange will not have the effect of a dividend if either the exchange
is substantially disproportionate with respect to the holder or the exchange
results in a meaningful reduction in the holder's interest in LDNG Common Stock.
The exchange would be substantially disproportionate with respect to the
stockholder if the holder's percentage interest in LDNG Common Stock,
immediately after the Merger, is less than 80% of what the interest would have
been if such holder had received solely LDNG Common Stock in the exchange for
all shares of American Common Stock owned (or deemed owned after application of
certain constructive ownership rules under Sections 318 and 356(a)(2) of the
Code) by the holder before the Merger. Whether an exchange would result in a
meaningful reduction depends on the particular stockholder's facts and
circumstances. However, the transaction should generally result in a meaningful
reduction where the holder's percentage interest in LDNG Common Stock,
immediately after the Merger, is minimal (including the LDNG Common Stock owned
or deemed owned), such stockholder (and related persons) exercise no control
over LDNG, and the holder's percentage interest in LDNG Common Stock is actually
reduced from what the interest would have been if such holder had received
solely LDNG Common Stock in exchange for all shares of American Common Stock
owned (or deemed owned after application of certain constructive ownership rules
under Sections 318 and 356(a)(2) of the Code) by the stockholder before the
Merger. In determining a stockholder's interest in LDNG Common Stock, the
stockholder would be deemed to own, under the constructive ownership rules of
Sections 318 and 356(a)(2), any LDNG Common Stock owned, or deemed owned, by
certain related persons or that are subject to an option held by the stockholder
or a related person. If the exchange of American Common Stock for LDNG Common
Stock and Cash Consideration has the effect of a distribution of a dividend, the
holder would recognize ordinary dividend income in an amount equal to the lesser
of the amount of gain recognized and such holder's ratable share of the
accumulated earnings and profit of American. Any amount treated as a
distribution in excess of accumulated earnings and profits would be treated as a
return of basis to the extent thereof, and the amount in excess of basis would
be treated as capital gain. A holder of American Common Stock should consult his
own tax advisor to determine whether dividend treatment could apply to his
particular circumstance and the tax consequences thereof.
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INFORMATION REPORTING AND BACKUP WITHHOLDING. Payment in respect of
American Common Stock may be subject to information reporting to the Internal
Revenue Service and to 31% backup withholding tax. Backup withholding generally
will not apply, however, to a payment to an American stockholder or other payee
if such American stockholder or payee completes and signs the substitute W-9
that will be included as part of the transmittal letter or otherwise proves to
LDNG and the Exchange Agent that it is exempt from backup withholding.
RESTRUCTURING OF THE MERGER. The Merger Agreement provides that the Merger
may be restructured if the opinions described above with respect to the federal
income tax consequences of the Merger cannot be confirmed at the Effective Time.
If the Merger is required to be restructured, American and LDNG shall use their
reasonable best efforts to restructure the transaction contemplated by the
Merger Agreement pursuant to which (a) LDNG will cause there to be organized a
newly created holding company corporation ("NEWCO") with a certificate of
incorporation and bylaws substantially equivalent to those of LDNG as of the
date of the Merger Agreement; (b) the holders of LDNG Common Stock will receive
one share of Common Stock ("NEWCO Common Stock") of NEWCO in exchange for each
share of LDNG Common Stock as a result of a merger of a newly created subsidiary
of NEWCO with and into LDNG; and (c) another newly created subsidiary of NEWCO
will be merged with and into American and the terms of the Merger Agreement
shall apply to such merger except that NEWCO Common Stock and NEWCO Preferred
Stock shall be issued to American security holders in lieu of the LDNG Common
Stock and LDNG Preferred Stock issuable hereunder and the American Warrants
shall be exercisable for shares of NEWCO Common Stock instead of LDNG Common
Stock. It is a condition to the obligations of American and LDNG to close the
transaction as so restructured that each party shall have received tax opinions
in satisfactory form and substance to the effect that the restructured
transaction will be treated for federal income tax purposes as a transaction to
which Section 351 and/or Section 368(a) of the Code applies and will otherwise
have the tax attributes and effects described above as to American, LDNG and
their respective stockholders.
NET OPERATING LOSS CARRYFORWARD. At December 31, 1996, American had net
operating loss ("NOL") carryforwards totaling $281.6 million, which will expire
during the years 1997 through 2011. Under Section 382 of the Code, the
utilization of these NOL carryforwards is subject to an annual limitation (the
"382 Limitation") that applies when an "ownership change" occurs. As a result of
an ownership change which occurred during November 1996, the total amount of
American's NOL carryforwards were not affected, but a 382 Limitation was
calculated equal to $10 million per year. Under Section 382 of the Code, the
succession to the assets and liabilities of American by LDNG will also
constitute an "ownership change" and result in a recalculation of the 382
Limitation, which will be equal to the value of the American immediately before
such ownership change multiplied by the "long term tax exempt rate" as such term
is defined in Section 382 of the Code, subject to adjustment for certain built
in gains of American. The ownership change occurring by reason of the Merger
will not result in a lower 382 Limitation than the $10 million limitation
established in November 1996. Consequently, that previous 382 Limitation will
remain in effect throughout the NOL carryforward time periods.
To the extent the 382 Limitation exceeds the federal taxable income of the
post-merger company for a given year, the 382 Limitation for the subsequent year
will be increased by such excess. NOL carryforwards of American will be
disallowed entirely if certain continuity of business enterprise requirements
are not met. It is expected these requirements will be met. The effect of the
382 Limitation will be to limit the use of a portion of American's existing NOL
carryforwards. As the result of the limitation, the Company expects that $162.9
million of American NOL carryforwards will expire unutilized. Utilization of the
remaining $118.7 million of American NOL carryforwards is subject to certain
factors (including oil and gas prices, future "ownership changes" and other
factors) which cannot be controlled by LDNG.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is included in this Joint Proxy Statement/Prospectus
as Annex A. The following discussion is qualified in its entirety by reference
to the Merger Agreement.
THE MERGER
The Merger Agreement provides that, subject to the terms and conditions
thereof, at the Effective Time, American will be merged with and into LDNG, and
the separate corporate existence of American will thereupon cease. LDNG will be
the Surviving Corporation in the Merger and will continue to be governed by the
Oklahoma Act, and the separate corporate existence of LDNG with all of its
rights, privileges, immunities, powers and franchises will continue unaffected
by the Merger, except as set forth in the Merger Agreement.
MERGER CONSIDERATION
The Merger Agreement provides that (a) the holders of American Common Stock
will receive in exchange for each share of American Common Stock 0.72 of a share
of LDNG Common Stock and the Cash Consideration in the amount of $3.00 and (b)
the holders of American Depositary Shares will receive in exchange for each such
American Depositary Share one LDNG Depositary Share. For more information
concerning the consideration to be paid in the Merger and the procedures for
exchange of stock certificates and the payment of the Cash Consideration, see
"The Merger--Merger Consideration; Effects of the Merger on Securities of
American," "--Procedures for Exchange of American Common Stock Certificates" and
"--Procedures for Exchange of American Depositary Shares."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective immediately when certificates of merger are
accepted for filing by the Secretaries of the States of Delaware and Oklahoma or
at such time thereafter as is provided in such certificates of merger. It is
anticipated that, if the matters described in this Joint Proxy Statement/
Prospectus are adopted and approved at the LDNG Special Meeting and at the
American Special Meeting and all other conditions to the Merger have been
satisfied or waived, the Effective Time will occur on the first business day
following the day on which both such meetings have been held (or such later date
as is agreed upon by LDNG and American).
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by each
of American and LDNG relating to, among other things, (i) each of their, and
their respective subsidiaries, organization and similar corporate matters, (ii)
each of their capital structures, (iii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement, and the absence of
conflicts, violations of or defaults under the charters, as amended, or by-laws,
as amended, of each of American and LDNG, or any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to American or LDNG or any of their
respective subsidiaries or any of their respective properties or assets, (iv)
the documents and reports filed by each of them with the Commission and the
accuracy of the information contained therein, including financial statements,
(v) the absence of certain events, changes or effects, (vi) compliance with
certain laws and absence of certain regulations or restrictions, (vii)
litigation, (viii) taxes, (ix) retirement and other employee plans and matters
relating to the Employee Retirement Income Security Act of 1974, as amended, (x)
environmental matters, (xi) fairness opinions, (xii) broker's or similar fees,
and (xiii) transactions with affiliates. The Merger Agreement also contains
representations and warranties by American regarding (a) the vote required by
stockholders of American to approve the Merger and the Merger Agreement and (b)
the Rights Agreement between American and Society
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National Bank dated September 28, 1993 (the "American Rights Agreement"). The
Merger Agreement also contains representations and warranties by LDNG regarding
certain LDNG natural gas contracts.
CONDUCT OF BUSINESS OF AMERICAN AND LDNG PENDING THE MERGER
During the period from the date of the Merger Agreement and continuing until
the Effective Time (i) American agrees as to itself and its subsidiaries that
(except as expressly contemplated or permitted by the Merger Agreement, or to
the extent that LDNG otherwise consents in writing) and (ii) LDNG agrees as to
itself and its subsidiaries that (except as expressly contemplated or permitted
by the Merger Agreement, or to the extent that American otherwise consents in
writing) (for purposes of the following discussion American and LDNG each being
a "Party"):
ORDINARY COURSE. Each Party and its respective subsidiaries will carry on
its businesses in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and will use all commercially reasonable
efforts to preserve intact its present business organizations, keep available
the services of its current officers and employees, and endeavor to preserve its
relationships with customers, suppliers and others having business dealings with
it.
DIVIDENDS; CHANGES IN STOCK. Except for transactions solely among a Party
and its subsidiaries, a Party will not and it will not permit any of its
respective subsidiaries to: (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock or partnership interests,
except in the case of American, for the declaration and payment of regular cash
dividends with respect to the American Preferred Stock in accordance with its
terms; (ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for shares of such Party's capital stock; or (iii)
repurchase, redeem or otherwise acquire, or permit any of its subsidiaries to
purchase, redeem or otherwise acquire, any shares of its capital stock, except
as required by the terms of its securities outstanding on the date hereof or as
contemplated by any existing employee benefit plan.
ISSUANCE OF SECURITIES. A Party will not and it will not permit any of its
subsidiaries to, issue, deliver or sell, or authorize or propose to issue,
deliver or sell, any shares of its capital stock of any class, or other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, other voting securities or convertible
securities, other than: (i) in the case of American, (x) the issuance of
American Common Stock upon the exercise of American Warrants or American Stock
Options that are outstanding on the date of the Merger Agreement, (y) issuances
by a wholly owned subsidiary of American of such subsidiary's capital stock to
its parent, and (z) the issuance of American Common Stock upon the conversion of
the American Preferred Stock in accordance with its terms; and (ii) in the case
of LDNG (y) the issuance of LDNG Common Stock upon the exercise of stock options
granted under the LDNG Stock Option Plan that are outstanding on the date of the
Merger Agreement, and (z) issuances by a wholly owned subsidiary of LDNG of such
subsidiary's capital stock to its parent.
GOVERNING DOCUMENTS. Except as contemplated by the Merger Agreement or in
connection therewith, no Party will amend its certificate or articles of
incorporation or by-laws.
NO ACQUISITIONS. A Party will not, and it will not permit any of its
subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or any of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, other than (i) in the case of
American, any such acquisition or acquisitions having a purchase price not
exceeding $1,000,000 in the aggregate; and (ii) in the case of LDNG, any such
acquisition or acquisitions having a purchase price not exceeding $3,000,000 in
the aggregate.
NO DISPOSITIONS. Other than: (i) as may be necessary or required by law to
consummate the transactions contemplated hereby or (ii) sales, leases,
encumbrances or other dispositions in the ordinary course of business consistent
with past practice that are not material, individually or in the aggregate, to a
Party
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and its subsidiaries taken as a whole, a Party will not, and it will not permit
any of its subsidiaries to, sell, lease, encumber or otherwise dispose of, or
agree to sell, lease (whether such lease is an operating or capital lease),
encumber or otherwise dispose of, any of its material assets.
NO DISSOLUTION, ETC. Neither Party will authorize, recommend, propose or
announce an intention to adopt a plan of complete or partial liquidation or
dissolution of such Party or any of its subsidiaries, except that either Party
may merge any of its subsidiaries into itself or another directly or indirectly
wholly-owned subsidiary.
ACCOUNTING. Neither Party will, nor will either Party permit any of its
subsidiaries to, make any changes in their accounting methods which would be
required to be disclosed under the rules and regulations of the Commission,
except as required by law, rule, regulation or generally accepted accounting
principles.
AFFILIATE TRANSACTIONS. Neither Party will, nor will either Party permit
any of its subsidiaries to, enter into any agreement or arrangement with any of
their respective affiliates other than with wholly owned subsidiaries of such
Party, on terms less favorable to such Party or such subsidiary, as the case may
be, than could be reasonably expected to have been obtained with an unaffiliated
third party on an arm's-length basis.
CERTAIN EMPLOYEE MATTERS. Except as otherwise required by law, a Party will
not and it will not permit any of its subsidiaries to: (i) pay any bonuses to
(whether in cash or property), or grant any increases in the compensation of,
any of its directors, officers or employees, except increases in salary to
employees who are not directors or officers made in the ordinary course of
business and in accordance with past practice; (ii) pay or agree to pay any
material pension, retirement allowance or other employee benefit not required or
contemplated by any of the existing employee benefit plans of American or LDNG
as applicable, in each case as in effect on the date of the Merger Agreement, to
any such director, officer or employee, whether past or present; (iii) enter
into any new, or amend any existing, material employment or severance or
termination agreement with any director, officer or employee; (iv) grant any
options or other awards under any equity or incentive plan of American or LDNG;
or (v) become obligated under any new employee benefit plan which was not in
existence prior to the date of the Merger Agreement, or amend any such plan or
arrangement in existence on the date hereof if such amendment would have the
effect of materially enhancing any benefits thereunder.
INDEBTEDNESS; LEASES; CAPITAL EXPENDITURES. No Party will, nor will any
Party permit any of its subsidiaries to, (i) incur any indebtedness for borrowed
money (except (x) to finance any transactions or capital or other expenditures
permitted by this Agreement and regular borrowings under credit facilities made
in the ordinary course of such Party's business, (y) refinancings of existing
debt and (z) immaterial borrowings that, in each such case, permit prepayment of
such debt without penalty (other than LIBOR breakage costs)) or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such Party or any of its subsidiaries or
guarantee any debt securities of others (other than directly or indirectly
wholly-owned subsidiaries), (ii) except in the ordinary course of business,
enter into any material lease (whether such lease is an operating or capital
lease) or create any material mortgages, liens, security interests or other
encumbrances on the property of such Party or any of its subsidiaries in
connection with any indebtedness thereof, or (iii) make or commit to make
aggregate capital expenditures not described in the party's prior filings with
the Commission in excess, in the case of each of American and LDNG, of an amount
equal to the sum of (A) capital expenditures budgeted by such Party for the
fiscal year ending December 31, 1997 as set forth in the capital expenditure
budgets delivered to the other Party, less any budgeted capital expenditures
expended prior to the date of the Merger Agreement, plus (B) capital
expenditures (not otherwise included in budgeted capital expenditures) that may
be incurred in connection with the acquisitions by American and LDNG, as
applicable, permitted under the Merger Agreement. Each Party agrees to consult
with the other in advance prior to actually
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committing to make budgeted capital expenditures relating to a single project or
field not specifically identified in the budget in excess of $1,000,000 for
American or in excess of $3,000,000 for LDNG.
MATERIAL AGREEMENTS. No Party will, nor will any Party permit any of its
subsidiaries to, (i) enter into any material agreement not contemplated by the
budgeted capital expenditures described above or (ii) amend, modify or alter any
existing American material agreement in a manner materially adverse to American
or LDNG, as applicable.
ACCESS TO ASSETS, PERSONNEL AND INFORMATION
Each of LDNG and American has agreed that, from the date of the Merger
Agreement until the consummation of the Merger, it will allow the other party
reasonable access to assets, personnel and information in an effort to allow
such other party to fully and adequately investigate its properties, business
and financial condition. As of the date of this Joint Proxy
Statement/Prospectus, each party has received the full cooperation of the other
party and neither party is aware of any facts or circumstances that would
constitute a breach of any representation or warranty contained in the Merger
Agreement.
NYSE LISTING
LDNG has agreed to cause, prior to the closing date of the Merger (the
"Closing Date"), the shares of LDNG Common Stock to be issued in the Merger, the
shares of LDNG Common Stock issuable upon conversion of the LDNG Depositary
Shares to be issued in the Merger, the shares of LDNG Common Stock issuable upon
exercise of the American Warrants assumed by LDNG in connection with the Merger,
and the LDNG Depositary Shares to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance and requisite
approval of the Merger and the Merger Agreement by the stockholders of American
and LDNG. An application has been filed for listing such shares on the NYSE.
WAIVERS, CONSENTS AND APPROVALS; ADDITIONAL ARRANGEMENTS
Subject to the terms and conditions of the Merger Agreement, each of LDNG
and American has agreed to take, or cause to be taken, all action and do, or
cause to be done, all things necessary, appropriate or desirable under any
applicable laws and regulations or under applicable governing agreements to
consummate the Merger and the transaction contemplated by the Merger Agreement,
including using its best efforts to obtain all necessary waivers, consents and
approvals and effecting all necessary registrations and filings. Each of LDNG
and American has agreed to take, or cause to be taken, all action and do, or
cause to be done, all things necessary, appropriate or desirable to cause the
covenants and conditions applicable to the parties' respective obligations to
effect the Merger to be performed or satisfied as soon as practicable. In
addition, each of LDNG and American has agreed that, if any governmental
authority issues any order, decree, ruling or injunction or takes any other
action that would have the effect of restraining, enjoining or otherwise
prohibiting or preventing the consummation of the Merger, it will use its
reasonable efforts to have such order, decree, ruling or injunction or other
action declared ineffective as soon as practicable.
AGREEMENTS OF AFFILIATES
American has agreed to cause to be prepared and delivered to LDNG, at least
30 days prior to the Effective Time, a list identifying all persons who, at the
time of the American Special Meeting, may be deemed to be "affiliates" of
American, as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act. American has agreed to use its best efforts to cause any such
affiliates to execute and deliver to LDNG, on or prior to the Closing Date of
the Merger, a written agreement relating to certain resale restrictions.
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NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
American has agreed to, and agreed to use its best efforts to cause each of
its representatives (including its employees, officers, directors and financial
and legal advisors) to, terminate any and all existing activities, discussions
and negotiations with third parties (other than LDNG) with respect to any
alternative transaction involving the acquisition of American. Furthermore,
American and its representatives are prohibited by the terms of the Merger
Agreement from (i) initiating, soliciting or knowingly encouraging the
submission of any offer or proposal to acquire all or more than 15% of the
American Common Stock, American Preferred Stock or American Depositary Shares or
all or any material portion of the assets, business or equity interest of
American (other than the transactions contemplated by the Merger Agreement),
whether by merger, purchase of assets, tender offer, exchange offer or otherwise
(a "Competing Proposal"); (ii) engage in negotiations or discussions concerning
or provide any non-public information to any person relating to a Competing
Proposal; or (iii) agree to, approve or recommend, or otherwise facilitate any
effort or attempt to make or implement, any Competing Proposal, or withdraw its
recommendation of the Merger; provided, however, that (a) the American Board may
take and disclose to the stockholders of American a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act with regard to the Competing
Proposal and (b) following receipt from a third party (without any solicitation,
initiation or encouragement, directly or indirectly, by American or any
representatives of American) of a bona fide written Competing Proposal, (1)
American may engage in discussions or negotiations with such third party and may
furnish such third party non-public information concerning it, and its business,
properties and assets if such third party executes a confidentiality agreement
in reasonably customary form and on terms, including so called "standstill"
provisions, at least as restrictive as those contained in the Confidentiality
Agreement between LDNG and American and (2) the American Board may recommend
such Competing Proposal or withdraw, modify or not make its recommendation in
favor of the Merger, if and only to the extent that (x) the American Board
determines in good faith based on advice of American's financial advisor that
such Competing Proposal, if consummated, would result in a transaction more
favorable to American's stockholders from a financial point of view than the
transaction contemplated by the Merger Agreement (a "Superior Proposal") and
that the person making such Superior Proposal has the financial means, or the
ability to obtain the necessary financing, to conclude such transaction; and (y)
the American Board determines in good faith based on the advice of American's
outside counsel that such action is necessary in order for the American Board to
act in a manner that is consistent with its fiduciary obligations under
applicable law.
American has agreed promptly to notify LDNG after receipt by American or its
representatives of any Competing Proposal, any inquiries indicating that any
person is considering making or wishes to make a Competing Proposal or any
requests for nonpublic information.
SPECIAL MEETINGS; JOINT PROXY STATEMENT PROSPECTUS
Each of American and LDNG have agreed to take all necessary action in
accordance with its respective charters and by-laws to convene the respective
American Special Meeting and the LDNG Special Meeting for the purpose of voting
on the matters described in this Joint Proxy Statement/ Prospectus. LDNG and
American agreed to cooperate and promptly prepare and file with the Commission
the Registration Statement and the Joint Proxy Statement/Prospectus as soon as
practicable after the date of the Merger Agreement. LDNG agreed to use its best
efforts, and American agreed to cooperate with LDNG (including furnishing
information reasonably requested by LDNG), to have the Registration Statement
declared effective under the Securities Act. LDNG further agreed to use its best
efforts, and American agreed to cooperate with LDNG, to obtain all necessary
state securities laws on "blue sky" permits, approvals and registrations in
connection with the issuance of LDNG Common Stock, LDNG Preferred Stock and LDNG
Depositary Shares pursuant to the Merger.
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PUBLIC ANNOUNCEMENTS
Prior to the Effective Time, American and LDNG have agreed to consult with
each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by the Merger Agreement
and will not issue any press release or make any such public statement prior to
obtaining the approval of the other party; provided, however, that such approval
will not be required where such release or announcement is required by
applicable law or the rules of the NYSE; and provided further, that either
American or LDNG may respond to inquiries by the press or others regarding the
transactions contemplated by the Merger Agreement, so long as such responses are
consistent with such party's previously issued press releases.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF AMERICAN
For a period of six years after the Effective Time, LDNG has agreed to the
fullest extent permitted under applicable law, to indemnify and hold harmless,
each present and former director or officer of American and its subsidiaries,
and each such person who served at the request of American or any of its
subsidiaries as a director, officer, trustee, partner, fiduciary, employee or
agent of American or of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan or enterprise, against all costs and
expenses (including reasonable attorneys fees), judgments, fines, losses,
claims, damages, liabilities and settlement amounts paid in connection with any
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), whether civil, administrative or investigative,
arising out of or pertaining to any action or omission by any such person in his
or her capacity set forth above, in each case occurring before the Effective
Time, including the transactions contemplated by the Merger Agreement. However,
LDNG will not be liable for any amounts in connection with any settlement
effected by any indemnified party without LDNG's prior written consent (which
consent LDNG has agreed not unreasonably to withhold). In the event of any such
claim, action, suit, proceeding or investigation, LDNG has agreed to pay the
fees and expenses of counsel selected by any such indemnified party, which
counsel must be reasonably satisfactory to LDNG, promptly after statements
therefor are received (unless LDNG elects to defend such action). If LDNG elects
to defend any such action, LDNG will have the right to control the
investigation, defense and/or settlement of each such action or matter, at its
cost and expense, including use of counsel of its choice reasonably satisfactory
to the indemnified party. However, LDNG will consult with the indemnified party
and take the views of the indemnified party into consideration in effecting or
rejecting any settlement. If both LDNG and any indemnified party are parties to
any litigation, such indemnified party will be entitled to retain separate
counsel if there are actual or potential conflicts of interest between such
indemnified party and LDNG. LDNG will not enter into any settlement of any
action or matter, except for any action relating solely to money damages that
includes a complete and unconditional release of such indemnified party, without
the prior written consent of such indemnified party which consent must not be
unreasonably withheld. LDNG and any indemnified party will cooperate with each
other in connection with the investigation and defense of any action or matter
for which indemnification is provided as described above.
AMERICAN EMPLOYEE MATTERS
As soon as reasonably practicable after the Effective Time, LDNG has agreed
to provide employee benefit plans and arrangements to active employees of
American and its subsidiaries that are the same as, or substantially the
equivalent of, the employee benefit plans and arrangements of LDNG and its
subsidiaries as in effect immediately prior to the Effective Time or as may be
modified or terminated from time to time thereafter by LDNG. Pending such
action, LDNG will maintain the effectiveness of American's employee benefit
plans in existence as of the Effective Time. From and after the Effective Time,
LDNG has also agreed to honor, in accordance with their terms, all employment
and severance agreements and arrangements which apply to employees of American
and its subsidiaries as disclosed to LDNG. LDNG has further agreed that the
employees of American and its subsidiaries will be credited for their actual and
credited service with American and its subsidiaries for purposes of eligibility,
vesting and
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benefit accrual (except in the case of a defined benefit pension plan) in the
employee plans provided by LDNG. Such employees' benefits under LDNG's medical
benefit plan will not be subject to any exclusions for any pre-existing
conditions, and credit will be received for any deductibles or out-of-pocket
amounts previously paid.
In addition, as soon as practicable after the Effective Time, the
participants in American's annual incentive and bonus plans for 1997 will be
paid a pro-rata cash bonus through the Effective Time determined by the American
Board, but in no event to exceed a total of $750,000.
EMPLOYMENT AND RETENTION AGREEMENTS WITH EXECUTIVE OFFICERS OF AMERICAN
Pursuant to the Merger Agreement, LDNG has entered into an employment
agreement with Mark Andrews and retention agreements with Elliott Pew, John M.
Hogan, Cindy L. Gerow and T. Frank Murphy, each an executive officer of
American, which agreements are to become effective at the Effective Time. For a
description of the terms of these agreements (collectively referred to herein as
the "American Employee Agreements") and certain severance payments, see "The
Merger--Interests of Certain Persons in the Merger."
AMERICAN RIGHTS AGREEMENT
American has agreed, unless and until the Merger Agreement is terminated in
accordance with its terms, to maintain the American Rights Agreement in effect
and will not make any other amendments or modifications, except such amendments
or modifications as or permitted by the Merger Agreement and such other
amendments or modifications that (a) would not adversely affect the Merger or
the transactions contemplated by the Merger Agreement and (b) would not (1)
facilitate or permit the acquisition by any Person of 15% of the outstanding
American Common Stock without such Person becoming an "Acquiring Person"
pursuant to the American Rights Agreement or (2) otherwise modify or impair the
operation of the American Rights Agreement in a manner that would diminish the
anti-takeover effects thereof.
RESTRUCTURING OF THE MERGER
In the event that, for any reason relating to LDNG, American or their
respective stockholders, LDNG or American is not able to obtain an opinion from
their respective counsel that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, the Merger Agreement provides that
LDNG and American will use their reasonable best efforts to restructure the
transaction contemplated by the Merger Agreement in the manner described under
"The Merger--Material Federal Income Tax Consequences--Restructuring of the
Merger."
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to the satisfaction or waiver of
various conditions. The respective obligations of each of American and LDNG to
effect the Merger are subject to the following conditions: (a) approval and
adoption by the American stockholders of the Merger and the Merger Agreement;
(b) approval and adoption by the LDNG stockholders of the Merger and the Merger
Agreement; (c) receipt of all consents, approvals, permits and authorizations
required to be obtained from any governmental authority prior to the
consummation of the Merger, except where the failure to obtain such consents,
approvals, permits and authorizations would not have a material adverse effect
on LDNG (assuming the Merger has taken place) or materially adversely affect the
consummation of the Merger; (d) continued effectiveness of the Registration
Statement; (e) the absence of any court orders restraining, enjoining or
otherwise prohibiting the consummation of the Merger provided the party invoking
such condition will have complied with its obligations under the Merger
Agreement to use all reasonable efforts to have any such order vacated; and (f)
the shares of LDNG Common Stock and LDNG Depositary Shares described above under
"The Merger Agreement--NYSE Listing" will have been approved for listing on the
NYSE, subject to official notice of issuance and the requisite stockholder
approvals.
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In addition, LDNG's obligation to consummate the Merger is subject to
satisfaction of the following conditions (unless waived by LDNG): (a) continued
accuracy in all material respects of all representations and warranties made by
American in the Merger Agreement other than any inaccuracy that would not,
either individually or in the aggregate, have a material adverse effect on
American; (b) performance by American of its covenants and agreements under the
Merger Agreement other than any breach that would not, either individually or in
the aggregate, have a material adverse affect on American; (c) the absence of
any material adverse change in the condition (financial or otherwise),
operations or business of American (other than changes, including changes in
commodity prices, generally affecting the oil and gas industry, changes due to
the announcement of the Merger or changes disclosed to LDNG on or prior to the
date of the Merger Agreement); (d) an opinion from its counsel regarding certain
tax issues as described in the Merger Agreement; and (e) the holders of not more
than 15% of the outstanding American Common Stock will have exercised their
dissenters' appraisal rights under the Delaware Act.
American's obligation to consummate the Merger is subject to satisfaction of
the following conditions (unless waived by American): (a) continued accuracy in
all material respects of all representations and warranties made by LDNG in the
Merger Agreement other than any inaccuracy that would not, either individually
or in the aggregate, have a material adverse effect on LDNG; (b) performance by
LDNG of its covenants and agreements under the Merger Agreement other than any
breach that would not, either individually or in the aggregate, have a material
adverse effect on LDNG; (c) an opinion from its counsel regarding certain tax
issues as described in the Merger Agreement; (d) the absence of any material
adverse change in the condition (financial or otherwise), operations or business
of LDNG (other than changes, including changes in commodity prices, generally
affecting the oil and gas industry or changes due to the announcement of the
Merger); and (e) LDNG will have entered in the American Employee Agreements with
those applicable employees of American who have also agreed to enter into such
agreements.
TERMINATION RIGHTS AND TERMINATION FEES
The parties may terminate the Merger Agreement with no liability or
obligation to each other on account of such termination if they mutually consent
thereto. In addition, either party may terminate the Merger Agreement with no
liability or obligation to the other party on account of such termination if:
(a) the Merger has not been consummated by November 15, 1997 (provided, however,
that such right to terminate will not be available to a party if its breach of
the Merger Agreement has been the cause of or resulted in the failure of the
Merger to be consummated on or before such date); or (b) a governmental
authority issues an order permanently restraining, enjoining or otherwise
prohibiting the consummation of the Merger and such order has become final and
nonappealable (provided, however, that the right to terminate under this
provision will not be available to a party until such party has used all
reasonable efforts to remove such order).
LDNG may terminate the Merger Agreement with no liability or obligation to
American on account of such termination if there has been a breach of any of the
representations, warranties or covenants made by American in the Merger
Agreement which would cause the conditions to LDNG's obligation to consummate
the Merger described above not to be satisfied and such breach is not capable of
being cured or, if capable of being cured, has not been cured within 10 business
days following receipt by American of written notice of such breach from LDNG.
American may terminate the Merger Agreement with no liability or obligation
to LDNG on account of such termination if there has been a breach of any of the
representations, warranties or covenants made by LDNG in the Merger Agreement
which would cause the conditions to American's obligation to consummate the
Merger described above not to the satisfied and such breach is not capable of
being cured or, if capable of being cured, has not been cured within 10 business
days following receipt by LDNG of written notice of such breach from American.
The Merger Agreement also provides that American would have the right to
terminate the Merger Agreement with no liability or obligation to LDNG on
account of such termination if the banks that are parties to the Pledge
Agreements dated as of December 23, 1994
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and December 27, 1996 among S.A. Louis Dreyfus et Cie and the banks named
therein do not consent to the voting of the shares of LDNG Common Stock pledged
pursuant thereto in favor of the transactions contemplated by the Merger
Agreement on or prior to the twentieth business day after the date of the Merger
Agreement (or an additional five business days thereafter if LDNG and S.A. Louis
Dreyfus et Cie have and are continuing to use their reasonable best efforts to
obtain any required consents of such banks). Such banks consented to the voting
of the pledged shares within the applicable time period indicated above.
In addition, the Merger Agreement may be terminated under the following
circumstances:
(x) By American or LDNG if the Merger Agreement and the Merger is not
approved by the required vote of the American stockholders at the American
Special Meeting or at any adjournment thereof;
(y) By American if (i) American is prepared to enter into a binding
definitive agreement to effect a Superior Proposal; and (ii) American has
given LDNG at least three (3) business days' prior notice of its intention
to terminate the Merger Agreement, during which period LDNG will have the
opportunity to propose amendments or modifications to the terms of the
Merger; and
(z) By LDNG if (i) the American Board has withdrawn or modified its
recommendation of the Merger Agreement and the Merger or has resolved or
publicly announced or disclosed to any third party its intention to do so;
(ii) an Alternative Transaction (as defined below) involving American has
taken place or the American Board has recommended such an Alternative
Transaction to the stockholders of American or has resolved or publicly
announced its intention to recommend or engage in such an Alternative
Transaction; or (iii) a tender offer or exchange offer for thirty percent
(30%) or more of the outstanding shares of American Common Stock has been
commenced or a registration statement with respect thereto has been filed
(other than by LDNG or an affiliate thereof), and the American Board has (A)
recommended (or has resolved or publicly announced its intention to
recommend) that the stockholders of American tender their shares in such
tender or exchange offer or (B) resolved or publicly announced its intention
to take no position with respect to such tender or exchange offer.
If the Merger Agreement is terminated (i) by LDNG for the reasons described
in paragraphs (x) or (z) immediately above or (ii) by American for the reasons
described in paragraphs (x) or (y) immediately above, American has agreed to pay
to LDNG a termination fee in cash ("Initial Termination Fee") equal to
$3,000,000; provided, however, the Initial Termination Fee will not be payable
for a termination for the reasons described in paragraph (x) or clause (i) of
paragraph (z) above, if, in either case, both (A) the LDNG Ratio (as defined
below) is less than 85% of the Index Ratio (as defined below) and (B) no
Competing Proposal has been made which has not been rejected by American prior
to the date of the American Special Meeting in the case of a termination
pursuant to paragraph (y) above or, in the case of a termination pursuant to
clause (i) of paragraph (z) above, prior to the action of the American Board
referred to in such clause. In addition, if the Initial Termination Fee becomes
payable and if, within 12 months after payment of the Initial Termination Fee,
an Alternative Transaction involving American is consummated or American enters
into a definitive agreement with respect to an Alternative Transaction, American
has agreed to pay to LDNG an additional fee ("Additional Termination Fee") of
$5,000,000 at or prior to consummation of such Alternative Transaction, or
within one business day following the effective date of such definitive
agreement, whichever is earlier.
For purposes of the foregoing, the following terms have the meanings
indicated:
"Alternative Transaction" means (A) a transaction or series of transactions
to which any person or group (as such term is defined under the Exchange Act)
other than LDNG or any affiliate thereof (a "Third Party") acquires or would
acquire (upon completion of such transaction or series of transactions) shares
(or securities exercisable or convertible into shares) representing more than
fifteen percent (15%) of the outstanding shares of American Common Stock,
pursuant to a tender offer or exchange offer or
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otherwise, (B) a merger, consolidation, share exchange or other business
combination involving American or any of its material subsidiaries, if, upon
consummation of such merger, consolidation, share exchange or other business
combination such Third Party owns or would own more than 15% of the outstanding
equity securities of American or any of its material subsidiaries or the entity
surviving such merger or business combination or resulting from such
consolidation, or (C) any other transaction or series of transactions pursuant
to which any control of assets of American or any of its material subsidiaries
(including for this purpose, outstanding equity securities of subsidiaries of
American) having a fair market value equal to more than 25% of the fair market
value of all of the consolidated assets of American immediately prior to such
transaction or series of transactions.
"Average Closing Price" means the average of the daily last sale prices of
LDNG Common Stock as reported on the NYSE for the ten consecutive full trading
days on which such shares are traded on the NYSE ending at the close of trading
on the Determination Date.
"Average Index Price" means the average of the Index Prices for the ten
consecutive full NYSE trading days ending at the close of trading on the
Determination Date.
"Determination Date" means (A) for purposes of a termination for the reasons
described in paragraph (x) above, the last business day before the date of the
American Special Meeting; or (B) for purposes of a termination for the reasons
described in clause (i) of paragraph (z) above, the last business day before the
date of any action of the American Board referred to in such clause.
"Index Group" means the group of each of the twelve oil and gas companies
listed below, the common stock of all of which shall be publicly traded and as
to which there shall not have been since the Starting Date and before the
Determination Date, any public announcement of a proposal for such company to be
acquired or for such company to acquire another company or companies in
transactions with a value exceeding 25% of the acquiror's market capitalization.
In the event that the common stock of any such company ceases to be publicly
traded or such an announcement is made, such company will be removed from the
Index Group, and the weights (which have been determined based on their relative
market capitalization) redistributed proportionately for purposes of determining
the Index Price. The twelve oil and gas companies and the weights attributed
them are as follows:
<TABLE>
<CAPTION>
OIL AND GAS COMPANY WEIGHTING
- ----------------------------------------------------------------------------------- -----------
<S> <C>
Barrett Resources.................................................................. 14.70
Cabot Oil and Gas.................................................................. 5.42
Comstock Resources................................................................. 2.97
Cross Timbers Oil and Gas.......................................................... 6.00
Devon Energy....................................................................... 15.31
HS Resources....................................................................... 2.81
Lomak Petroleum.................................................................... 4.97
Nuevo Energy....................................................................... 10.09
Seagull Energy..................................................................... 15.42
Snyder Oil and Gas................................................................. 7.12
Swift Energy....................................................................... 4.54
Vintage Petroleum.................................................................. 10.65
-----------
Total.......................................................................... 100%
-----------
-----------
</TABLE>
"Index Price" on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing prices on such date of
the companies composing the Index Group.
"Index Ratio" means the number obtained by dividing the Average Index Price
by the Index Price on the Starting Date.
76
<PAGE>
"LDNG Ratio" means the number obtained by dividing the Average Closing Price
by the Starting Price.
"Starting Date" means the last full day on which the NYSE was open for
trading prior to the date of the Merger Agreement.
"Starting Price" means the last sale price per share of LDNG Common Stock on
the Starting Date, as reported by the NYSE Composite Transactions reporting
system (as reported in The Wall Street Journal or, if not reported therein, in
another mutually agreed upon authoritative source.)
If the Merger Agreement is terminated by either party pursuant to any of the
provisions described above, the Merger will be abandoned, the Merger Agreement
will become void and there will be no further obligation on either party's part
with respect to the Merger Agreement (with certain specified exceptions) other
than the payment of the Initial Termination Fee and the Additional Termination
Fee, to the extent applicable. A termination of the Merger Agreement will not,
however, relieve either party from any liability for damages incurred as a
result of its breach of the Merger Agreement prior to such termination.
PAYMENT OF EXPENSES
American and LDNG will each pay its own expenses incident to preparing for,
entering into and carrying out the provisions of the Merger Agreement and the
consummation of the Merger, whether or not the Merger is consummated, except
that the fee for filing the Registration Statement with the Commission will be
borne by LDNG, the costs and expenses associated with printing this Joint Proxy
Statement/ Prospectus will be borne equally by LDNG and American and the costs
and expenses associated with mailing this Joint Proxy Statement/Prospectus and
related materials to (a) the stockholders of American and soliciting the votes
of the stockholders of American will be borne by American and (b) the
stockholders of LDNG and soliciting the votes of the stockholders of LDNG will
be borne by LDNG.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time before or
after approval of the Merger by the stockholders of LDNG and American; provided,
however, that after any such approval, the parties will not amend the Merger
Agreement in a manner that by law requires further approval by the stockholders
of LDNG and American without first obtaining such further approval.
At any time prior to the Effective Time, the parties may, to the extent
legally allowed, extend the time for the performance of any of the obligations
under the Merger Agreement, waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or waive performance of any
covenants or agreements contained in the Merger Agreement.
AGREEMENT OF LDNG STOCKHOLDER
Louis Dreyfus Natural Gas Holdings Corp., an indirectly wholly owned
subsidiary of S.A. Louis Dreyfus et Cie holding of record approximately 72% of
the outstanding shares of LDNG Common Stock, has entered into a Stockholder
Agreement with American and LDNG providing that, subject to certain limitations,
such holder will vote the shares of LDNG Common Stock held by it (a) in favor of
the Merger and (b) in accordance with the recommendations of the LDNG Board in
favor of the reelection of Mr. Andrews and the two other current directors of
American who are to be elected as directors of LDNG upon consummation of the
Merger (or such other substitute nominees as may be designated by Mr. Andrews)
as directors of LDNG at the 1998 Annual Meeting of Stockholders. Pursuant to the
Merger Agreement, LDNG has agreed to cause such persons to be nominated for
reelection at the 1998 Annual Meeting of Stockholders.
77
<PAGE>
INFORMATION ABOUT THE COMBINING COMPANIES
LOUIS DREYFUS NATURAL GAS CORP.
LDNG is an independent energy company engaged in the acquisition,
development and exploration of natural gas and oil properties, and in the
production and marketing of natural gas and crude oil. LDNG's reserve base is
primarily located in the Sonora area of West Texas, the Mid-Continent region,
the Permian Basin, and the Texas Gulf Coast. LDNG is organized under the laws of
the State of Oklahoma, and its principal executive offices are located at 14000
Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma 73134. Its telephone
number at such address is (405) 749-1300.
Information about LDNG is contained in various documents that have been
filed by LDNG with the Commission and incorporated by reference into this Joint
Proxy Statement/Prospectus. Such information includes historical financial
statements, information about LDNG's properties and oil and gas reserves and
information about the nature of LDNG's business, its management and the LDNG
Common Stock. Reference should be made to such documents for complete
information about LDNG. For a list of such documents and instructions as to how
to obtain copies of such documents, see "Incorporation of Documents by
Reference."
OUTLOOK FOR FISCAL YEAR 1997
Reference is made to the discussion under the caption "Forward-Looking
Statements or Information" appearing elsewhere herein which describes the risks
and uncertainties inherent in estimating future results and the important
factors that could cause actual results to differ materially from the Forward-
Looking Statements discussed below. Such Forward-Looking Statements assume that
the Merger is consummated during the third quarter of 1997 and is accounted for
under purchase accounting rules. After consummation of the Merger, the results
of operations of American will be included with those of LDNG. The following
comments should be read in conjunction with the consolidated financial
statements, including the notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
reports incorporated herein by reference. The following comments should also be
read in conjunction with the unaudited pro forma financial statements, including
the notes thereto, included elsewhere in this Joint Proxy Statement/Prospectus.
PRODUCTION. LDNG expects a significant increase in both oil and natural gas
production for the periods subsequent to the Merger, as production results from
the American oil and gas properties are included with LDNG's production results.
OIL AND GAS PRICES. As of June 30, 1997, LDNG's Fixed-Price Contracts for
the balance of 1997 provide average fixed prices of $2.47 per Mcf for its hedged
natural gas before consideration of basis. Based on August 8, 1997 quotations
for regional natural gas prices for the balance of 1997 and giving effect to
LDNG's portfolio of basis swaps, LDNG anticipates price realization percentages
for the balance of 1997 to be comparable to historical averages. LDNG's
Fixed-Price Contracts hedge 24 Bcf of natural gas production (including 3 Bcf of
fixed-price collars) for the second half of 1997. No plans currently exist to
increase or decrease the amount of hedged production volumes for the remainder
of 1997; however, LDNG may decide to hedge a greater or smaller share of
production in the future. The effect of American's Fixed-Price Contracts
subsequent to closing is not expected to be material.
LDNG is unable to predict the market prices that will be received for its
unhedged production for the balance of 1997. For the first six months of 1997,
average monthly wellhead prices for its natural gas ranged from $1.85 per Mcf to
$4.11 per Mcf and its oil prices varied from $18.51 per Bbl to $24.94 per Bbl.
Because less than one-half of LDNG's pro forma production for the balance of
1997 is hedged by Fixed-Price Contracts, the oil and gas revenues for the
balance of 1997 are highly sensitive to commodity price changes.
78
<PAGE>
OTHER INCOME. LDNG does not anticipate a material change in its well
services income or gas gathering income for the balance of 1997 in relation to
the results achieved for the first half of 1997. Other miscellaneous sources of
income, such as gains or losses on property dispositions, cannot be estimated.
American's sources of other income subsequent to the Merger are not expected to
be material.
OPERATING COSTS. Lifting costs are expected to increase significantly
subsequent to closing as a result of including the lifting costs results
attributable to the American oil and gas properties. However, lifting costs on
an equivalent unit of production basis for the balance of 1997 are not expected
to rise significantly on a combined basis in relation to LDNG' s results for the
first six months of 1997. Production taxes are expected to be incurred at an
average rate of 5% to 6% of wellhead oil and gas sales.
GENERAL AND ADMINISTRATIVE EXPENSE. Subsequent to closing, LDNG expects a
significant increase in its general and administrative costs ("G&A") in the
aggregate and on a per unit of production basis resulting from the G&A of
American. LDNG anticipates that ultimately meaningful savings in G&A will be
realized in relation to that incurred by both companies independently, primarily
through the elimination of duplicative positions and activities. However, no
significant cost savings are expected for the transitional period during which
the oil and gas properties and business systems of American will be assimilated
by LDNG. Such transitional period is expected to be less than a year from
consummation of the Merger.
EXPLORATION COSTS. Subsequent to the Merger, pro forma capital expenditures
for exploration drilling, leasehold, seismic and other geological and
geophysical costs for the balance of 1997 are expected to be $24 million. Under
the successful efforts method of accounting, the costs associated with
unsuccessful exploration wells are expensed. All exploratory geological and
geophysical costs (estimated at $2 million on a pro forma basis for the balance
of 1997) are expensed as incurred, regardless of ultimate success in the
discovery of new reserves. Remaining exploration costs to be expensed during the
remaining months of 1997 will depend on exploratory drilling results.
DEPRECIATION, DEPLETION AND AMORTIZATION. Based on the carrying value
expected to be assigned to the oil and gas assets of American at closing
pursuant to purchase accounting rules, LDNG's depreciation, depletion and
amortization expense is expected to increase in the aggregate and on a per
equivalent unit of production basis for the balance of 1997.
IMPAIRMENT OF OIL AND GAS PROPERTIES. Based on the carrying value expected
to be assigned to the oil and gas assets of American at closing, it is
anticipated that an impairment charge will be recorded. Additional future
impairments of oil and gas properties may occur due to changes in oil and gas
prices, revisions to proved reserves, drilling results, changes in drilling
plans, changes in Fixed-Price Contracts or other factors. The amount or timing
of any future impairment cannot be estimated or predicted, but may be material.
INTEREST EXPENSE. LDNG expects to fund the Cash Consideration through
availability under its bank credit facility. In addition, the long-term debt of
American will be assumed or refinanced. Consequently, interest expense is
expected to increase significantly for the balance of 1997 subsequent to the
Merger. However, the pro forma ratio of EBITDAX to interest of the combined
entities is expected to show improvement in relation to LDNG's stand alone
results. Further, the ratio of long-term debt to book capitalization is also
expected to be lower than LDNG's current leverage position.
INCOME TAXES. LDNG expects that income taxes will be provided at effective
rates approximating corporate statutory rates for the balance of 1997 subsequent
to the Merger.
PRICE RANGE OF LDNG COMMON STOCK AND DIVIDEND POLICY
The LDNG Common Stock is quoted on the NYSE under the symbol "LD." The
following table sets forth certain information as to the sales prices per share
of LDNG Common Stock as quoted on the NYSE. On June 24, 1997, the last full
trading day prior to the public announcement of the signing of the
79
<PAGE>
Merger Agreement, the last sale price per share of LDNG Common Stock, as quoted
on the NYSE, was $17.875. On August 29, 1997, the last full trading day for
which quotations were available at the time of printing of this Joint Proxy
Statement/Prospectus, the last sale price per share of LDNG Common Stock, as
quoted on the NYSE, was $19.125. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
QUOTATIONS FOR LDNG COMMON STOCK.
<TABLE>
<CAPTION>
LDNG COMMON STOCK
--------------------
CALENDAR YEAR LOW HIGH
- ---------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1995
First Quarter....................................................... $ 11.25 $ 14.38
Second Quarter...................................................... 13.88 16.50
Third Quarter....................................................... 12.00 15.00
Fourth Quarter...................................................... 13.00 15.63
1996
First Quarter....................................................... $ 10.38 $ 15.13
Second Quarter...................................................... 10.75 15.13
Third Quarter....................................................... 13.25 15.75
Fourth Quarter...................................................... 15.00 18.00
1997
First Quarter....................................................... $ 14.50 $ 19.50
Second Quarter...................................................... 13.38 18.38
Third Quarter (through August 29, 1997)............................. 15.75 19.19
</TABLE>
LDNG has not paid any dividends on the LDNG Common Stock subsequent to the
date of the initial public offering of LDNG Common Stock in November 1993.
Certain provisions of LDNG's bank credit facility and the indenture agreement
for LDNG's 9 1/4% Senior Subordinated Notes due 2004 restrict LDNG's ability to
declare or pay cash dividends unless certain financial ratios are maintained.
Although it is not currently anticipated that any cash dividends will be paid on
the LDNG Common Stock in the foreseeable future, the LDNG Board will review
LDNG's dividend policy from time to time. In determining whether to declare
dividends and the amount of dividends to be declared, the LDNG Board will
consider relevant factors, including LDNG's earnings, its capital needs and its
general financial condition.
Certain additional information about the LDNG Common Stock and the rights of
stockholders with respect thereto is set forth under "Description of LDNG
Capital Stock" and "Comparison of Stockholder Rights."
AMERICAN EXPLORATION COMPANY
American is also an independent energy company engaged in the acquisition,
development and exploration of natural gas and oil properties, and in the
production and marketing of natural gas and crude oil. American's exploration
and development activities are primarily focused in the Gulf of Mexico, South
Texas (with an emphasis on the Wilcox and Frio Trends), the Cotton Valley
Pinnacle Reef Trend in East Texas and the Smackover Trend in Southwest Arkansas.
American is organized under the laws of the State of Delaware, and its principal
executive offices are located at 1331 Lamar, Suite 900, Houston, Texas 77010.
Its telephone number at that address is (713) 756-6000.
Information about American is contained in various documents that have been
filed by American with the Commission and incorporated by reference into this
Joint Proxy Statement/Prospectus. Such information includes historical financial
statements, information about American's properties and oil and gas reserves and
information about the nature of American's business, its management and the
American Common Stock. Reference should be made to such documents for complete
information about American.
80
<PAGE>
For a list of such documents and instructions as to how to obtain copies of such
documents, see "Incorporation of Documents by Reference."
PRICE RANGE OF AMERICAN COMMON STOCK AND DIVIDEND POLICY
American Common Stock is quoted on the AMEX under the symbol "AX." The
following table sets forth certain information as to the sales prices per share
of American Common Stock as quoted on the AMEX. Certain prices set forth below
have been retroactively restated to reflect the one-for-ten reverse split of the
American Common Stock during the second quarter of 1995. On June 24, 1997, the
last full trading day prior to the public announcement of the signing of the
Merger Agreement, the last sales price per share of American Common Stock, as
quoted on the AMEX, was $14.375. On August 29, 1997, the last full trading day
for which quotations were available at the time of printing of this Joint Proxy
Statement/ Prospectus, the last sales price per share of American Common Stock
as quoted on the AMEX, was $16.875. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
QUOTATIONS FOR AMERICAN COMMON STOCK.
<TABLE>
<CAPTION>
AMERICAN COMMON
STOCK
--------------------
CALENDAR YEAR LOW HIGH
- ---------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1995
First Quarter....................................................... $ 8.75 $ 10.00
Second Quarter...................................................... 8.13 10.88
Third Quarter....................................................... 10.38 12.13
Fourth Quarter...................................................... 9.63 11.88
1996
First Quarter....................................................... $ 10.63 $ 12.00
Second Quarter...................................................... 10.63 13.50
Third Quarter....................................................... 11.88 14.00
Fourth Quarter...................................................... 11.88 16.63
1997
First Quarter....................................................... $ 11.00 $ 17.25
Second Quarter...................................................... 10.00 15.25
Third Quarter (through August 29, 1997)............................. 13.63 16.88
</TABLE>
American has not paid any dividend on the American Common Stock and does not
expect to pay dividends on the American Common Stock for the foreseeable future.
Payment of dividends on the American Common Stock is also currently prohibited
by the terms of various agreements relating to outstanding indebtedness of
American.
Certain additional information about the American Common Stock and the
rights of stockholders with respect thereto is set forth under "Description of
American Capital Stock" and "Comparison of Stockholder Rights."
81
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The accompanying unaudited pro forma balance sheet as of June 30, 1997 gives
effect to the Merger as if it had occurred on June 30, 1997. The unaudited pro
forma income statements for the year ended December 31, 1996 and the six months
ended June 30, 1997 give effect to the Merger as if the Merger had occurred on
January 1, 1996. SUCH UNAUDITED PRO FORMA FINANCIAL INFORMATION HAS BEEN
PREPARED PURSUANT TO REGULATIONS PRESCRIBED BY THE SECURITIES AND EXCHANGE
COMMISSION AND DOES NOT PURPORT TO BE INDICATIVE OF THE FINANCIAL POSITION OR
RESULTS OF OPERATIONS WHICH MAY ACTUALLY BE ATTAINED IN THE FUTURE. IT DOES NOT
CONSIDER THE EFFECTS OF THE COST REDUCTION AND FINANCING PLANS OF MANAGEMENT
EXPECTED TO BE IMPLEMENTED AFTER CLOSING, NOR DOES IT INCLUDE THE EFFECTS OF
CERTAIN PURCHASE ACCOUNTING ADJUSTMENTS EXPECTED TO BE RECORDED AT CLOSING. THE
FINANCIAL IMPACT OF SUCH PLANS AND PURCHASE ACCOUNTING ADJUSTMENTS IS EXPECTED
TO BE MATERIAL. THESE ARE DESCRIBED IN THE FOOTNOTES TO THE ACCOMPANYING PRO
FORMA COMBINED FINANCIAL STATEMENTS. Future results may also vary significantly
from the results reflected in the unaudited pro forma statements of income due
to oil and gas production increases or declines, new Fixed-Price Contracts,
changes in product prices, future acquisitions and divestitures, future
development and exploration activities, and other factors.
The unaudited pro forma financial information should be read in conjunction
with the historical financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing in the
reports of LDNG and American incorporated herein by reference.
82
<PAGE>
LOUIS DREYFUS NATURAL GAS CORP.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
LDNG AMERICAN ADJUSTMENTS PRO FORMA
---------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 4,160 $ 1,173 $ -- $ 5,333
Receivables:
Oil and gas sales................................................ 26,033 8,871 -- 34,904
Joint interest and other, net.................................... 6,045 5,478 -- 11,523
Reimbursable costs for recovery from well blowout................ -- 22,272 -- 22,272
Deposits........................................................... 2,956 -- -- 2,956
Inventory and other................................................ 3,612 1,202 -- 4,814
---------- ---------- ------------- -----------
Total current assets............................................. 42,806 38,996 -- 81,802
---------- ---------- ------------- -----------
PROPERTY AND EQUIPMENT, at cost, based on successful efforts
accounting....................................................... 949,756 381,651 35,915 (a)
(72,939)(b) 1,294,383
Less accumulated depreciation, depletion and amortization.......... (259,776) (151,643) 151,643 (a) (259,776)
---------- ---------- ------------- -----------
689,980 230,008 114,619 1,034,607
---------- ---------- ------------- -----------
OTHER ASSETS, net.................................................. 5,390 1,340 (934)(a) 5,796
---------- ---------- ------------- -----------
$ 738,176 $ 270,344 $ 113,685 $ 1,122,205
---------- ---------- ------------- -----------
---------- ---------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................... $ 26,831 $ 9,053 $ -- $ 35,884
Accrued liabilities................................................ 7,076 23,198 13,536 (a) 43,810
Revenues payable................................................... 7,633 8,100 -- 15,733
---------- ---------- ------------- -----------
Total current liabilities........................................ 41,540 40,351 13,536 95,427
---------- ---------- ------------- -----------
LONG-TERM DEBT..................................................... 335,980 96,000 54,396 (a) 486,376
---------- ---------- ------------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenue................................................... 18,245 -- -- 18,245
Deferred gains from price-risk management activities............... 24,118 -- -- 24,118
Deferred income taxes.............................................. 31,756 447 3,278 (a)
(27,717)(b) 7,764
Other.............................................................. 4,587 5,688 18,705 (a) 28,980
---------- ---------- ------------- -----------
78,706 6,135 (5,734) 79,107
---------- ---------- ------------- -----------
STOCKHOLDERS' EQUITY
Preferred stock.................................................... -- 4 21,076 (a) 21,080
Common stock....................................................... 278 785 (672)(a) 391
Additional paid-in capital......................................... 197,318 322,683 (119,309)(a) 400,692
Retained earnings.................................................. 84,354 (195,614) 195,614 (a)
(45,222)(b) 39,132
---------- ---------- ------------- -----------
281,950 127,858 51,487 461,295
---------- ---------- ------------- -----------
$ 738,176 $ 270,344 $ 113,685 $ 1,122,205
---------- ---------- ------------- -----------
---------- ---------- ------------- -----------
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
83
<PAGE>
LOUIS DREYFUS NATURAL GAS CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
LDNG AMERICAN ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales............................................. $ 185,558 $ 76,228 $ -- $261,786 (h)
Other income.................................................. 3,947 970 -- 4,917 (h)
---------- ---------- ----------- ---------
189,505 77,198 -- 266,703
---------- ---------- ----------- ---------
EXPENSES
Operating costs............................................... 44,615 25,681 (2,882)(c) 67,414
General and administrative.................................... 16,325 7,205 2,882(c) 26,412 (h)
Exploration costs............................................. 4,965 18,834 -- 23,799 (h)
Depreciation, depletion and amortization...................... 65,278 29,563 11,810(d) 106,651
Interest...................................................... 26,822 4,239 2,915(e) 33,976 (h)
---------- ---------- ----------- ---------
158,005 85,522 14,725 258,252
---------- ---------- ----------- ---------
Income (loss) before income taxes............................. 31,500 (8,324) (14,725) 8,451
Income taxes.................................................. 10,398 281 (7,468)(f) 3,211
---------- ---------- ----------- ---------
Net income (loss)............................................. 21,102 (8,605) (7,257) 5,240
Preferred stock dividends..................................... -- 1,800 -- 1,800
---------- ---------- ----------- ---------
NET INCOME (LOSS) TO COMMON STOCK............................. $ 21,102 $ (10,405) $ (7,257) $ 3,440
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
Net income per common share................................... $ 0.76 $ .09
---------- ---------
---------- ---------
Weighted average common shares outstanding.................... 27,800 11,303(g) 39,103
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
84
<PAGE>
LOUIS DREYFUS NATURAL GAS CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA
LDNG AMERICAN ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales............................................. $ 96,102 $ 44,486 $ -- $140,588 (h)
Gain (loss) on sales of property and equipment................ 8,617 (142) -- 8,475 (h)
Other income.................................................. 1,283 99 -- 1,382
---------- ----------- ----------- ---------
106,002 44,443 -- 150,445
---------- ----------- ----------- ---------
EXPENSES
Operating costs............................................... 21,865 11,897 (1,242)(c) 32,520
General and administrative.................................... 7,891 4,040 1,242(c)
1,200(i) 14,373 (h)
Exploration costs............................................. 3,414 8,193 (1,200)(i) 10,407 (h)
Provision for uninsured loss on well blowout.................. -- 2,770 -- 2,770
Depreciation, depletion and amortization...................... 32,251 17,129 4,846(d) 54,226
Interest...................................................... 12,519 2,154 1,367(e) 16,040 (h)
---------- ----------- ----------- ---------
77,940 46,183 6,213 130,336
---------- ----------- ----------- ---------
Income (loss) before income taxes............................. 28,062 (1,740) (6,213) 20,109
Income taxes.................................................. 9,822 3 (2,183)(f) 7,642
---------- ----------- ----------- ---------
Net income (loss)............................................. 18,240 (1,743) (4,030) 12,467
Preferred stock dividends..................................... -- 900 -- 900
---------- ----------- ----------- ---------
NET INCOME (LOSS) TO COMMON STOCK............................. $ 18,240 $ (2,643) $ (4,030) $ 11,567
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
Net income per common share................................... $ .66 $ .30
---------- ---------
---------- ---------
Weighted average common shares outstanding.................... 27,801 11,303(g) 39,105
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
85
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
On June 24, 1997, LDNG and American entered into the Merger Agreement
whereby American will be merged into LDNG. The Merger will be accounted for
using the purchase method of accounting. In accordance with the Merger
Agreement, holders of American Common Stock will receive .72 shares of LDNG
Common Stock and $3.00 cash for each share of American Common Stock. Holders of
American Depositary Shares will receive one share of LDNG Depositary Shares for
each share of American Depositary Shares.
NOTE 2--PRO FORMA ENTRIES
PRO FORMA BALANCE SHEET--JUNE 30, 1997
The accompanying unaudited pro forma balance sheet as of June 30, 1997 has
been prepared as if the Merger had occurred on that date and includes the
following adjustments:
(a) To adjust assets and liabilities under the purchase method of accounting
based on the purchase price. Such purchase price has been allocated to
the consolidated assets and liabilities of American based on preliminary
estimates of fair values with the remainder allocated between proved and
unproved properties based on their relative fair values. The purchase
price allocated to proved properties was further allocated based on the
relative fair values of individual producing fields. This allocation was
then reviewed for indications of impairment by comparing the allocated
cost to the estimated undiscounted future net cash flows on a field by
field basis. Those oil and gas properties having a carrying value in
excess of the estimated undiscounted future net cash flows were deemed
impaired pursuant to SFAS 121. The purchase price allocated to unproved
oil and gas properties was adjusted to the lower of cost (allocated
purchase price) or market. The combined impairment resulted in a pretax
charge of $72.9 million ($45.2 million after tax). No goodwill will be
recorded in connection with this transaction. The information presented
herein may differ from the actual purchase price allocation.
The purchase price is determined as follows (in thousands):
<TABLE>
<S> <C>
Cash consideration of $3.00 for each share of American Common
Stock........................................................... $ 47,096
Estimated fair value (at $17.15 per share) of 11.3 million shares
of LDNG Common Stock issued at the exchange rate of .72 shares
of LDNG Common Stock for each share of American Common Stock.... 193,850
Estimated fair value of warrants to purchase 1.6 million shares of
LDNG Common Stock............................................... 9,637
Estimated transaction costs, including the estimated Cash-Out
Amount for the American stock options........................... 12,243
---------
$ 262,826
---------
---------
</TABLE>
86
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PRO FORMA ENTRIES (CONTINUED)
The preliminary allocation of the purchase price included in the pro
forma balance sheet is summarized as follows (in thousands):
<TABLE>
<S> <C>
Working capital assumed....................................... $ (2,648)
Oil and gas properties:
Proved...................................................... 339,221
Unproved.................................................... 75,291
Other property and equipment.................................. 3,054
Other assets.................................................. 406
Bank debt..................................................... (61,000)
Subordinated debt............................................. (42,300)
Deferred income taxes......................................... (3,725)
Other liabilities............................................. (24,393)
Preferred stock............................................... (21,080)
---------
$ 262,826
---------
---------
</TABLE>
(b) To record the estimated impairment charge resulting from the allocation
of the purchase price to proved and unproved oil and gas properties as
described in footnote (a) above.
PRO FORMA STATEMENTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1996 AND SIX
MONTHS ENDED JUNE 30, 1997
The accompanying unaudited pro forma statements of operations for the year
ended December 31, 1996 and the six months ended June 30, 1997 have been
prepared as if the Merger had occurred on January 1, 1996. Such statements
include the following adjustments:
(c) To reclassify operator overhead charges attributable to American's net
property interests, conforming to LDNG's financial presentation of such
charges.
(d) To record the estimated adjustment to depreciation, depletion and
amortization expense attributable to the allocation of the purchase
price using the successful efforts method of accounting. Such adjustment
assumes the recognition at closing of an estimated impairment charge
totaling $72.9 million ($45.2 million after tax) (see notes (a) and (b)
above). This one-time non-recurring charge is not reflected in the
unaudited pro forma statements of operations as presented herein.
(e) To adjust interest expense for the incremental interest to be incurred
attributable to borrowings made to fund the Cash Consideration at
closing. Incremental borrowing rates assumed for LDNG for the year ended
December 31, 1996 and the six months ended June 30, 1997 were 6.2% and
5.8%, respectively.
(f) To record income taxes on pro forma pretax net income at an effective
income tax rate of 38%.
(g) To reflect the issuance of 11.3 million shares of LDNG Common Stock at
the exchange rate of .72 shares of LDNG Common Stock for each share of
American Common Stock.
(h) The accompanying unaudited pro forma financial statements have been
prepared pursuant to regulations prescribed by the Securities and
Exchange Commission. The unaudited pro forma statements of income do not
consider the effects of the cost reduction and financing plans of
management expected to be implemented after closing, nor do they include
the effects of certain
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<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PRO FORMA ENTRIES (CONTINUED)
purchase accounting adjustments expected to be recorded at closing. Such
plans and adjustments are identified as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
MANAGEMENT PLANS
Increase (decrease) to pro forma pretax earnings:
Estimated reduction in general and administrative costs
from the elimination of duplicative personnel and
activities between LDNG and American (net of
reimbursements and recoveries)......................... $ 5,974 $ 2,837
Estimated interest savings to be achieved upon
refinancing the debt facilities of American (net of
capitalized interest).................................. 1,698 886
EFFECT OF PURCHASE ACCOUNTING ADJUSTMENTS
(THE HISTORICAL STATEMENTS OF OPERATIONS OF AMERICAN
INCLUDE THE FOLLOWING AMOUNTS WHICH WOULD HAVE BEEN
REFLECTED AS ADJUSTMENTS TO THE PURCHASE PRICE HAD THE
MERGER OCCURRED AT THE BEGINNING OF THE INDICATED
PERIOD):
Increase (decrease) to pro forma pretax earnings:
Hedging losses incurred by American...................... 9,975 3,146
Gains and losses on asset sales incurred by American..... (978) 142
Leasehold impairments incurred by American............... 2,137 2,138
------------ -----------
Total.................................................... $ 18,806 $ 9,149
------------ -----------
------------ -----------
</TABLE>
(i) To reclassify certain personnel costs to conform with LDNG's financial
presentation of such costs.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PRO FORMA ENTRIES (CONTINUED)
SUPPLEMENTAL PRO FORMA INFORMATION--OIL AND GAS RESERVES
CHANGES IN PRO FORMA ESTIMATED PROVED RESERVES
The following table sets forth the changes in estimated proved reserves for
the year ended December 31, 1996 for LDNG and American on a pro forma basis.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
OIL (MBBLS) GAS (MMCF)
----------- ----------
<S> <C> <C>
Proved Reserves
Beginning of year....................................................... 20,360 753,919
Acquisition of proved reserves.......................................... 18,346 252,277
Extensions and discoveries.............................................. 2,643 76,873
Revisions of previous estimates......................................... 335 19,939
Sales of reserves in place.............................................. (165) (119)
Production.............................................................. (3,638) (86,279)
----------- ----------
End of year............................................................. 37,881 1,016,610
----------- ----------
----------- ----------
</TABLE>
PRO FORMA STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS
The following table reflects the pro forma standardized measure of
discounted future net cash flows of proved oil and gas reserves as of December
31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-------------
(IN
THOUSANDS)
<S> <C>
Future cash inflows............................................................ $ 4,511,516
Future production costs........................................................ (1,330,628)
Future development costs....................................................... (173,426)
Future income taxes............................................................ (805,539)
-------------
2,201,923
Discount at 10 percent per year................................................ (1,082,656)
-------------
Standardized measure of discounted future net cash flows....................... $ 1,119,267
-------------
-------------
</TABLE>
The standardized measure information in the preceding table was derived from
estimates of LDNG's and American's proved oil and gas reserves contained in
studies prepared by petroleum engineers. The standardized measure calculation,
prepared pursuant to the provisions of Statement of Financial Accounting
Standards No. 69, does not purport to represent the fair market value of the pro
forma oil and gas reserves. The foregoing information is presented for
comparative purposes as of December 31, 1996 and is not intended to reflect any
changes in value which may result from future price fluctuations.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PRO FORMA ENTRIES (CONTINUED)
CHANGES RELATING TO THE PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS
The principal changes in the pro forma standardized measure of discounted
future net cash flows attributable to pro forma proved oil and gas reserves for
the year ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-------------
(IN
THOUSANDS)
<S> <C>
Balance, beginning of year..................................................... $ 563,297
Acquisitions of proved reserves................................................ 565,208
Extensions and discoveries, net of future development costs.................... 147,817
Revisions of previous quantity estimates....................................... 26,431
Oil and gas sales, net of production costs..................................... (204,347)
Sales of reserves in place..................................................... (614)
Net change in sales price and production costs................................. 125,491
Development costs incurred and changes in estimated future development costs... 13,099
Net change in income taxes..................................................... (195,080)
Accretion of discount.......................................................... 73,751
Changes in timing of production and other...................................... 4,214
-------------
Balance, end of year........................................................... $ 1,119,267
-------------
-------------
</TABLE>
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<PAGE>
DESCRIPTION OF AMERICAN CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of American consists of (a) 50,000,000 shares
of American Common Stock and (b) 100,000 shares of preferred stock, par value
$1.00 per share. The American Board has authority to divide such preferred stock
into one or more series and has broad authority to fix and determine the
relative rights and preferences, including voting rights, of the shares of each
such series. As of the date of this Joint Proxy Statement/Prospectus, there were
outstanding 15,704,701 shares of American Common Stock and 4,000 shares of
preferred stock in a series designated $450 Cumulative Convertible Preferred
Stock, Series C (referred to herein as the "American Preferred Stock"). An
additional 85,000 shares of preferred stock of American have been reserved for
issuance upon the exercise of the "rights" in connection with the American
Rights Agreement, which will not continue in effect after the Merger. No class
of capital stock of American entitles the holder thereof to any preemptive
rights to purchase or subscribe for shares of any class or any other securities,
other than as the American Board may determine.
The following description of the capital stock of American is subject to the
detailed provisions of American's Restated Certificate of Incorporation, as
amended (the "American Charter"), bylaws as currently in effect (the "American
Bylaws") and the Certificate of Designation, Preferences and Rights of the
American Preferred Stock, as amended (the "American Certificate of
Designation"). This description does not purport to be complete or to give full
effect to the terms of the provisions of statutory or common law and is subject
to, and qualified in its entirety by reference to, the American Charter, the
American Bylaws and the American Certificate of Designation, which are filed as
exhibits to the American 1996 Form 10-K, which is incorporated into this Joint
Proxy Statement/Prospectus by reference.
AMERICAN COMMON STOCK
All issued and outstanding shares of American Common stock are validly
issued, fully paid and nonassessable. The holders of American Common Stock are
entitled to one vote for each share held on all matters submitted to a vote of
common stockholders. The American Common Stock does not have cumulative voting
rights. Each share of American Common Stock is entitled to participate equally
in dividends, as and when declared by the American Board, and in the
distribution of assets in the event of liquidation, subject in all cases to any
prior rights of outstanding shares of preferred stock. The shares of American
Common Stock have no preemptive or conversion rights, redemption rights or
sinking fund provisions.
The outstanding shares of American Common Stock are listed on the AMEX and
trade under the symbol "AX." Harris Trust and Savings Bank serves as the
transfer agent and registrar for the American Common Stock.
AMERICAN PREFERRED STOCK
GENERAL
The American Preferred Stock is not subject to any sinking fund or other
obligation of American to redeem or retire the American Preferred Stock.
American has issued American Depositary Shares each representing a 1/200
interest in a share of American Preferred Stock. The American Depositary Shares
are listed on the AMEX and trade under the symbol "AXPrC." Any American
Preferred Stock converted, redeemed or otherwise acquired by American will, upon
cancellation of such shares, have the status of authorized and unissued
preferred stock, subject to reissuance by the American Board as American
Preferred Stock or as shares of preferred stock of any one or more other series.
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<PAGE>
RANKING
The American Preferred Stock ranks, with respect to the payment of dividends
and upon liquidation, prior to the American Common Stock and PARI PASSU with any
shares of capital stock of American ranking on a parity with the American
Preferred Stock with respect to the payment of dividends and upon liquidation.
DIVIDENDS
Holders of shares of the American Preferred Stock are entitled to receive,
when, as and if declared by the American Board out of funds of American legally
available for payment, cumulative cash dividends at the rate per annum of $450
per share (equivalent to $2.25 per annum per American Depositary Share). Accrued
dividends on the American Preferred Stock are payable quarterly, in arrears on
March 31, June 30, September 30 and December 31 of each year.
Dividends are payable to holders of record as they appear on the stock
records of American at the close of business on such record dates not more than
60 nor less than ten days preceding the payment dates thereof, as shall be fixed
by the American Board. Dividends are cumulative whether or not in any dividend
period or periods there shall be funds of American legally available for the
payment of such dividends. Accumulations of dividends on shares of the American
Preferred Stock will not bear interest. Dividends payable on the American
Preferred Stock for any period greater or less than a full dividend period are
computed on the basis of a 360-day year consisting of 12 30-day months.
Dividends payable on the American Preferred Stock for each full dividend period
are computed by dividing the annual dividend rate by four.
If at any time American has failed to pay accrued dividends on any shares of
American Preferred Stock at the time such dividends are payable, American will
not (i) declare or pay any dividend on the shares of American Common Stock or on
any shares of capital stock of American ranking junior to the American Preferred
Stock with respect to the payment of dividends and upon liquidation ("Junior
Stock") or make any payment on account of, or set apart money for, a sinking
fund for, the purchase, redemption, retirement or other acquisition of, any
shares of American Common Stock or any Junior Stock or make any distribution in
respect thereof, whether in cash or property or in obligations or shares of
American (other than in shares of American Common Stock or Junior Stock) or (ii)
purchase any shares of American Preferred Stock or any other shares of capital
stock of American ranking on a parity with the American Preferred Stock with
respect to the payment of dividends and upon liquidation ("Parity Stock")
(except for a consideration payable in shares of American Common Stock or Junior
Stock) or redeem fewer than all of the American Preferred Stock and Parity Stock
then outstanding, unless, in each case all accrued and payable but unpaid
dividends on the American Preferred Stock have been or contemporaneously are
declared and paid in full or declared and a sum sufficient for payment of such
dividends has been set aside. Unless and until all dividends accrued and payable
but unpaid on the American Preferred Stock and any Parity Stock at the time
outstanding have been paid in full, all dividends declared by American upon such
American Preferred Stock or Parity Stock will be declared pro rata with respect
to all shares of American Preferred Stock and Parity Stock then outstanding, so
that the amounts of any dividends declared on the American Preferred Stock and
such Parity Stock will in all cases bear to each other the same ratio that, at
the time of such declaration, all accrued and payable but unpaid dividends on
the American Preferred Stock and such other Parity Stock, respectively, bear to
each other. No Parity Stock is currently outstanding.
Under the Delaware Act, American may declare and pay dividends or make other
distributions on its capital stock only out of surplus (as defined in the
Delaware Act), or, in case there is no such surplus, out of its net profits for
the fiscal year in which the dividend or distribution is declared or the
preceding fiscal year. The Delaware Act also prohibits dividends or
distributions from being declared, paid or made if American is or would be
rendered insolvent by virtue of such dividend or distribution, or if such
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<PAGE>
declaration, payment or distribution would contravene the American Charter. In
addition, the Delaware Act provides that the directors of any Delaware
corporation engaged in the exploitation of wasting assets (including but not
limited to a corporation engaged in the exploitation of natural resources) may
determine the net profits derived from the exploitation of such wasting assets
without taking into consideration the depletion of such assets resulting from
lapse of time, consumption, liquidation or exploitation of such assets.
OPTIONAL REDEMPTION
On and after December 31, 1997, the American Preferred Stock will be
redeemable at the option of American, in whole or in part, for cash on not less
than 30 nor more than 60 days' notice to the record holders of the shares of
American Preferred Stock at the following redemption prices per share if
redeemed during the 12 month period beginning December 31 of the year indicated
below, plus accrued and unpaid dividends to the redemption date:
<TABLE>
<CAPTION>
EQUIVALENT
PER AMERICAN
REDEMPTION PRICE PER SHARE OF DEPOSITARY
YEAR AMERICAN PREFERRED STOCK SHARE
- ------------------------------------------------ ----------------------------- -------------
<S> <C> <C>
1997............................................ $ 5,270 $ 26.350
1998............................................ 5,225 26.125
1999............................................ 5,180 25.900
2000............................................ 5,135 25.675
2001............................................ 5,090 25.450
2002............................................ 5,045 25.225
2003 and thereafter............................. 5,000 25.000
</TABLE>
The American Preferred Stock will not be subject to any sinking fund or
other obligation of American to redeem or retire the American Preferred Stock.
If fewer than all shares of American Preferred Stock are called for
redemption, the shares to be redeemed shall be selected by lot or pro rata. If
fewer than all the shares represented by any certificate are to be redeemed, a
new certificate will be issued representing the unredeemed shares.
In the event that full cumulative dividends on American Preferred Stock that
have become payable have not been paid or declared and set apart for payment,
the American Preferred Stock may not be redeemed in part and American may not
purchase or acquire shares of American Preferred Stock otherwise than pursuant
to a purchase or exchange offer made on the same terms to all holders of shares
of American Preferred Stock.
On and after the date fixed for redemption, provided that American has made
available a sufficient amount of funds to effect the redemption, dividends will
cease to accrue on the shares of American Preferred Stock called for redemption
(except that, in the case of a redemption date after a dividend payment record
date and prior to the related dividend payment date, holders of American
Preferred Stock on the dividend payment record date will be entitled on such
dividend payment date to receive the dividend payable on such shares), such
shares shall no longer be deemed to be outstanding and all rights of the holders
of such shares as holders of American Preferred Stock shall cease, except the
right to receive that amount payable to such holders upon such redemption,
without interest.
VOTING
Holders of American Preferred Stock will be entitled to vote on all matters
submitted to a vote of the holders of American Common Stock, voting together as
one class with the holders of American Common Stock and any other preferred
stock or other security of American with similar voting rights. When voting
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<PAGE>
as one class together with the holders of American Common Stock, each holder of
American Preferred Stock will be entitled to one vote for each share of American
Common Stock into which a share of American Preferred Stock would be convertible
as of the applicable record date for the meeting of the stockholders at which
the vote is to be taken.
In addition, if the equivalent of six quarterly dividends payable on the
American Preferred Stock is in arrears, the number of directors of American will
be increased by two and the holders of outstanding shares of American Preferred
Stock, voting together as one class with the holders of any one or more series
of preferred stock of American ranking on a parity with respect to dividends and
upon liquidation with, the American Preferred Stock upon which like voting
rights have been conferred and are exercisable, will be entitled to elect the
additional two directors until all dividends in arrears have been paid in full
or declared and set apart for payment. Holders of American Preferred Stock, when
voting together as a class with holders of any such parity preferred stock of
American upon which like voting rights have been conferred and are exercisable,
will be entitled to one vote for each $25 of liquidation preference of the
American Preferred Stock as of the applicable record date for the meeting of the
stockholders, and American will cause any such parity preferred stock to have
like voting rights.
The approval of the holders of two-thirds of the shares of the American
Preferred Stock is required to amend the American Charter in a manner that
adversely affects the preferences, special rights or powers of the American
Preferred Stock or to authorize, create or increase the authorized amount of any
class or series of preferred stock of American ranking prior to the American
Preferred Stock either as to dividend or liquidation rights; PROVIDED that a
stock split or a reverse stock split of the American Common Stock shall be
deemed not to adversely affect the preferences, special rights or powers of the
American Preferred Stock; AND PROVIDED, FURTHER, that the creation or issuance
of any class or series of preferred stock of American ranking junior to the
American Preferred Stock with respect to the payment of dividends or upon
liquidation will not require the consent of the holders of the American
Preferred Stock; and PROVIDED, FURTHER, that the creation or issuance of any
class or series of preferred stock of American ranking on a parity with the
American Preferred Stock with respect to the payment of dividends or upon
liquidation will require the approval of the holders of at least a majority in
number of the shares of American Preferred Stock then outstanding; and PROVIDED,
FURTHER, that the number of authorized shares of any class of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) with the approval of the holders of at least a majority in number
of the stock of American entitled to vote.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of American,
whether voluntary or involuntary, the holders of shares of American Preferred
Stock are entitled to receive out of the assets of American available for
distribution to stockholders, before any distribution of assets is made to
holders of American Common Stock or to holders of preferred stock of American
that is junior as to liquidation rights to the American Preferred Stock,
liquidating distributions in the amount of $5,000 per share of American
Preferred Stock (equivalent to $25 per American Depositary Share) plus dividends
accrued and accumulated but unpaid to the date of such distribution. If upon any
liquidation, dissolution or winding up of American, the amounts payable with
respect to the American Preferred Stock and any other preferred stock of
American ranking as to any such distribution on a parity with the American
Preferred Stock are not paid in full, the holders of American Preferred Stock
and of such other preferred stock of American will share ratably in any such
distribution of assets in proportion to the full respective preferential amounts
to which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of American
Preferred Stock will not be entitled to any further participation in any
distribution of assets by American. Neither a consolidation nor a merger of
American with another corporation nor a sale or transfer of all or part of
American's assets for cash or securities will be considered a liquidation,
dissolution or winding up of American.
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<PAGE>
CONVERSION RIGHTS
Shares of American Preferred Stock are convertible, in whole or in part, at
any time, at the option of the holders thereof, into shares of American Common
Stock at a regular conversion price of $15.00 per share of American Common Stock
(equivalent to a regular conversion rate of 1.6667 shares of American Common
Stock for each American Depositary Share), subject to adjustment as described
below ("Conversion Price"). The right to convert shares of the American
Preferred Stock called for redemption will terminate at the close of business on
a redemption date. For information as to notice of redemption, see "--Optional
Redemption" above.
Each conversion will be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of the
American Preferred Stock shall have been duly and properly surrendered and
notice received by American and the conversion shall be effected at the
Conversion Price in effect at such time and on such date.
Record holders of shares of American Preferred Stock at the close of
business on a dividend payment record date will be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion of such shares following such dividend payment
record date and prior to such dividend payment date. However, shares of the
American Preferred Stock surrendered for conversion during the period between
the close of business on any dividend payment record date and the opening of
business on the corresponding dividend payment date (except for holders of
shares converted after the issuance of a notice of redemption with respect to a
redemption date during such period, which will be entitled to retain such
dividend) must be accompanied by payment of an amount equal to the dividend
payable on such shares on such dividend payment date. A holder of shares of
American Preferred Stock on a dividend record date who (or whose transferee)
duly surrenders any such shares for conversion into shares of American Common
Stock on such dividend payment date will receive the dividend payable by
American on such shares of American Preferred Stock on such date, and the
converting holder need not include payment of the amount of such dividend upon
surrender of shares of American Preferred Stock for conversion. Except as
provided above, American will make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares of American Preferred Stock or
for dividends on the shares of American Common Stock issued upon such
conversion.
Fractional shares of American Common Stock will not be issued upon
conversion but, in lieu thereof, American will pay a cash adjustment based on
the last sales price of the American Common Stock on the last trading day prior
to the conversion date.
A conversion price adjustment made according to the provisions of the
American Preferred Stock (or the absence of provision for such an adjustment)
might result in a constructive distribution to the holders of American Preferred
Stock or holders of American Common Stock that would be subject to taxation as a
dividend. American may, at its option, make such reductions in the conversion
price, in addition to those set forth below, as the American Board deems
advisable in order that certain stock-related distributions hereafter made by
American to its stockholders will not be taxable. The American Board will also
have the power to resolve any ambiguity or correct any error in the provisions
relating to the convertibility of the American Preferred Stock, and its actions
in so doing will be final and conclusive.
CONVERSION PRICE ADJUSTMENTS
The Conversion Price is subject to adjustment upon certain events, including
(i) dividends (and other distributions) payable in American Common Stock on any
class of capital stock of American, (ii) the issuance to all holders of American
Common Stock of rights or warrants entitling them to subscribe for or purchase
American Common Stock at less than the then current market price, (iii)
subdivisions, combinations and reclassifications of American Common Stock and
(iv) distributions to all holders of American Common Stock of evidences of
indebtedness of American, shares of capital stock of American (other than
American Common Stock) or assets or rights or warrants to subscribe for or
purchase any of its securities
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<PAGE>
(including securities, but excluding those dividends, rights, warrants and
distributions referred to above and dividends and distributions paid in cash out
of the profits or surplus of American). In addition to the foregoing
adjustments, American will be permitted to make such reductions in Conversion
Price as it considers to be advisable in order that any event treated for
Federal income purposes as a dividend of stock or stock rights or other similar
transactions will not be taxable to holders of American Common Stock.
In case American shall be a party to any transaction (including, without
limitation, a merger, consolidation or sale of all or substantially all of
American's assets), in each case as a result of which shares of American Common
Stock will be converted into the right to receive stock, securities or other
property (including cash or any combination thereof), each share of the American
Preferred Stock, if not converted as a result of the transaction, will
thereafter be convertible into the kind and amount of shares of stock and other
securities and property, including cash, receivable upon the consummation of
such transaction by a holder of that number of shares or fraction thereof of
American Common Stock into which one share of the American Preferred Stock was
convertible immediately prior to such transaction at the Conversion Price in
effect at such time. American may not become a party to any such transaction
unless the terms thereof are consistent with the foregoing.
No adjustment of the Conversion Price will be required to be made in any
case until cumulative adjustments amount to 1% or more of the Conversion Price.
Any adjustment not so required to be made will be carried forward and taken into
account in subsequent adjustments.
SPECIAL CONVERSION RIGHTS
The American Preferred Stock has a special conversion right that becomes
effective upon the occurrence of certain types of significant transactions
affecting ownership or control of American or the market for the American Common
Stock. The purpose of the special conversion right is to provide (subject to
certain exceptions) partial loss protection upon the occurrence of a Change of
Control or a Fundamental Change (as defined below) at a time when the Market
Value (as defined below) of the American Common Stock is less than the then
prevailing conversion price. In such situations, the special conversion right
would, for a limited time period, reduce the then prevailing conversion price to
the Market Value of the American Common Stock, except that the conversion price
will not be reduced to less than a minimum conversion price of $11.25 per share
of American Common Stock (equivalent to a maximum special conversion rate of
2.2222 shares of American Common Stock per American Depositary Share), subject
to certain adjustments. Consequently, to the extent that the Market Value of the
American Common Stock is less than such minimum conversion price, a holder will
not be fully protected from loss upon exercise of the special conversion right.
The special conversion right is intended to provide limited loss protection
to investors in certain circumstances, while not giving holders a veto power
over significant transactions affecting ownership or control of American.
Although the special conversion right may render more costly or otherwise
inhibit certain proposed transactions, its primary purpose is not to inhibit or
discourage takeovers or other business combinations.
Each holder of American Preferred Stock will be entitled to a special
conversion right if a Change of Control or Fundamental Change occurs. A Change
of Control will occur if a person or group acquires more than 50% of the
American Common Stock. A Fundamental Change is, generally, a sale of all or
substantially all American's assets or a transaction in which at least 66% of
the American Common Stock is transferred for, or is converted into, any other
asset. However, if the majority of the value of the consideration received in a
transaction by holders of American Common Stock is marketable stock or if the
holders of American Common Stock hold a majority of the voting stock of
American's successor, such transaction will not be a Fundamental Change, and the
holders of the American Preferred Stock will not have special conversion rights
as a result of that transaction. In addition, the special conversion right
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<PAGE>
arising upon a Change of Control shall only be applicable with respect to the
first Change of Control that occurs after the first date of issuance of any
shares of American Preferred Stock. The full definitions of the terms "Change of
Control" and "Fundamental Change" appear below.
The Merger does not constitute a "Change of Control" or a "Fundamental
Change" for purposes of the special conversion rights, and holders of American
Preferred Stock will not receive special conversion rights as a result of the
Merger.
A special conversion right will permit a holder of American Preferred Stock,
at the holder's option during the 30-day period described below, to convert all,
but not less than all, of the holder's American Preferred Stock at a conversion
price equal to the Special Conversion Price, which is, generally, equal to the
greater of the Market Value of the American Common Stock and $11.25 per share
(subject to adjustment as described below). The full definition of "Special
Conversion Price" is set forth below. A holder exercising a special conversion
right will receive American Common Stock if a Change of Control occurs and, if a
Fundamental Change occurs, will receive the same consideration received for the
number of shares of American Common Stock into which the holder's American
Preferred Stock would have been convertible at the Special Conversion Price. In
either case, however, American or its successor may, at its option, elect to
provide the holder with either cash or a combination of cash and American Common
Stock (with respect to a Change of Control) or other consideration received in
respect of the American Common Stock (with respect to a Fundamental Change), in
an aggregate amount equal to the Market Value of the number of shares of
American Common Stock into which the holder's American Preferred Stock is
convertible at the Special Conversion Price.
American currently would not be permitted under its bank and subordinated
debt agreements to provide cash to the holders of the American Preferred Stock
in lieu of shares of American Common Stock upon the exercise of special
conversion rights.
American will mail to each registered holder of American Preferred Stock,
and will publish on a business day in a newspaper that is published in the
English language on business days and is of general circulation in The City of
New York, a notice setting forth details of any special conversion right
occasioned by a Change of Control or Fundamental Change within 30 days after the
event occurs. A special conversion right may be exercised only within the 30-day
period after the notice is mailed and published and will expire at the end of
that period. Exercise of a special conversion right, to the extent permitted by
law, including, if applicable, Rule 13e-4 under the Exchange Act, is
irrevocable, and all American Preferred Stock tendered for conversion will be
converted at the end of the 30-day period mentioned in the preceding sentence.
American, in taking any action in connection with any Change of Control,
Fundamental Change or related special conversion right, will comply with all
applicable federal securities regulations, including, to the extent applicable,
Rules 13e-4 and 14e-1 under the Exchange Act.
American Preferred Stock that is not converted pursuant to a special
conversion right will continue to be convertible pursuant to the ordinary
conversion rights described above.
The special conversion right is not intended to, and does not, protect
holders of American Preferred Stock in all circumstances that might affect
ownership or control of American or the market for the American Common Stock, or
otherwise adversely affect the value of an investment in the American Preferred
Stock. The ability to control American may be obtained by a person even if that
person does not, as is required to constitute a Change of Control, acquire a
majority of American's voting stock. American and the market for the American
Common Stock may be affected by various transactions that do not constitute a
Fundamental Change. In particular, transactions involving transfer or conversion
of less than two-thirds of the American Common Stock may have a significant
effect on American and the market for the American Common Stock, as could
transactions in which holders of American Common Stock receive primarily
marketable stock or continue to own a majority of the voting securities of the
successor to American. In addition, if the special conversion right arises as
the result of a Fundamental Change, the special conversion right will allow a
holder exercising a special conversion right to receive the same type of
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consideration received by the holders of American Common Stock and, thus, the
degree of protection afforded by the special conversion right may be affected by
the type of consideration received.
As used herein, a "Change of Control" with respect to American shall be
deemed to have occurred at the first time after the first issuance of any
American Preferred Stock that any person (within the meaning of Sections
13(d)(3) and 14(d)(2) of the Exchange Act), including a group (within the
meaning of Rule 13d-5 under the Exchange Act), together with any of its
Affiliates or Associates (as defined below), files or becomes obligated to file
a report (or any amendment or supplement thereto) on Schedule 13D or 14D-1
pursuant to the Exchange Act disclosing that such person has become the
beneficial owner of either (i) more than 50% of the shares of American Common
Stock then outstanding or (ii) securities representing more than 50% of the
combined voting power of the Voting Stock (as defined below) of American then
outstanding, PROVIDED that a Change of Control shall not be deemed to have
occurred with respect to any transaction that constitutes a Fundamental Change.
An "Affiliate" of a specified person is a person that directly or indirectly
controls, or is controlled by or is under common control with, the person
specified. An "Associate" of a person means (a) any corporation or organization,
other than American or any subsidiary of American, of which the person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities, (b)any trust or estate in which the
person has a substantial beneficial interest or as to which the person serves as
trustee or in a similar fiduciary capacity, and (c) any relative or spouse of
the person or any relative of the spouse who has the same home as the person or
who is a director or officer of the person or any of its parents or
subsidiaries.
As used herein, a "Fundamental Change," with respect to American, means (i)
the occurrence of any transaction or event in connection with which all or
substantially all of the American Common Stock is exchanged for, converted into,
acquired for or constitutes solely the right to receive cash, securities,
property or other assets (whether by means of an exchange offer, liquidation,
tender offal, consolidation, meager, combination, reclassification or otherwise)
or (ii) the conveyance, sale, lease, assignment, transfer or other disposal of
all or substantially all of American's property, business or assets; PROVIDED,
HOWEVER, that a Fundamental Change shall not be deemed to have occurred with
respect to either of the following transactions or events: (a) any transaction
or event in which more than 50% (by value as determined in good faith by the
American Board) of the consideration to be received by holders of American
Common Stock consists of Marketable Stock (as defined below); or (b) any
consolidation or merger of American in which the holders of American Common
Stock immediately prior to such transaction own, directly or indirectly, (1) 50%
or more of the common stock of the sole surviving corporation (or of the
ultimate parent of such sole surviving corporation) outstanding at the time
immediately after such consolidation or merger and (2) securities representing
50% or more of the combined voting power of the surviving corporation's Voting
Stock (or the Voting Stock of the ultimate parent of such surviving corporation)
outstanding at such time. The phrase "all or substantially all" as used in this
definition in reference to the American Common Stock means two-thirds or more of
the aggregate outstanding amount.
As used herein, "Voting Stock" means, with respect to any person, capital
stock of such person having general power under ordinary circumstances to elect
at least a majority of the board of directors, managers or trustees of such
person (irrespective of whether or not at the time capital stock or any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
As used herein, "Special Conversion Price" means the higher of the Market
Value of the American Common Stock and $11.25 per share (which amount will, each
time the Conversion Price is adjusted, be adjusted so that the ratio of such
amount to the Conversion Price, after giving effect to any such adjustment,
shall always be the same as the ratio of $11.25 to the initial Conversion Price,
without giving effect to any such adjustment).
As used herein, "Market Value" of the American Common Stock or any other
Marketable Stock is the average of the last reported sales prices of the
American Common Stock or such other Marketable Stock, as the case may be, for
the five business days ending on the last business day preceding the date of
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the Fundamental Change or Change of Control; PROVIDED, HOWEVER, that if the
Marketable Stock is not traded on any national securities exchange or similar
quotation system as described in the definition of "Marketable Stock" during
such period, then the Market Value of such Marketable Stock is the average of
the last reported sales prices per share of such Marketable Stock during the
first five business days commencing on the day after the date on which such
Marketable Stock was first distributed to the general public and traded on the
NYSE, the AMEX, the NASDAQ National Market System or any similar system of
automated dissemination of quotations of securities prices in the United States.
As used herein, the term "Marketable Stock" means the American Common Stock
or common stock of any corporation that is the successor to all or substantially
all of the business or assets of American as a result of a Fundamental Change or
of the ultimate parent of such successor, which is (or will, upon distribution
thereof, be) listed or quoted on the NYSE, the AMEX, the NASDAQ National Market
System or any similar system of automated dissemination of quotations of
securities prices in the United States.
TRANSFER AGENT
Harris Trust and Savings Bank serves as the transfer agent and registrar of
the American Preferred Stock.
AMERICAN DEPOSITARY SHARES
The following summary of the terms and provisions of the American Depositary
Shares does not purport to be complete and is subject to, and qualified in its
entirety by, the Deposit Agreement, a copy of which has been filed as an exhibit
to the American 1996 Form 10-K incorporated herein by reference.
American has issued receipts ("Depositary Receipts") for American Depositary
Shares, each of which represents a 1/200 interest in a share of American
Preferred Stock. The shares of American Preferred Stock represented by American
Depositary Shares are deposited under a Deposit Agreement (the "Deposit
Agreement") among American, Harris Trust and Savings Bank (the "Depositary") and
the holders from time to time of the Depositary Receipts. Subject to the terms
of the Deposit Agreement, each owner of an American Depositary Share is
entitled, in proportion to the applicable fraction of a share of American
Preferred Stock represented by such American Depositary Share, to all the rights
and preferences of the American Preferred Stock represented thereby (including
dividend, voting, conversion, redemption and liquidation rights and
preferences).
ISSUANCE OF DEPOSITARY RECEIPTS
American has deposited the American Preferred Stock with the Depositary,
which issued and delivered the Depositary Receipts evidencing the American
Depositary Shares. Depositary Receipts are only issued evidencing whole American
Depositary Shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions received in respect of the American Preferred Stock to the record
holders of American Depositary Shares in such amounts, as nearly as practicable,
of such dividend or distribution as are applicable to the number of such
American Depositary Shares owned by such holders, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Depositary.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of American Depositary
Shares entitled thereto in such amounts, as nearly as practicable, of such
property (including securities) received by it as are applicable to the number
of such American Depositary Shares owned by such holders, subject to certain
obligations of holders to file proofs,
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certificates and other information and to pay certain charges and expenses to
the Depositary, unless the Depositary determines that it is not feasible to make
such distribution, in which case the Depositary may adopt such a method as it
deems equitable and practical for the purpose of effecting such distribution,
including sale of such property and distribution of the net proceeds from such
sale to such holders.
The amount distributed in all the foregoing cases will be reduced by any
amounts required to be withheld by American or the Depositary on account of
taxes.
WITHDRAWAL OF SHARES OF AMERICAN PREFERRED STOCK
Upon surrender of the Depositary Receipts at the Depositary's office, the
owner of the American Depositary Shares evidenced thereby is entitled to
delivery at such office of the number of whole shares of the American Preferred
Stock and any money or other property, if any, represented by such American
Depositary Shares. If the Depositary Receipts delivered by the holder evidence a
number of American Depositary Shares in excess of the number of American
Depositary Shares representing a number of whole shares of American Preferred
Stock to be withdrawn, the Depositary will deliver to such holder at the same
time a new Depositary Receipt evidencing such excess number of American
Depositary Shares. Holders of shares of American Preferred Stock thus withdrawn
are not thereafter to deposit such shares under the Deposit Agreement or to
receive American Depositary Shares therefor. American does not expect that there
will be any public trading market for withdrawn shares of American Preferred
Stock and the American Preferred Stock has not been approved for listing on the
AMEX or other national securities exchange or consolidated trading system.
REDEMPTION OF AMERICAN DEPOSITARY SHARES
The American Depositary Shares will be redeemed, upon not less than 30 nor
more than 60 days' notice to the record holders of American Depositary Shares,
using the cash proceeds received by the Depositary resulting from the
redemption, in whole or in part at American's option, but subject to the terms
and conditions applicable thereto, of shares of American Preferred Stock held by
the Depositary. The redemption price per American Depositary Share will be equal
to the applicable fraction of the redemption price per share payable with
respect to the American Preferred Stock plus all accrued and unpaid dividends,
if any, payable in respect of the American Depositary Shares. Whenever American
redeems shares of American Preferred Stock held by the Depositary, the
Depositary will redeem as of the same redemption date the number of American
Depositary Shares representing shares of American Preferred Stock so redeemed.
If fewer than all the outstanding American Depositary Shares are to be redeemed,
American will select those to be redeemed by lot or on a pro rata basis (with
adjustments to avoid fractional shares).
VOTING THE AMERICAN PREFERRED STOCK
Upon receipt of notice of any meeting at which the owners of the American
Preferred Stock are entitled to vote, the Depositary will mail the information
contained in such notice of meeting to the record holders of the American
Depositary Shares. Each record holder of such American Depositary Shares on the
record date (which will be the same date as the record date for the American
Preferred Stock) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the amount of American Preferred Stock (or
fraction thereof) represented by such holder's American Depositary Shares. The
Depositary will endeavor, insofar as practicable, to vote the amount of American
Preferred Stock (or fraction thereof) represented by such American Depositary
Shares in accordance with such instructions, and American will agree to take all
reasonable action that may be deemed necessary by the Depositary in order to
enable the Depositary to do so. The Depositary will abstain from voting shares
of American Preferred Stock to the extent that it does not receive specific
instructions from the holders of American Depositary Shares representing those
shares of American Preferred Stock.
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CONVERSION OF AMERICAN PREFERRED STOCK
The American Depositary Shares, as such, are not convertible into the
American Common Stock or any other securities or property of American.
Nevertheless, the Depositary Receipts may be surrendered by holders thereof to
the Depositary at the Depositary's office or such other office or to such
Depositary's agents as the Depositary may designate for such purpose with
written instructions to the Depositary to instruct American to cause conversion
of the whole or fractional number of shares of American Preferred Stock
represented by the American Depositary Shares evidenced by such Receipts into
whole shares of American Common Stock, and American has agreed that upon receipt
of such instructions and any amounts payable in respect thereof, it will cause
the delivery of (i) a certificate or certificates evidencing the number of whole
shares of American Common Stock into which the American Preferred Stock
represented by the American Depositary Shares evidenced by such Depositary
Receipt or Receipts have been converted and (ii) any money or other property to
which the holder is entitled. If less than all of the American Depositary Shares
represented by a Depositary Receipt are to be converted, a new Depositary
Receipt or Receipts will be issued for any American Depositary Shares not to be
converted. See "--American Preferred Stock--Conversion Rights."
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipts evidencing the American Depositary Shares
and any provision of the Deposit Agreement may at any time be amended by
agreement between American and the Depositary. However, any amendment that
materially and adversely alters the rights of holders of American Depositary
Shares will not be effective unless such amendment has been approved by the
holders of at least 66 2/3% of the American Depositary Shares then outstanding.
In no event may any amendment impair the right of any owner of any American
Depositary Shares, subject to the conditions specified in the Deposit Agreement,
to convert the American Preferred Stock underlying such shares into American
Common Stock or to deliver to such holder the American Preferred Stock and any
money or other property represented thereby, except in order to comply with
mandatory provisions of applicable law.
The Deposit Agreement may be terminated by American at any time upon not
less than 60 days' prior written notice to the Depositary or automatically after
(i) there shall have been made a final distribution in respect of the American
Preferred Stock in connection with any liquidation, dissolution or winding up of
American and such distribution shall have been distributed to the holders of
Depositary Receipts or (ii) each share of American Preferred Stock shall have
been (x) redeemed by American, (y) converted into American Common Stock or (z)
exchanged for cash in a cashout merger transaction.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to American notice of
its election to do so, and American may at any time remove the Depositary, any
such resignation or removal to take effect upon the appointment of a successor
Depositary.
BOOK-ENTRY; DELIVERY AND FORM
The Depositary Receipts evidencing the American Depositary Shares may be
represented by one or more Depositary Receipts in global form ("Global
Depositary Receipt") and Depositary Receipts in definitive form registered in
the name of purchasers or their nominees. Each such Global Depositary Receipt
will be deposited with The Depositary Trust Company, New York, New York ("DTC")
and registered in the name of Cede & Co., as nominee of DTC. Set forth below are
summaries of certain rules and operating procedures of DTC that affect transfers
of interests in Global Depositary Receipts and payments in respect thereof.
Beneficial interests in a Global Depositary Receipt will be available for
purchase only by "qualified institutional buyers" (as defined in Rule 144A of
the Securities Act) and may be held through financial
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institutions acting on behalf of such qualified institutional buyers as direct
or indirect participants in the DTC system. Ownership of beneficial interests in
a Global Depositary Receipt will be shown on, and the transfer of that ownership
will be effected only through, records maintained by DTC or its nominee (with
respect to interests of participants) and the records of participants (with
respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered holder of a Global
Depositary Receipt, DTC or such nominee, as the case may be, will be considered
the sole owner and holder of the American Depositary Shares represented by such
Global Depositary Receipt for all purposes under the Deposit Agreement. Unless
DTC notifies American that it is unwilling or unable to continue as depositary
for the Global Depositary Receipt, or ceases to be a "Clearing Agency"
registered under the Exchange Act, or unless a request for certificates is made
upon 60 days' prior written notice as described below under "--Certificated
Depositary Receipts," owners of beneficial interests in a Global Depositary
Receipt will not be entitled to have any portion of such Global Depositary
Receipt registered in their names, will not receive or be entitled to receive
physical delivery of Depositary Receipts in certificated form and will not be
considered the owners or holders of the Global Depositary Receipt (or any
American Depositary Shares represented thereby) under the Deposit Agreement. In
addition, no beneficial owner of an interest in the Global Depositary Receipt
will be able to transfer that interest except in accordance with DTC's
applicable procedures (in addition to those under the Deposit Agreement). The
Depositary Receipts are not issuable in bearer form.
American Depositary Shares not represented by a Global Depositary Receipt
will be represented by certificated Depositary Receipts in definitive, fully
registered form without coupons ("Certificated Depositary Receipts").
Transfers between participants in DTC will be effected in accordance with
DTC's procedures and will be settled in clearing house funds. The laws of some
states require that certain persons take physical delivery of securities in
definitive form. Consequently, the ability to transfer beneficial interests in a
Global Depositary Receipt to such persons may be limited. Because DTC can only
act on behalf of participants, who in turn act on behalf of indirect
participants and certain banks, the ability of a person having a beneficial
interest in a Global Depositary Receipt to pledge such interest to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect for such interest, may be affected by the lack of a physical certificate
for such interest.
Payments of dividends and the redemption price in respect of a Global
Depositary Receipt will be made to DTC or its nominee as the registered owner
thereof. Neither American, the Depositary nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Depositary Receipt or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
American expects that DTC or its nominee, upon receipt of any dividend or
redemption payment in respect of the Global Depositary Receipt, will immediately
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Global Depositary Receipt as shown on the
records of DTC or its nominee. American also expects that payments by
participants to owners of beneficial interests in a Global Depositary Receipt
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in street name. Such payments will be the responsibility of
such participants.
DTC is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither
American nor any registrar and transfer agent will have any responsibility for
the performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
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DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its participants and facilitate the clearance
and settlement of securities transactions among participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
CERTIFICATED DEPOSITARY RECEIPTS
In addition to the initial issuances of Certificated Depositary Receipts,
American will issue Certificated Depositary Receipts in exchange for the Global
Depositary Receipt if DTC is at any time unwilling or unable to continue as
depositary. Upon request, Certificated Depositary Receipts will also be issued
in exchange for beneficial interests in a Global Depositary Receipt, but only
upon at least 60 days' prior written notice given in accordance with DTC's
customary procedures and subject to certain provisions in the Deposit Agreement.
In all cases, Certificated Depositary Receipts delivered in exchange for the
Global Depositary Receipt or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by DTC.
MISCELLANEOUS
Neither the Depositary nor American will be liable if either is by law or
any circumstances beyond its control prevented from or delayed in performing its
obligations under the Deposit Agreement. The obligations of American and the
Depositary under the Deposit Agreement are limited to performance in good faith
of their duties thereunder, and they are not obligated to prosecute or defend
any legal proceeding in respect of any American Depositary Shares or American
Preferred Stock unless satisfactory indemnity is furnished. They may rely upon
advice of or information from counsel, accountants or other persons believed to
be competent and on documents believed to be genuine.
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DESCRIPTION OF LDNG CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of LDNG consists of (a) 100,000,000 shares of
LDNG Common Stock and (b) 10,000,000 shares of preferred stock, par value $.01
per share. The LDNG Board has authority to divide such preferred stock into one
or more series and has broad authority to fix and determine the relative rights
and preferences, including voting rights, of the shares of each such series. As
of the date of this Joint Proxy Statement/Prospectus, there were outstanding
27,805,000 shares of LDNG Common Stock and no shares of preferred stock. No
class of capital stock of LDNG entitles the holder thereof to any preemptive
rights to purchase or subscribe for shares of any class or any other securities,
other than as the LDNG Board may determine.
The following description of the capital stock of LDNG is subject to the
detailed provisions of LDNG's Amended and Restated Certificate of Incorporation,
as amended (the "LDNG Charter"), and bylaws as currently in effect (the "LDNG
Bylaws"). This description does not purport to be complete or to give full
effect to the terms of the provisions of statutory or common law and is subject
to, and qualified in its entirety by reference to, the LDNG Charter and the LDNG
Bylaws, which are filed as exhibits to the LDNG 1996 Form 10-K, which is
incorporated into this Joint Proxy Statement/Prospectus by reference.
LDNG COMMON STOCK
All issued and outstanding shares of LDNG Common stock are validly issued,
fully paid and nonassessable. The holders of LDNG Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of common
stockholders. The LDNG Common Stock does not have cumulative voting rights. Each
share of LDNG Common Stock is entitled to participate equally in dividends, as
and when declared by the LDNG Board, and in the distribution of assets in the
event of liquidation, subject in all cases to any prior rights of outstanding
shares of preferred stock. The shares of LDNG Common Stock have no preemptive or
conversion rights, redemption rights or sinking fund provisions.
The outstanding shares of LDNG Common Stock are listed on the NYSE and trade
under the symbol "LD." ChaseMellon Shareholder Services, L.L.C. serves as the
transfer agent and registrar of the LDNG Common Stock.
LDNG PREFERRED STOCK
As of the date of this Joint Proxy Statement/Prospectus, no shares of LDNG
Preferred Stock have been issued and no series of LDNG Preferred Stock has been
authorized by the LDNG Board except as described below. The LDNG Board has
authorized and, prior to the Effective Date, LDNG will file with the Secretary
of State of Oklahoma a Certificate of Designation, Preferences and Rights
establishing a series of preferred stock consisting of 4,000 shares of
designated $450 Cumulative Convertible Preferred Stock (referred to elsewhere
herein as the "LDNG Preferred Stock").
The rights, preferences, privileges and restrictions of the LDNG Preferred
Stock will be substantially identical to the rights, preferences, privileges and
restrictions applicable of the American Preferred Stock, with certain principal
exceptions described below.
Cumulative quarterly dividends will be payable by LDNG with respect to each
share of the LDNG Preferred Stock on the same basis and in the same amounts as
are currently payable by American with respect to shares of American Preferred
Stock, except that the portion of the cumulative quarterly dividend with respect
to the American Preferred Stock for the quarter in which the Effective Time
occurs that has accrued but that has not been declared or paid as of the
Effective Time will be included in the first cumulative quarterly dividend to
become payable with respect to the LDNG Preferred Stock after the Effective
Time.
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Each share of American Preferred Stock is convertible, at the option of the
holder, into shares of American Common Stock at a regular conversion price of
$15.00 per share of American Common Stock, subject to adjustment. Each share of
LDNG Preferred Stock will continue to be convertible at the option of the
holder. However, in order to give effect to the Merger and the consideration
received by holders of American Common Stock in the Merger, each share of LDNG
Preferred Stock will be convertible into "Conversion Units" consisting of LDNG
Common Stock and cash at a regular conversion price of $15.00 per Conversion
Unit, subject to adjustment. A Conversion Unit will consist of 0.72 shares of
LDNG Common Stock and $3.00 in cash.
In all other material respects, the terms of the LDNG Preferred Stock will
be substantially identical to the terms of the American Preferred Stock. For a
description of the American Preferred Stock, see "Description of American
Capital Stock--American Preferred Stock."
LDNG DEPOSITARY SHARES
In accordance with the Deposit Agreement relating to the American Depositary
Shares, American Depositary Shares will represent after the Merger interests in
the LDNG Preferred Stock issued in exchange for the outstanding American
Preferred Stock, and holders of American Depositary Shares will have the same
rights with respect to the LDNG Preferred Stock as they had prior to the
Effective Time with respect to the American Preferred Stock under the Deposit
Agreement.
LDNG will cause to be issued LDNG Depositary Shares evidencing such
interests in the LDNG Preferred Stock pursuant to the Deposit Agreement. The
Deposit Agreement will remain in full force and effect unless and until
terminated according to its terms and the holders of LDNG Depositary Shares will
continue to be parties to the Deposit Agreement and be entitled to receive all
benefits and will be subject to all responsibilities thereunder formerly
applicable to the American Depositary Shares. For a description of the American
Depositary Shares, see "Description of American Capital Stock--American
Depositary Shares."
ChaseMellon Shareholder Services, L.L.C. will replace the current Depositary
as permitted by the Deposit Agreement and thereafter will serve as depositary
with respect to the LDNG Depositary Shares pursuant to the Deposit Agreement.
COMPARISON OF STOCKHOLDER RIGHTS
As a result of the Merger, holders of American Common Stock (other than
stockholders who exercise their dissenters' appraisal rights) will become
stockholders of LDNG, and the rights of all such former American stockholders
will thereafter be governed by the LDNG Charter, the LDNG Bylaws and the
Oklahoma Act. The following is a summary comparison of the material differences
between the rights of holders of stockholders of American and stockholders of
LDNG. American is organized under the laws of Delaware, and American and its
stockholders are subject to the Delaware Act. The Delaware Act is widely
regarded as the most extensive and well-defined body of corporate law in the
United States. In an effort to respond to the needs of businesses organized
under the laws of Oklahoma, the Oklahoma legislature adopted the Oklahoma Act,
which is substantially similar to the Delaware Act. Although there can be no
assurance that it will continue to do so, the Oklahoma legislature has amended
the Oklahoma Act numerous times since its adoption in order to conform to
changes in the Delaware Act. The Oklahoma Act does differ in certain respects
from the Delaware Act, including provisions relating to control share
acquisitions intended to discourage hostile takeover attempts and limitations on
the ability of a publicly held company to act by written consent of its
shareholders unless such consent is unanimous. However, the LDNG Charter
contains provisions "electing out" of such aforementioned restrictions, and, as
a result, the principal differences between the rights of stockholders of
American and LDNG do not arise from differences between the Delaware Act and the
Oklahoma Act.
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The following summary comparison is intended as a summary only and is
qualified in its entirety by reference to the Oklahoma Act and the Delaware Act,
as well as the full text of the LDNG Charter, the LDNG Bylaws, the American
Charter and the American Bylaws. For information as to how to obtain copies of
such documents, see "Incorporation of Documents by Reference."
AUTHORIZED CAPITAL STOCK
AMERICAN. American's authorized capital stock consists of 50,000,000 shares
of American Common Stock and 100,000 shares of preferred stock, par value $1.00
per share.
LDNG. LDNG's authorized capital stock consists of 100,000,000 shares of
LDNG Common Stock and 10,000,000 shares of preferred stock, par value $.01 per
share.
"BLANK CHECK" PREFERRED STOCK
AMERICAN. Subject to certain limitations prescribed by law and the rules of
the AMEX, the American Board is authorized by the American Charter, without any
approval or other action by the American stockholders, to provide for the
issuance of shares of preferred stock in one or more series, to establish the
number of shares of each such series and to fix the designations, powers,
preferences and rights of the shares of each such series and any qualifications,
limitation or restrictions thereof.
LDNG. The LDNG Charter contains similar provisions relating to preferred
stock of LDNG permitting the LDNG Board to issue preferred stock without any
action or other approval by the LDNG stockholders, subject to certain
limitations prescribed by law and the rules of the NYSE. However, because LDNG
has a significantly greater number of authorized shares of preferred stock than
American, the LDNG Board has the ability to issue significantly more shares of
"blank check" preferred stock than the American Board. Although the LDNG Board
has no intention at the present time of doing so, it could issue additional
series of LDNG Preferred Stock that could, depending on the terms of such
series, impede the completion of a merger, tender offer or other takeover
attempt. The LDNG Board will make any determination to issue such additional
shares based on its judgment as to the best interests of LDNG and its
stockholders. The LDNG Board, in so acting, could issue shares of LDNG Preferred
Stock having additional terms that discourage an acquisition attempt, including
a tender offer or other transaction that some of the LDNG stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for the stock over the then current market price of such stock.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
AMERICAN. As a Delaware corporation, American is subject to Section 203 of
the Delaware Act. Generally, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to such
date, either the business combination or such transaction is approved by the
board of directors of the corporation, (ii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock or
(iii) on or after such date the business combination is approved by the board
and by the affirmative vote of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's outstanding voting stock. The restrictions
of Section 203 do not apply to corporations that have elected, in the manner
provided therein, not to be subject to such section. American has not taken any
action to "elect out" of such section.
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LDNG. Section 1090.3 of the Oklahoma Act contains provisions substantially
similar to those of Section 203 of the Delaware Act. The LDNG Charter contains a
provision "electing out" of Section 1090.3, and, accordingly, LDNG is not
subject to the restrictions of such section.
STOCKHOLDER RIGHTS PLAN
AMERICAN. The American Rights Agreement could have the effect of delaying,
deferring or preventing a change in control of American. The American Board has
taken appropriate action to amend the American Rights Agreement such that the
execution and delivery of the Merger Agreement and the consummation of the
Merger will not cause the rights themselves to become exercisable or result in
LDNG being an "Acquiring Person" under the American Rights Agreement. All rights
under the American Rights Agreement will be cancelled as of the Effective Time
of the Merger and will not affect LDNG after the Merger or its securities to be
issued in connection with the Merger.
LDNG. LDNG does not, and at the Effective Time of the Merger will not, have
a stockholder rights plan or similar arrangement.
BUSINESS AT MEETINGS OF SHAREHOLDERS
AMERICAN. Certain provisions of the American Bylaws establish time periods
during which appropriate stockholder proposals must be delivered to American for
consideration at special and annual meetings called by American. The American
Bylaws provide, among other things, that (i) only the American Board may call
special meetings of stockholders, (ii) stockholders making nominations for the
American Board at, or bringing other business before, an annual meeting of
stockholders must provide timely written notice to American thereof (timely
notice being required to be no later than 60 days before the first anniversary
of the preceding year's annual meeting or, in the event the date of an annual
meeting is advanced by more than 30 days, or delayed by more than 60 days, from
such anniversary date, no later than 60 days before the date of such annual
meeting or 10 days following the day on which the date of such meeting is
publicly announced) and (iii) stockholders making nominations for the American
Board at a special meeting of stockholders must provide timely written notice to
American thereof (timely notice being required to be no later than 60 days
before such special meeting or 10 days following the date on which the date of
such special meeting is publicly announced).
LDNG. The LDNG Bylaws do not impose restrictions on the time periods during
which appropriate stockholder proposals must be delivered to LDNG.
LEGAL MATTERS
The validity of the securities to be issued in connection with the Merger
will be passed upon for LDNG by Crowe & Dunlevy, A Professional Corporation,
Oklahoma City, Oklahoma. The federal income tax consequences in connection with
the Merger will be passed upon for American by Shearman & Sterling, New York,
New York, and will be passed upon for LDNG by Crowe & Dunlevy, A Professional
Corporation.
EXPERTS
The audited financial statements of American incorporated by reference in
this Joint Proxy Statement/Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing. Reference is made to said report, which
includes an explanatory paragraph with respect to the change in the method of
accounting for impairments of proved properties in 1994 as discussed in Note 1
to the financial statements.
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The consolidated financial statements and related financial statement
schedule of LDNG at December 31, 1995 and 1996 and for each of the three years
in the period ended December 31, 1996, incorporated in this Joint Proxy
Statement/Prospectus by reference from the LDNG 1996 Form 10-K have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
incorporated herein by reference. Such consolidated financial statements and
financial statement schedule are incorporated herein by reference in reliance
upon the report of Ernst & Young LLP given upon the authority of such firm as
experts in auditing and accounting.
Certain estimates of oil and gas reserves of American and related
information as of December 31, 1996 included in this Joint Proxy
Statement/Prospectus and in the American 1996 Form 10-K, and incorporated herein
by reference to such American 1996 Form 10-K, have been prepared by Netherland,
Sewell & Associates, Inc. as set forth in their report with respect thereto, and
all such information has been so included and incorporated in reliance on the
authority of such firm as experts regarding the matters addressed in their
report.
Certain estimates of oil and gas reserves of American and related
information as of December 31, 1996 included in this Joint Proxy
Statement/Prospectus and in the American 1996 Form 10-K, and incorporated herein
by reference to such American 1996 Form 10-K, have been prepared by William M.
Cobb & Associates, Inc. as set forth in their report with respect thereto, and
all such information has been so included and incorporated in reliance on the
authority of such firm as experts regarding the matters addressed in their
report.
Certain estimates of oil and gas reserves of LDNG and related information as
of December 31, 1996 included in this Joint Proxy Statement/Prospectus and in
the LDNG 1996 Form 10-K, and incorporated herein by reference to such LDNG 1996
Form 10-K, have been reviewed by Ryder Scott Company as set forth in their
report with respect thereto, and all such information has been so included and
incorporated in reliance on the authority of such firm as experts regarding the
matters addressed in their report.
PROPOSALS OF STOCKHOLDERS
The LDNG Board will consider proposals of stockholders intended to be
presented for action at the 1998 Annual Meeting of Stockholders of LDNG.
According to the rules of the Commission, such proposals will be included in
LDNG's Proxy Statement relating to such meeting if they are received in a timely
manner and if certain other requirements are met. For a stockholder proposal to
be included in LDNG's proxy statement relating to the 1998 Annual Meeting of
Stockholders of LDNG, a written proposal complying with the requirements
established by the Commission must be received at LDNG's principal executive
offices, located at 14000 Quail Springs Parkway, Suite 600, Oklahoma City,
Oklahoma 73134, no later than December 16, 1997.
If the Merger is not consummated and the 1998 Annual Meeting of Stockholders
of American is to be held, eligible stockholder proposals will be included in
American's proxy statement relating to its 1998 Annual Meeting of Stockholders
only if received not later than December 19, 1997 at the principal executive
offices of American, 1331 Lamar, Suite 900, Houston, Texas 77010.
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ANNEX A
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
LOUIS DREYFUS NATURAL GAS CORP.
AND
AMERICAN EXPLORATION COMPANY
A-1
<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
This First Amendment to Agreement and Plan of Reorganization ("Amendment")
is made and entered into as of the 21st day of August, 1997 by and among LOUIS
DREYFUS NATURAL GAS CORP., an Oklahoma corporation ("Lima"), LDNG ACQUISITION,
INC., an Oklahoma corporation ("Merger Sub"), and AMERICAN EXPLORATION COMPANY,
a Delaware corporation ("Alpha").
RECITALS
A. Lima, Merger Sub and Alpha entered into an Agreement and Plan of
Reorganization dated as of June 24, 1997 (the "Merger Agreement") providing for,
subject to certain conditions, the merger of American with and into Merger Sub
(the "Merger").
B. The Board of Directors of each of Lima and Alpha has determined that it
is in the best interests of Lima and Alpha, and their respective stockholders,
that the structure of the Merger be modified such that Alpha will merge directly
with and into Lima rather than Merger Sub.
C. The parties desire to amend the Merger Agreement to provide for the
merger of Alpha into Lima and to make such other modifications to the terms of
the Merger Agreement as are necessary or appropriate as a result of such change
in the structure of the Merger.
NOW, THEREFORE, for and in consideration of the recitals and mutual
covenants and agreements set forth in this Amendment, the parties hereby agree
as follows:
1. DEFINED TERMS. Capitalized terms used but not otherwise defined herein
shall have the respective meanings ascribed to them in the Merger Agreement.
2. AMENDMENT OF MERGER AGREEMENT.
(a) Sections 2.1 through 2.3 of the Merger Agreement are amended to read
in their entirety as follows:
"2.1 THE MERGER. Subject to the terms and conditions set forth in
this Agreement, at the Effective Time, Alpha shall be merged with and
into Lima in accordance with the provisions of this Agreement. Such
merger is referred to herein as the "Merger."
2.2 EFFECT OF THE MERGER. Upon the effectiveness of the Merger, the
separate existence of Alpha shall cease and Lima, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue
its corporate existence under the laws of the State of Oklahoma. The
Merger shall have the effects specified in this Agreement and the DGCL
and the OGCA.
2.3 GOVERNING INSTRUMENTS, DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION.
(a) The certificate of incorporation of Lima, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in
accordance with its terms and applicable law.
(b) The by-laws of Lima, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation
until duly amended in accordance with their terms and applicable law.
(c) Except as otherwise provided in Section 5.15 and 5.16(a)
hereof and the Alpha Employee Agreements, the directors and officers
of Lima at the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation from the Effective Time
until their respective successors have been duly elected or appointed
in accordance with the certificate of incorporation and by-laws of
the Surviving Corporation and applicable law."
A-2
<PAGE>
(b) Section 2.4 (a) of the Merger Agreement is amended to read in its
entirety as follows:
"(a) LIMA COMMON STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof, each
share of Lima Common Stock outstanding immediately prior to the Effective
Time shall remain outstanding and continue as one share of capital stock
of the Surviving Corporation and each certificate evidencing ownership of
any such shares shall continue to evidence ownership of the same number
of shares of the capital stock of the Surviving Corporation."
(c) Section 2.4 (b)(vi) of the Merger Agreement is amended to read in
its entirety as follows:
"(vi) ALPHA 11% SENIOR SUBORDINATED NOTES. All Alpha 11% Senior
Subordinated Notes shall remain outstanding following the Effective Time.
At the Effective Time, by virtue of the Merger and without any action on
the part of Alpha or any holder of Alpha 11% Senior Subordinated Notes,
each Alpha 11% Senior Subordinated Note shall be assumed by Lima."
(d) The second Sentence of Section 2.8 of the Merger Agreement is
amended to read in its entirety as follows:
"If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to
vest the Surviving Corporation with full right, title and possession to
all assets, property, rights, privileges, powers and franchises of either
of Lima or Alpha, the officers and directors of the Surviving Corporation
are fully authorized, in the name of the Surviving Corporation or
otherwise to take, and shall take, all such lawful and necessary action."
(e) Section 3.18 of the Merger Agreement is amended to read in its
entirety as follows:
"3.18 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Alpha Common Stock and Alpha
Preferred Stock (or Alpha Depositary Shares with respect thereto), voting
together as a single class in the manner provided in the certificate of
designation relating to the Alpha Preferred Stock filed with the
Secretary of State of Delaware, is the only vote of the holders of any
class or series of Alpha capital stock or other voting securities
necessary to approve this Agreement, the Merger and the transactions
contemplated hereby."
(f) Section 6.1 (a) of the Merger Agreement is amended to read in its
entirety as follows:
"(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been duly and validly approved and adopted by the stockholders of Alpha
and Lima, all as required by the OGCA, the DGCL, the NYSE and the charter
and bylaws of Alpha and Lima."
(g) All references in the Merger Agreement to "Lima and/or Merger Sub"
and "Lima and/or the Surviving Corporation" shall be references solely to
Lima. All other references to Merger Sub and Merger Sub Common Stock and all
representations, warranties and covenants by or relating to Merger Sub shall
be eliminated, except that Merger Sub shall continue to be included in the
definition of "Lima Companies" on the same basis as other wholly-owned
subsidiaries of Lima. In addition, Merger Sub shall be eliminated as a party
to the Merger Agreement and shall have no further rights, duties or
obligations in connection with the Merger Agreement.
3. AFFILIATE LETTER. The form of affiliate letter addressed to Lima set
forth as Exhibit 5.9 to Merger Agreement shall be appropriately modified to
reflect the amendments to the Merger Agreement contemplated hereby.
4. ALPHA EMPLOYEE AGREEMENTS. Lima agrees, and, if requested by Lima,
Alpha agrees to use its reasonable best efforts to cause each of the Alpha
employees who is a party to the Alpha Employee Agreement also to agree, that all
references in the Alpha Employee Agreements to the Merger Agreement
A-3
<PAGE>
and the Merger shall be references to the Merger Agreement as amended hereby and
the Merger as contemplated hereby.
5. OTHER TERMS OF MERGER AGREEMENT. Except for the amendments set forth
herein, all other provisions of the Merger Agreement shall remain in full force
and effect and shall be otherwise unaffected hereby.
6. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when signed by each of the parties hereto and delivered
to the other parties.
7. APPLICABLE LAW. This Amendment shall be governed and construed in
accordance with the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof,
except to the extent the OGCA is required to govern the Merger.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their duly authorized representatives as of the date first written above.
<TABLE>
<S> <C>
"ALPHA" "LIMA"
AMERICAN EXPLORATION COMPANY LOUIS DREYFUS NATURAL GAS CORP.
By: /s/ MARK ANDREWS By: /s/ KEVIN R. WHITE
-------------------------------------
---------------------------------------
Name: Mark Andrews Name: Kevin R. White
Title: CHAIRMAN OF THE BOARD OF DIRECTORS Title: EXECUTIVE VICE PRESIDENT
AND CHIEF EXECUTIVE OFFICER
"MERGER SUB"
LDNG ACQUISITION, INC.
By: /s/ KEVIN R. WHITE
---------------------------------------
Name: Kevin R. White
Title: EXECUTIVE VICE PRESIDENT
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
LOUIS DREYFUS NATURAL GAS CORP.
AND
AMERICAN EXPLORATION COMPANY
A-5
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made and
entered into as of the 24th day of June, 1997, by and among LOUIS DREYFUS
NATURAL GAS CORP., an Oklahoma corporation ("Lima"), LDNG ACQUISITION, INC., an
Oklahoma corporation ("Merger Sub"), and AMERICAN EXPLORATION COMPANY, a
Delaware corporation ("Alpha").
RECITALS
A. The board of directors of each of Lima and Alpha has determined that it
is in the best interests of Lima and Alpha, and their respective
stockholders, to approve the strategic alliance of Lima and Alpha by
means of the merger of Alpha with and into Merger Sub upon the terms and
subject to the conditions set forth in this Agreement.
B. For federal income tax purposes, it is intended that such merger qualify
as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and it is intended that this
Agreement constitute a plan of reorganization for purposes of Section
368(a).
C. Lima, Merger Sub, and Alpha desire to make certain representations,
warranties, covenants and agreements in connection with such merger and
also to prescribe various conditions to such merger.
D. Louis Dreyfus Natural Gas Holdings Corp. ("Shareholder") which owns and
is entitled to vote 20,000,000 shares, constituting approximately 72% of
Lima's outstanding common stock on the date of this Agreement, in order
to induce Alpha to enter this Agreement has agreed to vote such shares in
favor of this Agreement and the Merger and matters related thereto
requiring approval of the stockholders of Lima.
NOW, THEREFORE, for and in consideration of the recitals and the mutual
representations, warranties, covenants and agreements set forth in this
Agreement, the parties to this Agreement hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, each of the following terms
has the meaning given in this Section 1.1 or in the Sections referred to below:
"ADDITIONAL TERMINATION FEE" has the meaning specified in Section 7.3(a).
"AFFILIATE" means, with respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person.
"AGREEMENT" means this Agreement and Plan of Reorganization, as amended,
supplemented or modified from time to time.
"ALPHA" means American Exploration Company, a Delaware corporation.
"ALPHA CERTIFICATE" means a certificate representing shares of Alpha Common
Stock or Alpha Preferred Stock, as the case may be.
"ALPHA COMMON STOCK" means the common stock, par value $.05 per share, of
Alpha.
"ALPHA COMPANIES" means Alpha and each of the other entities specifically
listed in the Alpha Disclosure Schedule as a subsidiary of Alpha.
A-6
<PAGE>
"ALPHA DEPOSITARY SHARES" means the outstanding depositary shares of Alpha
each representing a 1/200 interest in a share of Alpha Preferred Stock.
"ALPHA DISCLOSURE SCHEDULE" means the disclosure schedule delivered by Alpha
to Lima on or before the date of this agreement arranged in paragraphs
corresponding to the numbered and lettered paragraphs in Article III.
"ALPHA 11% SENIOR SUBORDINATED NOTES" means those certain 11% Senior
Subordinated Notes due 2004 of Alpha.
"ALPHA EMPLOYEE AGREEMENTS" has the meaning specified in Section 5.16.
"ALPHA EMPLOYEE BENEFIT PLANS" has the meaning specified in Section 3.15(a).
"ALPHA FINANCIAL STATEMENTS" means the audited and unaudited consolidated
financial statements of Alpha and its subsidiaries (including the related notes)
included (or incorporated by reference) in Alpha's Annual Report on Form 10-K
for the year ended December 31, 1996, and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, in each case as filed with the SEC, and any other
financial statements of Alpha and its subsidiaries relating to subsequent
periods filed with the SEC.
"ALPHA MATERIAL AGREEMENT(S)" means any written or oral agreement, contract,
commitment or understanding to which any of the Alpha Companies is a party, by
which any of the Alpha Companies is directly or indirectly bound, or to which
any asset of any of the Alpha Companies may be subject, involving total value or
consideration in excess of $1,000,000.
"ALPHA MEETING" means the meeting of the stockholders of Alpha called for
the purpose of voting on this Agreement and the Merger.
"ALPHA PERMITS" has the meaning specified in Section 3.10.
"ALPHA PREFERRED STOCK" means the $450 Cumulative Convertible Preferred
Stock, Series C, par value $1.00 per share, of Alpha.
"ALPHA REPRESENTATIVE" means any director, officer, employee, agent, advisor
(including legal, accounting and financial advisors), Affiliate or other
representative of any of the Alpha Companies.
"ALPHA RESTRICTED SHARES" means shares of restricted stock granted pursuant
to the Alpha Stock Compensation Plans.
"ALPHA RESTRICTED UNITS" means a "Restricted Unit" as defined in the Alpha
Phantom Stock Plan.
"ALPHA RIGHTS" has the meaning specified in Section 3.19.
"ALPHA RIGHTS AGREEMENT" means the Rights Agreement dated as of September
28, 1993 between Alpha and Society National Bank (as amended and supplemented)
as filed or incorporated by reference in the Alpha SEC Documents.
"ALPHA SEC DOCUMENTS" has the meaning specified in Section 3.6.
"ALPHA STOCK COMPENSATION PLANS" means the 1983 Stock Compensation Plan, as
amended, of Alpha, the 1994 Stock Compensation Plan, as amended, of Alpha, the
Alpha Amended and Restated 1983 Stock Option Plan of Hershey Oil Corporation,
and the Alpha Amended and Restated 1988 Stock Option Plan of Hershey Oil
Corporation.
"ALPHA STOCK OPTION" means an option (issued and outstanding on the date
hereof and immediately prior to the Effective Time) to acquire shares of Alpha
Common Stock granted pursuant to the Alpha Stock Compensation Plans.
A-7
<PAGE>
"ALPHA WARRANTS" means the Prudential Warrants and Institutional Warrants.
"ALTERNATIVE TRANSACTION" has the meaning specified in Section 7.3(b).
"BANK CREDIT AGREEMENT" means the Amended and Restated Credit Agreement,
dated as of December 21, 1994, between Alpha, as borrower, the banks listed
therein, as lenders, and Morgan Guaranty Trust Company of New York, as agent (as
amended and supplemented) as filed or incorporated by reference in the Alpha SEC
Documents.
"CASH-OUT AMOUNT" has the meaning specified in Section 2.4(b)(iv).
"CASH CONSIDERATION" means $3.00.
"CERTIFICATES OF MERGER" means the certificates of merger, prepared and
executed in accordance with the applicable provisions of the DGCL and the OGCA,
as the case may be, filed with the Secretaries of State of Delaware and Oklahoma
to effect the consummation of the Merger.
"CLOSING" means the closing of the Merger.
"CLOSING DATE" means the date on which the Closing occurs, which date shall
be the first business day following the day on which both the Alpha Meeting and
the Lima Meeting have been held (or such later date as is agreed upon by the
parties).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPETING PROPOSAL" has the meaning specified in Section 5.3(b).
"CONFIDENTIALITY AGREEMENT" means the agreement dated May 5, 1997 between
Alpha and Lima relating to Alpha's furnishing of information to Lima and Lima's
furnishing of information to Alpha in connection with Lima's and Alpha's
evaluation of the possibility of the Merger.
"CONVERSION NUMBER" means 0.72.
"DGCL" means the Delaware General Corporation Law.
"DEPOSIT AGREEMENT" means that certain deposit agreement dated December 10,
1993 between Alpha and Harris Trust and Savings Bank relating to the Alpha
Depositary Shares.
"DISSENTING STOCKHOLDER(S)" means holder(s) of Alpha Common Stock who have
validly perfected appraisal rights under Section 262 of the DGCL.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EFFECTIVE TIME" has the meaning specified in Section 2.7.
"ENVIRONMENTAL LAW" means any federal, state, local or foreign statute,
code, ordinance, rule, regulation, policy, guideline, permit, consent, approval,
license, judgment, order, writ, decree, common law, injunction or other
authorization in effect on the date hereof or at a previous time applicable to
Alpha's or to Lima's, as the case may be, operations relating to (a) emissions,
discharges, releases or threatened releases of Hazardous Materials into the
natural environment, including into ambient air, soil, sediments, land surface
or subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land; (b) the generation,
treatment, storage, disposal, use, handling, manufacturing, transportation or
shipment of Hazardous Materials; (c) occupational health and safety; or (d)
otherwise relating to the pollution of the environment, solid waste handling
treatment or disposal, or operation or reclamation of oil and gas operations or
mines.
A-8
<PAGE>
"EXCHANGE AGENT" means Chase Mellon Shareholder Services, L.L.C., which
shall serve as transfer agent for shares of Lima Common Stock, Lima Preferred
Stock and Lima Depositary Shares, or such other agent as may be duly appointed
from time to time by Lima.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE FUND" has the meaning specified in Section 2.5(a).
"GAAP" means generally accepted accounting principles, as recognized by the
U.S. Financial Accounting Standards Board (or any generally recognized
successor).
"GOVERNMENTAL AUTHORITY" means any national, state, county or municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over any of the Alpha Companies, Lima or Merger
Sub or any of their respective properties or assets.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"HAZARDOUS MATERIAL" means (a) any "hazardous substance," as defined by
CERCLA; (b) any "hazardous waste" or "solid waste," in either case as defined by
the Resource Conservation and Recovery Act, as amended; (c) any solid,
hazardous, dangerous or toxic chemical, material, waste or substance, within the
meaning of and regulated by any Environmental Law; (d) any radioactive material,
including any naturally occurring radioactive material, and any source, special
or byproduct material as defined in 42 U.S.C. 2011 et seq. and any amendments or
authorizations thereof; (e) any asbestos-containing materials in any form or
condition; (f) any polychlorinated biphenyl in any form or condition; or (g)
petroleum, petroleum hydrocarbons, or any fraction or byproducts thereof.
"INITIAL TERMINATION FEE" has the meaning specified in Section 7.3(a).
"INSTITUTIONAL WARRANTS" means those certain warrants to purchase Alpha
Common Stock issued to certain institutional investors in connection with the
issuance of the Alpha 11% Senior Subordinated Notes.
"LIEN" means any lien, mortgage, security interest, pledge, deposit,
production payment, restriction, burden, encumbrance, rights of a vendor under
any title retention or conditional sale agreement, or lease or other arrangement
substantially equivalent thereto.
"LIMA" means Louis Dreyfus Natural Gas Corp., an Oklahoma corporation.
"LIMA CERTIFICATE" means a certificate representing shares of Lima Common
Stock or Lima Preferred Stock, as the case may be.
"LIMA COMMON STOCK" means the common stock, par value $.01 per share, of
Lima.
"LIMA COMPANIES" means Lima and each of the other entities specifically
listed in the Lima Disclosure Schedule as a subsidiary of Lima.
"LIMA DEPOSITARY SHARES" means the depositary shares of Lima to be issued in
exchange for Alpha Depositary Shares as provided herein each to represent a
1/200 interest in a share of Lima Preferred Stock.
"LIMA DISCLOSURE SCHEDULE" means the disclosure schedule delivered by Lima
to Alpha on or before the date of this agreement arranged in paragraphs
corresponding to the numbered and lettered paragraphs in Article IV.
"LIMA EMPLOYEE BENEFIT PLANS" has the meaning specified in Section 4.15(a).
A-9
<PAGE>
"LIMA FINANCIAL STATEMENTS" means the audited and unaudited consolidated
financial statements of Lima and its subsidiaries (including the related notes)
included (or incorporated by reference) in Lima's Annual Report on Form 10-K for
the year ended December 31, 1996, and Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, in each case as filed with the SEC, and any other
financial statements of Lima and its subsidiaries relating to subsequent periods
filed with the SEC.
"LIMA MATERIAL AGREEMENT(S)" means any written or oral agreement, contract,
commitment or understanding to which any of the Lima Companies is a party, by
which any of the Lima Companies is directly or indirectly bound or to which any
asset of any of the Lima Companies may be subject, involving total value or
consideration in excess of $3,000,000.
"LIMA MEETING" means the meeting of the stockholders of Lima called for the
purpose of voting on this Agreement and the Merger.
"LIMA PERMITS" has the meaning specified in Section 4.10.
"LIMA PREFERRED STOCK" means the series of preferred stock, par value $.01
per share, of Lima to be established on or prior to the Effective Time having
substantially the same rights, preferences, powers and privileges as the Alpha
Preferred Stock, all as set forth in EXHIBIT "1.1" attached hereto or, if the
vote required by Section 3.18(b) is not received but the vote required by
Section 3.18(a) is received, a series of preferred stock of the Surviving
Corporation having equivalent terms, including rights to convert into Lima
Common Stock and cash as provided in EXHIBIT "1.1".
"LIMA REPRESENTATIVE" means any director, officer, employee, agent, advisor
(including legal, accounting and financial advisors), Affiliate or other
representative of the Lima Companies.
"LIMA SEC DOCUMENTS" has the meaning specified in Section 4.6.
"LIMA STOCK OPTION PLAN" means the Stock Option Plan of Lima, as amended.
"MARKET PRICE" means the average of the per share closing sales prices of
the Lima Common Stock on the NYSE (as reported by The Wall Street Journal, or if
not so reported, by another authoritative source) over the 10 trading days
immediately preceding the Closing Date.
"MATERIAL ADVERSE EFFECT" means (a) when used with respect to Alpha, a
result or consequence that would materially adversely affect the condition
(financial or otherwise), results of operations or business of the Alpha
Companies (taken as a whole) or the aggregate value of their assets, would
materially impair the ability of the Alpha Companies (taken as a whole) to own,
hold, develop and operate their assets, or would materially impair Alpha's
ability to perform its obligations hereunder or consummate the transactions
contemplated hereby; and (b) when used with respect to Lima, a result or
consequence that would materially adversely affect the condition (financial or
otherwise), results of operations or business of the Lima Companies (taken as a
whole) or the aggregate value of their assets, would materially impair the
ability of the Lima Companies (taken as a whole) to own, hold, develop and
operate their assets, or would materially impair Lima's or Merger Sub's ability
to perform its respective obligations hereunder or consummate the transactions
contemplated hereby.
"MERGER" has the meaning specified in Section 2.1.
"MERGER SUB" means LDNG Acquisition, Inc., an Oklahoma corporation and a
wholly-owned subsidiary of Lima.
"MERGER SUB COMMON STOCK" means the common stock, par value $.01 per share,
of Merger Sub.
"NYSE" means The New York Stock Exchange, Inc.
"OGCA" means the Oklahoma General Corporation Act.
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"PERSON" means any natural person, corporation, company, limited or general
partnership, joint stock company, joint venture, association, limited liability
company, trust, bank, trust company, land trust, business trust or other entity
or organization, whether or not a Governmental Authority.
"PROXY STATEMENT/PROSPECTUS" means a joint proxy statement in definitive
form relating to the Alpha Meeting and the Lima Meeting, which proxy statement
will be included as a prospectus in the Registration Statement.
"PRUDENTIAL WARRANTS" means those certain warrants to purchase Alpha Common
Stock issued in September 1992 to Prudential Insurance Company of America.
"REGISTRATION STATEMENT" means the Registration Statement on Form S-4 to be
filed by Lima in connection with the issuance of Lima Common Stock, Lima
Preferred Stock and Lima Depositary Shares pursuant to the Merger.
"RESPONSIBLE OFFICER" means, with respect to any corporation, the Chief
Executive Officer, President or any Vice President of such corporation.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUPERIOR PROPOSAL" has the meaning specified in Section 5.3(b).
"SURVIVING CORPORATION" has the meaning specified in Section 2.2.
"TAX RETURNS" has the meaning specified in Section 3.14(a).
"TAXES" means taxes of any kind, levies or other like assessments, customs,
duties, imposts, charges or fees, including income, gross receipts, ad valorem,
value added, excise, real or personal property, asset, sales, use, federal
royalty, license, payroll, transaction, capital, net worth and franchise taxes,
estimated taxes, withholding, employment, social security, workers compensation,
utility, severance, production, unemployment compensation, occupation, premium,
windfall profits, transfer and gains taxes or other governmental taxes imposed
or payable to the United States or any state, local or foreign governmental or
Native American tribal subdivision or agency thereof, and in each instance such
term shall include any interest, penalties or additions to tax attributable to
any such Tax, including penalties for the failure to file any Tax Return or
report.
"THIRD-PARTY CONSENT" means the consent or approval of any Person other than
Alpha, Lima or any Governmental Authority.
1.2 REFERENCES AND TITLES. All references in this Agreement to Exhibits,
Schedules, Articles, Sections, subsections and other subdivisions refer to the
corresponding Exhibits, Schedules, Articles, Sections, subsections and other
subdivisions of or to this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any Articles, Sections, subsections or other
subdivisions of this Agreement are for convenience only, do not constitute any
part of this Agreement, and shall be disregarded in construing the language
hereof. The words "this Agreement," "herein," "hereby," "hereunder" and
"hereof," and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words "this
Article," "this Section" and "this Subsection," and words of similar import,
refer only to the Article, Section or Subsection hereof in which such words
occur. The word "or" is not exclusive, and the word "including" (in its various
forms) means "including without limitation." Pronouns in masculine, feminine or
neuter genders shall be construed to state and include any other gender, and
words, terms and titles (including terms defined herein) in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise requires.
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As used in the representations and warranties contained in this Agreement,
the phrase "to the knowledge" of the representing party shall mean that
Responsible Officers of such representing party, individually or collectively,
either (a) know that the matter being represented and warranted is true and
accurate or (b) have no reason, after reasonable inquiry, to believe that the
matter being represented and warranted is not true and accurate.
ARTICLE II
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Alpha shall be merged with and into Merger Sub
in accordance with the provisions of this Agreement. Such merger is referred to
herein as the "Merger."
2.2 EFFECT OF THE MERGER. Upon the effectiveness of the Merger, the
separate existence of Alpha shall cease and Merger Sub, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under the laws of the State of Oklahoma. The Merger shall
have the effects specified in this Agreement and the DGCL and the OGCA.
2.3 GOVERNING INSTRUMENTS, DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION.
(a) The certificate of incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in accordance
with its terms and applicable law; provided, however, that Article I thereof
shall be amended and restated to read in its entirety as follows: "Article
I: The name of the corporation is American Exploration Company."
(b) The by-laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until duly
amended in accordance with their terms and applicable law.
(c) The directors and officers of Merger Sub at the Effective Time shall
be the directors and officers, respectively, of the Surviving Corporation
from the Effective Time until their respective successors have been duly
elected or appointed in accordance with the certificate of incorporation and
by-laws of the Surviving Corporation and applicable law.
2.4 EFFECT ON SECURITIES.
(a) MERGER SUB STOCK. At the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof, each share of
Merger Sub Common Stock outstanding immediately prior to the Effective Time
shall remain outstanding and continue as one share of capital stock of the
Surviving Corporation and each certificate evidencing ownership of any such
shares shall continue to evidence ownership of the same number of shares of
the capital stock of the Surviving Corporation.
(b) ALPHA SECURITIES.
(i) ALPHA COMMON STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof (but
subject to the provisions of Section 2.5(e)), each share of Alpha Common
Stock that is issued and outstanding immediately prior to the Effective
Time (other than shares of Alpha Common Stock held by Dissenting
Stockholders) shall be converted into the right to receive (A) shares of
validly issued, fully paid and nonassessable Lima Common Stock, with each
such share of Alpha Common Stock being converted into the fraction of a
share of Lima Common Stock equal to the Conversion Number; and (B) cash
in the amount of the Cash Consideration. Each share of Alpha Common
Stock, when so converted, shall automatically be canceled and retired,
shall cease to exist and shall no longer be outstanding; and the holder
of any certificate representing any such shares shall cease to have any
rights with
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respect thereto, except the right to receive the shares of Lima Common
Stock to be issued in exchange therefor and the Cash Consideration (along
with any cash in lieu of fractional shares of Lima Common Stock as
provided in Section 2.5(e)) and any unpaid dividends and distributions
with respect to such shares of Lima Common Stock as provided in Section
2.5(c), without interest, upon the surrender of such certificate in
accordance with Section 2.5.
(ii) ALPHA TREASURY STOCK. At the Effective Time, by virtue of the
Merger, any and all shares of Alpha Common Stock that are issued and held
as treasury stock shall be canceled and retired and shall cease to exist,
and no shares of Lima Common Stock, Cash Consideration or other
consideration shall be paid or payable in exchange therefor.
(iii) ALPHA PREFERRED STOCK AND DEPOSITARY SHARES. At the Effective
Time, by virtue of the Merger and without any action on the part of any
holder thereof, each share of Alpha Preferred Stock that is issued and
outstanding immediately prior to the Effective Time shall be converted
into the right to receive one (1) validly issued, fully paid and
nonassessable share of Lima Preferred Stock. Thereafter, in accordance
with the Deposit Agreement, the Alpha Depositary Shares will represent
rights with respect to the Lima Preferred Stock and any required action
to issue Lima Depositary Shares in exchange for Alpha Depositary Shares
shall be promptly taken. Each share of Alpha Preferred Stock, when so
converted, shall automatically be canceled and retired, shall cease to
exist and shall no longer be outstanding; and the holder of any
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Lima
Preferred Stock to be issued in exchange therefore and any unpaid
dividends and distributions with respect of such shares of Lima Preferred
Stock as provided in Section 2.5(c), without interest, upon surrender of
such certificate in accordance with Section 2.5. The portion of the
cumulative quarterly dividend with respect to the Alpha Preferred Stock
accrued as of the Effective Time shall be carried to and accumulated with
the first cumulative quarterly dividend to become payable with respect to
the Lima Preferred Stock after the Effective Time. The holders of the
Alpha Depositary Shares shall continue to have the same rights with
respect to the Lima Preferred Stock as they had prior to the Effective
Time with respect to shares of Alpha Preferred Stock under the terms of
the Deposit Agreement.
(iv) ALPHA EQUITY AWARDS. Each Alpha Stock Option (including any
Alpha Stock Option granted within six months of the Effective Time) shall
be or become fully vested prior to or concurrently with the Effective
Time and, except as provided in the Alpha Employee Agreements, shall be
canceled in accordance with the respective terms of the Alpha Stock
Compensation Plans or otherwise by appropriate action by Alpha in
consideration for the payment of the Cash-Out Amount to the holder of
such Alpha Stock Option as soon as practicable following the Effective
Time. For purposes of this Agreement, the "Cash-Out Amount" means (i) in
the case of any Alpha Stock Option granted under the Alpha 1983 or 1994
Stock Compensation Plan, the excess, if any, of the Determined Value (as
defined in such Plan) over the exercise price of such Alpha Stock Option,
multiplied by the number of shares of Alpha Common Stock subject to such
Alpha Stock Option, and (ii) in the case of any Alpha Stock Option
granted under the Alpha Amended and Restated 1983 or 1988 Stock Option
Plan of Hershey Oil Corporation, the excess, if any, of the Effective
Time Value over the exercise price of such Alpha Stock Option, multiplied
by the number of shares of Alpha Common Stock subject to such Alpha Stock
Option. For purposes of this Agreement, the "Effective Time Value" means
the sum of (i) the Cash Consideration and (ii) the product determined by
multiplying (x) the Conversion Number by (y) the Market Price. The
restrictions applicable to each Alpha Restricted Share outstanding under
the Alpha Stock Compensation Plans immediately prior to the Effective
Time shall lapse as of the Effective Time. Each Alpha Restricted Unit
outstanding immediately prior to the Effective Time shall become fully
vested immediately prior to or concurrently with the Effective Time, and
shall be redeemed as soon as practicable following the Effective Time by
payment to the holder
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thereof of an amount in cash equal to the Effective Time Value less the
amount payable per unit by the holder as set forth in Section 3.15 of the
Alpha Disclosure Schedule.
(v) ALPHA WARRANTS. All Alpha Warrants shall remain outstanding
following the Effective Time. At the Effective Time, by virtue of the
Merger and without any action on the part of Alpha or any holder of Alpha
Warrants, each Alpha Warrant shall be assumed by Lima and shall be
exercisable for shares of Lima Common Stock and other consideration, if
any, as may be required pursuant to the terms and conditions of such
Alpha Warrants.
(vi) ALPHA 11% SENIOR SUBORDINATED NOTES. All Alpha 11% Senior
Subordinated Notes shall remain outstanding following the Effective Time.
At the Effective Time, by virtue of the Merger and without any action on
the part of Alpha or any holder of Alpha 11% Senior Subordinated Notes,
each Alpha 11% Senior Subordinated Note shall be assumed by the Surviving
Corporation.
(vii) OTHER SECURITIES. Except as provided in this Section 2.4(b) or
in the Alpha Employee Agreements or as otherwise agreed to by the
parties, (A) at the Effective Time, the provisions of any other plan,
program or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Alpha Companies shall
become null and void, and (B) the Alpha Companies shall use all
reasonable efforts to ensure that, following the Effective Time, no
holder of options or rights or any participant in any plan, program or
arrangement shall have any right thereunder to acquire any equity
securities of the Alpha Companies, Merger Sub, Lima or any direct or
indirect subsidiary thereof.
(viii) SHARES OF DISSENTING STOCKHOLDERS. Any issued and outstanding
shares of Alpha Common Stock held by a Dissenting Stockholder shall be
converted into the right to receive such consideration as may be
determined to be due to such Dissenting Stockholder pursuant to the DGCL;
provided, however, shares of Alpha Common Stock outstanding at the
Effective Time and held by a Dissenting Stockholder who shall, after the
Effective Time, withdraw his demand for appraisal or lose his right of
appraisal as provided in the DGCL, shall be deemed to be converted, as of
the Effective Time, into the right to receive the shares of Lima Common
Stock and the amount of cash (without interest) specified in Section
2.4(b)(i), in accordance with the procedures specified in Section 2.5(b).
Alpha shall give Lima (A) prompt notice of any written demand for
appraisal, withdrawal of demand for appraisal and any other instruments
served pursuant to the DGCL received by Alpha, and (B) the opportunity to
direct all negotiations and proceedings with respect to demand for
appraisal under the DGCL. Alpha will not voluntarily make any payment
with respect to any demands for appraisal and will not, except with the
prior written consent of Lima, settle or offer to settle any such
demands.
2.5 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE FUND. Immediately prior to the Effective Time, Lima shall
deposit with the Exchange Agent, for the benefit of the holders of shares of
Alpha Common Stock and Alpha Preferred Stock and for exchange in accordance
with this Agreement, certificates representing the shares of Lima Common
Stock and Lima Preferred Stock to be issued, and funds necessary to pay the
Cash Consideration, in exchange for shares of Alpha Common Stock pursuant to
Section 2.4(b)(i) and the Alpha Preferred Stock pursuant to Section
2.4(b)(iii). Such shares of Lima Common Stock and Lima Preferred Stock,
together with any dividends or distributions with respect thereto (as
provided in Section 2.5(c)) and such funds, are referred to herein as the
"Exchange Fund." The Exchange Agent, pursuant to irrevocable instructions
consistent with the terms of this Agreement, shall deliver the Lima Common
Stock and Lima Preferred Stock and the Cash Consideration to be issued or
paid pursuant to Sections 2.4(b)(i) and 2.4(b)(iii) out of the Exchange
Fund, and the Exchange Fund shall
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not be used for any other purpose whatsoever. The Exchange Agent shall not
be entitled to vote or exercise any rights of ownership with respect to the
Lima Common Stock and Lima Preferred Stock held by it from time to time
hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect thereto for the account of
Persons entitled thereto.
(b) EXCHANGE PROCEDURES.
(i) As soon as reasonably practicable after the Effective Time, Lima
shall cause the Exchange Agent to mail to each holder of record of an
Alpha Certificate that, immediately prior to the Effective Time,
represented shares of Alpha Common Stock or Alpha Preferred Stock, which
was converted into the right to receive Lima Common Stock and Cash
Consideration pursuant to Section 2.4(b)(i) or Lima Preferred Stock
pursuant to Section 2.4(b)(iii), as applicable, a letter of transmittal
to be used to effect the exchange of such Alpha Certificate for an
applicable Lima Certificate (and cash in lieu of fractional shares) and
the Cash Consideration, along with instructions for using such letter of
transmittal to effect such exchange. The letter of transmittal (or the
instructions thereto) shall specify that delivery of any Alpha
Certificate shall be effected, and risk of loss and title thereto shall
pass, only upon delivery of such Alpha Certificate to the Exchange Agent
and shall be in such form and have such other provisions as Lima may
reasonably specify.
(ii) Upon surrender to the Exchange Agent of an Alpha Certificate
for cancellation, together with a duly completed and executed letter of
transmittal and any other required documents (including, in the case of
any Person constituting an "affiliate" of Alpha for purposes of Rule
145(c) and (d) under the Securities Act, a written agreement from such
Person as described in Section 5.9, if not theretofore delivered to
Lima), (A) the holder of such Alpha Certificate shall be entitled to
receive in exchange therefor a Lima Certificate representing the number
of whole shares of Lima Common Stock and Cash Consideration that such
holder has the right to receive pursuant to Section 2.4(b)(i) or the
number of shares of Lima Preferred Stock that such holder has the right
to receive pursuant to Section 2.4(b)(iii), any cash in lieu of
fractional shares of Lima Common Stock as provided in Section 2.5(e), and
any unpaid dividends and distributions that such holder has the right to
receive pursuant to Section 2.5(c) (after giving effect to any required
withholding of taxes); and (B) the Alpha Certificate so surrendered shall
forthwith be canceled. No interest shall be paid or accrued on the Cash
Consideration, cash in lieu of fractional shares and unpaid dividends and
distributions, if any, payable to holders of Alpha Certificates.
(iii) In the event of a transfer of ownership of Alpha Common Stock
or Alpha Preferred Stock that is not registered in the transfer records
of Alpha, a Lima Certificate representing the appropriate number of
shares of Lima Common Stock or shares of Lima Preferred Stock and the
appropriate Cash Consideration, if any (along with any cash in lieu of
fractional shares and any unpaid dividends and distributions that such
holder has the right to receive), may be issued or paid to a transferee
if the Alpha Certificate representing such shares of Alpha Common Stock
or Alpha Preferred Stock is presented to the Exchange Agent accompanied
by all documents required to evidence and effect such transfer and to
evidence that any applicable stock transfer taxes have been paid.
(iv) Until surrendered as contemplated by this Section 2.5(b), each
Alpha Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender a Lima
Certificate representing shares of Lima Common Stock and Cash
Consideration as provided in Section 2.4(b)(i) or shares of Lima
Preferred Stock pursuant to Section 2.4(b)(iii) (in each case, along with
any cash in lieu of fractional shares and any unpaid dividends and
distributions).
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(v) The procedure for exchange of Alpha Depositary Shares for Lima
Depositary Shares shall be governed by the Deposit Agreement.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Lima Common Stock or Lima Preferred
Stock declared or made after the Effective Time with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Alpha
Certificate. Subject to the effect of applicable laws, (i) at the time of
the surrender of a Alpha Certificate for exchange in accordance with the
provisions of this Section 2.5, there shall be paid to the surrendering
holder, without interest, the amount of dividends or other distributions
(having a record date after the Effective Time but on or prior to surrender
and a payment date on or prior to surrender) theretofore paid with respect
to the number of whole shares of Lima Common Stock and Lima Preferred Stock
that such holder is entitled to receive (less the amount of any withholding
taxes that may be required with respect thereto); and (ii) at the
appropriate payment date, there shall be paid to the surrendering holder,
without interest, the amount of dividends or other distributions (having a
record date after the Effective Time but on or prior to surrender and a
payment date subsequent to surrender) payable with respect to the number of
whole shares of Lima Common Stock and Lima Preferred Stock that such holder
receives (less the amount of any withholding taxes that may be required with
respect thereto).
(d) NO FURTHER OWNERSHIP RIGHTS. All shares of Lima Common Stock and
Lima Preferred Stock issued, and the Cash Consideration paid, upon the
surrender for exchange of shares of Alpha Common Stock and Alpha Preferred
Stock in accordance with the terms hereof (including any cash paid pursuant
to Section 2.5(c) or (e)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Alpha Common Stock
and Alpha Preferred Stock. After the Effective Time, there shall be no
further registration of transfers on the Surviving Corporation's stock
transfer books of the shares of Alpha Common Stock or Alpha Preferred Stock
that were outstanding immediately prior to the Effective Time. If, after the
Effective Time, an Alpha Certificate is presented to the Surviving
Corporation for any reason, it shall be canceled and exchanged as provided
in this Section 2.5.
(e) TREATMENT OF FRACTIONAL SHARES. No Lima Certificates or scrip
representing fractional shares of Lima Common Stock shall be issued in the
Merger and, except as provided in this Section 2.5(e), no dividend or other
distribution, stock split or interest shall relate to any such fractional
share, and such fractional share shall not entitle the owner thereof to vote
or to any other rights of a stockholder of Lima. In lieu of any fractional
share of Lima Common Stock to which a holder of Alpha Common Stock would
otherwise be entitled, such holder, upon surrender of an Alpha Certificate
as described in this Section, shall be paid an amount in cash (without
interest) determined by multiplying (i) the Market Price by (ii) the
fraction of a share of Lima Common Stock to which such holder would
otherwise be entitled, in which case Lima shall make available to the
Exchange Agent, without regard to any other cash being provided to the
Exchange Agent, the amount of cash necessary to make such payments.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund and
cash held by the Exchange Agent in accordance with the terms of this Section
2.5 that remains unclaimed by the former stockholders of Alpha for a period
of one year following the Effective Time shall be delivered to Lima, upon
demand. Thereafter, any former stockholders of Alpha who have not
theretofore complied with the provisions of this Section 2.5 shall look only
to Lima for payment of their claim for Lima Common Stock, Lima Preferred
Stock, the Cash Consideration, any cash in lieu of fractional shares of Lima
Common Stock and any dividends or distributions with respect to Lima Common
Stock or Lima Preferred Stock (all without interest).
(g) NO LIABILITY. Neither Lima, Alpha, the Surviving Corporation, the
Exchange Agent nor any other Person shall be liable to any former holder of
shares of Alpha Common Stock or Alpha
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Preferred Stock for any amount properly delivered to any public official
pursuant to any applicable abandoned property, escheat or similar law. Any
amounts remaining unclaimed by former holders of Alpha Common Stock or Alpha
Preferred Stock for a period of three years following the Effective Time (or
such earlier date immediately prior to the time at which such amounts would
otherwise escheat to or become property of any governmental entity) shall,
to the extent permitted by applicable law, become the property of Lima, free
and clear of any claims or interest of any such holders or their successors,
assigns or personal representatives previously entitled thereto.
(h) LOST, STOLEN, OR DESTROYED ALPHA CERTIFICATES. If any Alpha
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Alpha Certificate to be
lost, stolen or destroyed and, if required by Lima, the posting by such
Person of a bond, in such reasonable amount as Lima may direct, as indemnity
against any claim that may be made against it with respect to such Alpha
Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Alpha Certificate the shares of Lima Common Stock, Lima
Preferred Stock and the Cash Consideration (along with any cash in lieu of
fractional shares pursuant to Section 2.5(e), and any unpaid dividends and
distributions, if any, pursuant to Section 2.5(c)) deliverable with respect
thereto pursuant to this Agreement.
2.6 CLOSING. The Closing shall take place on the Closing Date at 10:00
a.m., local time, at the offices of Crowe & Dunlevy, A Professional Corporation,
1800 Mid-America Tower, 20 North Broadway, Oklahoma City, Oklahoma, or at such
time and place as is otherwise agreed upon by Lima and Alpha.
2.7 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
immediately when the Certificates of Merger are accepted for filing by the
respective Secretaries of State of Delaware and Oklahoma or at such time
thereafter as is provided in the Certificates of Merger (the "Effective Time").
As soon as practicable after the Closing, the Certificates of Merger shall be
filed, and the Effective Time shall occur, on the Closing Date; provided,
however, that the Certificates of Merger may be filed prior to the Closing Date
or prior to the Closing so long as it provides for an effective time that occurs
on the Closing Date immediately after the Closing.
2.8 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Lima, Merger Sub,
and Alpha shall use all reasonable efforts to take all such actions as may be
necessary or appropriate in order to effectuate the Merger under the DGCL and
the OGCA as promptly as commercially practicable. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of either of Merger Sub or Alpha, the officers and directors of
the Surviving Corporation are fully authorized, in the name of the Surviving
Corporation or otherwise to take, and shall take, all such lawful and necessary
action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ALPHA
Except as set forth in the Alpha Disclosure Schedule, Alpha hereby
represents and warrants to Lima and Merger Sub as follows:
3.1 ORGANIZATION. Each of the Alpha Companies (a) is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, (b) has the requisite power and authority to own, lease and
operate its properties and to conduct its business as it is presently being
conducted, and (c) is duly qualified to do business as a foreign corporation,
and is in good standing, in each jurisdiction where the character of the
properties owned or leased by it or the nature of its activities makes such
qualification necessary (except, in each case, where any failure to be so
qualified as a foreign corporation or to be in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on
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Alpha). Copies of the certificate or articles of incorporation and by-laws of
each of the Alpha Companies have heretofore been delivered to Lima, and such
copies are accurate and complete as of the date hereof.
3.2 OTHER ENTITIES. Alpha has no direct or indirect equity interest in any
corporation, partnership, limited liability company, joint venture, business
association or other entity other than the entities included in the Alpha
Companies (other than joint venture, joint operating or ownership arrangements
entered into in the ordinary course of business or other partnerships that,
individually or in the aggregate, are not material to the operations or business
of the Alpha Companies, taken as a whole).
3.3 AUTHORITY AND ENFORCEABILITY. Alpha has the requisite corporate power
and authority to enter into and deliver this Agreement and (with respect to
consummation of the Merger, subject to the valid approval of this Agreement and
the Merger by the stockholders of Alpha) to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and (with
respect to consummation of the Merger, subject to the valid approval of this
Agreement and the Merger by the stockholders of Alpha) the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Alpha, including approval by the board
of directors of Alpha, and no other corporate proceedings on the part of Alpha
are necessary to authorize the execution or delivery of this Agreement or (with
respect to consummation of the Merger, subject to the valid approval of this
Agreement and the Merger by the stockholders of Alpha) to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Alpha and (with respect to the Merger, subject to the
valid approval of this Agreement and the Merger by the stockholders of Alpha and
assuming that this Agreement constitutes a valid and binding obligation of Lima
and Merger Sub) constitutes a valid and binding obligation of Alpha enforceable
against Alpha in accordance with its terms.
3.4 NO VIOLATIONS. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and compliance by
Alpha with the provisions hereof will not, conflict with, result in any
violation of or default (with or without notice or lapse of time or both) under,
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of any of the Alpha Companies
under, any provision of (a) the certificate or articles of incorporation or
by-laws of any of the Alpha Companies, (b) any loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or
other agreement or instrument applicable to any of the Alpha Companies, or (c)
assuming the consents, approvals, authorizations or permits and filings or
notifications referred to in Section 3.5 are duly and timely obtained or made,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to any of the Alpha Companies or any of their respective properties
or assets, other than (y) in the case of clause (b) above, any such conflict,
violation, default, right, loss or Lien that may arise under the Bank Credit
Agreement and (z) in the case of clause (b) or (c) above, any such conflict,
violation, default, right, loss or Lien that, individually or in the aggregate,
would not have a Material Adverse Effect on Alpha.
3.5 CONSENTS AND APPROVALS. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to any of the Alpha Companies in
connection with the execution and delivery of this Agreement by Alpha or the
consummation by Alpha of the transactions contemplated hereby, except for the
following: (a) any such consent, approval, order, authorization, registration,
declaration, filing or permit which the failure to obtain or make would not,
individually or in the aggregate, have a Material Adverse Effect on Alpha; (b)
the filing of the Certificates of Merger with the respective Secretaries of
State of Delaware and Oklahoma pursuant to the provisions of the DGCL and the
OGCA; (c) the filing of a pre-merger notification report by Alpha under the HSR
Act and the expiration or termination of the applicable waiting period; (d) the
filing with the SEC of the Proxy Statement/Prospectus and such reports under
Section 13(a) of the Exchange Act and such other compliance with the Exchange
Act and the Securities Act and the rules and regulations of the SEC thereunder
as may be required in connection with this Agreement and the transactions
contemplated hereby and the obtaining from the SEC of such orders as
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may be so required; (e) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws or Environmental Laws;
and (f) such filings and approvals as may be required by any foreign pre-merger
notification, securities, corporate or other law, rule or regulation. No Third-
Party Consent is required by or with respect to any of the Alpha Companies in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (x) any such Third-Party
Consent which the failure to obtain would not, individually or in the aggregate,
have a Material Adverse Effect on Alpha, (y) the valid approval of this
Agreement and the Merger by the stockholders of Alpha, and (z) any consent,
approval or waiver required by the terms of the Bank Credit Agreement.
3.6 SEC DOCUMENTS. Alpha has made available to Lima a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Alpha with the SEC since December 31, 1994, and prior to the
date of this Agreement (the "Alpha SEC Documents"), which are all the documents
(other than preliminary material) that Alpha was required to file with the SEC
since such date. As of their respective dates, the Alpha SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Alpha SEC Documents, and none of the Alpha SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.7 FINANCIAL STATEMENTS. The Alpha Financial Statements were, or will be,
prepared in accordance with the applicable published rules and regulations of
the SEC with respect thereto and in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly present, or will fairly present, in
accordance with such requirements (in the case of the unaudited statements,
subject to normal, recurring adjustments which are not expected to be material),
the consolidated financial position of Alpha and its subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Alpha and its subsidiaries for the periods presented therein.
There are no material imbalances of production from the oil and gas properties
of any of the Alpha Companies whether required to be disclosed pursuant to GAAP
or otherwise.
3.8 CAPITAL STRUCTURE.
(a) The authorized capital stock of Alpha consists of 50,000,000 shares
of Alpha Common Stock and 100,000 shares of preferred stock, par value $1.00
per share.
(b) As of the date hereof, there are issued and outstanding (i)
15,698,870 shares of Alpha Common Stock, (ii) 4,000 shares of Alpha
Preferred Stock and 800,000 Alpha Depositary Shares with respect thereto,
(iii) Alpha Stock Options relating to 1,071,168 shares of Alpha Common
Stock, (iv) Prudential Warrants relating to 356,489 shares of Alpha Common
Stock at an exercise price on the date of this Agreement of $20.20 per share
(subject to future adjustment pursuant to the terms of such warrants), and
(v) Institutional Warrants relating to 1,247,837 shares of Alpha Common
Stock at an exercise price on the date of this Agreement of $15.01 per share
(subject to future adjustment pursuant to the terms of such warrants). No
shares of Alpha Common Stock or Alpha Preferred Stock (or Alpha Depositary
Shares with respect thereto) are held by Alpha as treasury stock.
(c) Except as set forth in Section 3.8(b) and as provided in the Alpha
Rights Agreement, there are outstanding (i) no shares of capital stock or
other voting securities of Alpha, (ii) no securities of Alpha or any other
Person convertible into or exchangeable or exercisable for shares of capital
stock or other voting securities of Alpha, and (iii) no subscriptions,
options, warrants, calls, rights (including preemptive rights), commitments,
understandings or agreements to which Alpha is a party or by which it is
bound obligating Alpha to issue, deliver, sell, purchase, redeem or acquire
shares of capital stock or other voting securities of Alpha (or securities
convertible into or exchangeable or exercisable for
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shares of capital stock or other voting securities of Alpha) or obligating
Alpha to grant, extend or enter into any such subscription, option, warrant,
call, right, commitment, understanding or agreement.
(d) All outstanding shares of Alpha capital stock are validly issued,
fully paid and nonassessable and not subject to any preemptive right.
(e) All outstanding shares of capital stock and other voting securities
of each entity (other than Alpha) included in the Alpha Companies are owned,
directly or indirectly, by Alpha, free and clear of all Liens, claims and
options of any nature. With respect to each entity (other than Alpha)
included in the Alpha Companies, there are outstanding (i) no securities of
any such entity or any other Person convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of any
such entity, and (ii) no subscriptions, options, warrants, calls, rights
(including preemptive rights), commitments, understandings or agreements to
which any of such entities is a party or by which it is bound obligating any
of such entities to issue, deliver, sell, purchase, redeem or acquire shares
of capital stock or other voting securities of any of such entities (or
securities convertible into or exchangeable or exercisable for shares of
capital stock or other voting securities of any of such entities) or
obligating any of such entities to grant, extend or enter into any such
subscription, option, warrant, call, right, commitment, understanding or
agreement.
(f) To the best knowledge of Alpha, there are no voting trusts, proxies
or other agreements or understandings with respect to the voting of shares
of capital stock of Alpha.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1997, the Alpha
Companies have conducted their business only in the ordinary course of business
consistent with past practices and, since such date, there has not been any
event (financial or otherwise, whether or not in the ordinary course of
business), circumstance or condition (a) that would be reasonably likely to have
a Material Adverse Effect; or (b) that would have required the consent of Lima
pursuant to Section 5.1 had such event occurred prior to the date of this
Agreement (other than changes, including changes in commodity prices, generally
affecting the oil and gas industry and changes arising from the announcement of
the Merger).
3.10 COMPLIANCE WITH LAWS, MATERIAL AGREEMENTS AND PERMITS. None of the
Alpha Companies is in violation of, or in default under, and no event has
occurred that (with notice or the lapse of time or both) would constitute a
violation of or default under, (a) its certificate or articles of incorporation
or by-laws, (b) any applicable law, rule, regulation, order, writ, decree or
judgment of any Governmental Authority, or (c) any Alpha Material Agreement,
except (in the case of clause (b) or (c) above) for any violation or default
that would not, individually or in the aggregate, have a Material Adverse Effect
on Alpha. Each of the Alpha Companies has obtained and holds all permits,
licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Authorities necessary for the lawful conduct
of its business or the lawful ownership, use and operation of its assets ("Alpha
Permits"), except for Alpha Permits which the failure to obtain or hold would
not, individually or in the aggregate, have a Material Adverse Effect on Alpha.
Each of the Alpha Companies is in compliance with the terms of its Alpha
Permits, except where the failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect on Alpha. No investigation or review
by any Governmental Authority with respect to any of the Alpha Companies is
pending or, to the knowledge of Alpha, threatened, other than those the outcome
of which would not, individually or in the aggregate, have a Material Adverse
Effect on Alpha. To the knowledge of Alpha, no party to any Alpha Material
Agreement is in material breach of the terms, provisions and conditions of such
Alpha Material Agreement.
3.11 GOVERNMENTAL REGULATION. None of the Alpha Companies is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or
any state public utilities laws.
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3.12 LITIGATION. There is no litigation, arbitration, investigation or
other proceeding of any Governmental Authority pending or, to the knowledge of
Alpha, threatened against any of the Alpha Companies or their respective assets
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect on Alpha. Alpha has no knowledge of any facts that are likely to
give rise to any litigation, arbitration, investigation or other proceeding of
any Governmental Authority which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Alpha. No Alpha Company
is subject to any outstanding injunction, judgment, order, decree or ruling
(other than routine oil and gas field regulatory orders and any injunction,
judgment, order, decree or ruling that, either individually or in the aggregate,
would not have a Material Adverse Effect). There is no litigation, proceeding or
investigation pending or, to the knowledge of Alpha, threatened against or
affecting any of the Alpha Companies that questions the validity or
enforceability of this Agreement or any other document, instrument or agreement
to be executed and delivered by Alpha in connection with the transactions
contemplated hereby. For purposes of this Section 3.12 only, a Material Adverse
Effect on Alpha shall not be deemed to occur unless any litigation, arbitration,
investigation or other proceeding would result in liabilities of the Alpha
Companies in excess of $5 million.
3.13 NO RESTRICTIONS. None of the Alpha Companies is a party to (a) any
agreement, indenture or other instrument that contains restrictions with respect
to the payment of dividends or other distributions with respect to its capital,
(b) any financial arrangement with respect to or creating any indebtedness for
borrowed money or indebtedness classified as debt under GAAP to any Person
(other than indebtedness reflected in the Alpha Financial Statements or
indebtedness for borrowed money or indebtedness classified as debt under GAAP
incurred in the ordinary course of business), (c) any agreement, contract or
commitment relating to the making of any advance to, or investment in, any
Person (other than advances in the ordinary course of business and to
wholly-owned subsidiaries), (d) any guaranty or other contingent liability with
respect to any indebtedness or obligation of any Person (other than guaranties
undertaken in the ordinary course of business and other than the endorsement of
negotiable instruments for collection in the ordinary course of business), or
(e) any agreement, contract or commitment limiting in any respect its ability to
compete with any Person or otherwise conduct business of any line or nature.
3.14 TAXES.
(a) Each of the Alpha Companies and any affiliated, combined or unitary
group of which any such corporation is or was a member has (i) timely filed
all material federal, state, local and foreign returns, declarations,
reports, estimates, information returns and statements ("Tax Returns")
required to be filed by it with respect to any Taxes, and each such Tax
Return was true, correct and complete in all material respects, (ii) timely
paid all material Taxes that are due and payable (except for Taxes that are
being contested in good faith by appropriate proceedings and for which
sufficient reserves have been established in accordance with GAAP) for which
any of the Alpha Companies may be liable, and (iii) complied in all material
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes, and has timely withheld from employee
wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over.
(b) No audits or other administrative or court proceedings are presently
pending with regard to any Taxes for which any of the Alpha Companies would
be liable. There are no pending requests for rulings from any taxing
authority, no outstanding subpoenas or requests for information by any
taxing authority with respect to any Taxes, no proposed reassessments by any
taxing authority of any property owned or leased, and no agreements in
effect to extend the time to file any material Tax Return or the period of
limitations for the assessment or collection of any material Taxes for which
any of the Alpha Companies would be liable.
(c) Except as set forth in the Alpha SEC Documents, none of the Alpha
Companies is a party to, is bound by or has any obligation under any tax
sharing or allocation agreement or similar agreement or arrangement.
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(d) There are no material excess loss accounts or deferred intercompany
transactions between Alpha and/or any of its subsidiaries within the meaning
of Treas. Reg. Section 1.1502-19 or 1.1502-13, respectively.
3.15 EMPLOYEE BENEFIT PLANS.
(a) Section 3.15 to the Alpha Disclosure Schedule includes (i) a list of
all of Alpha's material "employee benefit plans," as defined in Section 3(3)
of ERISA, and all other material severance, termination, change in control,
sick leave, vacation pay, salary continuation for disability, consulting,
employment, compensation, retirement, deferred compensation, bonus,
long-term incentive, stock option, stock purchase, hospitalization, medical
insurance, life insurance and scholarship programs, plans, arrangements or
agreements maintained by any of the Alpha Companies or to which any of the
Alpha Companies contributes or is obligated to contribute for the benefit of
any current or former employee, consultant or director of any of the Alpha
Companies, or with respect to which any of the Alpha Companies would incur
material liability under Section 4069, 4212(c) or 4204 of ERISA (the "Alpha
Employee Benefit Plans"); (ii) a true and complete list of all Alpha Stock
Options granted pursuant to the Alpha Stock Compensation Plans including
names of optionees, grant date, option price and number of shares covered
thereby; (iii) a list of all outstanding awards, including holders, of Alpha
Restricted Shares and Alpha Restricted Units; and (iv) a true and correct
list of all severance or change in control payments payable to any employee
or group of employees of any of the Alpha Companies payable upon any
termination of employment or as a result of the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
including the name and amount payable for any officer and the aggregate
amount payable to all other employees broken down by department.
(b) There is no violation of ERISA with respect to the filing of
applicable reports, documents and notices regarding any Alpha Employee
Benefit Plan with any Governmental Authority or the furnishing of such
documents to the participants or beneficiaries of the Alpha Employee Benefit
Plans that is reasonably likely to have a Material Adverse Effect on the
Alpha Companies. With respect to the Alpha Employee Benefit Plans, there
exists no condition or set of circumstances in connection with the Alpha
Companies that could be expected to result in liability reasonably likely to
have a Material Adverse Effect on the Alpha Companies under ERISA, the Code
or any applicable law. With respect to the Alpha Employee Benefit Plans,
individually and in the aggregate, there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with GAAP, on the financial statements of the Alpha
Companies, which obligations are reasonably likely to have a Material
Adverse Effect on the Alpha Companies.
(c) The Alpha Employee Benefit Plans have been maintained in accordance
with their terms and in accordance with all applicable federal and state
laws, and none of the Alpha Companies has engaged in any "prohibited
transaction" within the meaning of Section 4975 of the Code, except where
the violation of any such term or law or the occurrence of a prohibited
transaction would not be reasonably likely to have a Material Adverse Effect
on the Alpha Companies.
3.16 ENVIRONMENTAL MATTERS. Except for any event, circumstance or
condition that would not have a Material Adverse Effect:
(a) Each of the Alpha Companies has conducted its business and operated
its assets, and is conducting its business and operating its assets, in
material compliance with all Environmental Laws;
(b) None of the Alpha Companies has been notified by any Governmental
Authority or other third party that any of the operations or assets of any
of the Alpha Companies is the subject of any investigation or inquiry by any
Governmental Authority or other third party evaluating whether any material
remedial action is needed to respond to a release or threatened release of
any Hazardous
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Material or to the improper storage or disposal (including storage or
disposal at offsite locations) of any Hazardous Material;
(c) None of the Alpha Companies and no other Person has filed any notice
under any federal, state or local law indicating that (i) any of the Alpha
Companies is responsible for the improper release into the environment, or
the improper storage or disposal, of any Hazardous Material, or (ii) any
Hazardous Material is improperly stored or disposed of upon any property of
any of the Alpha Companies;
(d) None of the Alpha Companies has any material contingent liability in
connection with (i) the release or threatened release into the environment
at, beneath or on any property now or previously owned or leased by any of
the Alpha Companies, or (ii) the storage or disposal of any Hazardous
Material;
(e) None of the Alpha Companies has received any claim, complaint,
notice, inquiry or request for information involving any matter which
remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Law or regarding potential liability under
any Environmental Law relating to operations or conditions of any facilities
or property (including off-site storage or disposal of any Hazardous
Material from such facilities or property) currently or formerly owned,
leased or operated by any of the Alpha Companies;
(f) There are no sites, locations or operations at which any of the
Alpha Companies is currently undertaking, or has completed, any remedial or
response action relating to any such disposal or release, as required by
Environmental Laws; and
(g) All underground storage tanks and solid waste disposal facilities
owned or operated by the Alpha Companies are used and operated in material
compliance with Environmental Laws.
3.17 BROKERS. Other than Prudential Securities, Inc., no broker, finder,
investment banker or other Person is or will be, in connection with the
transactions contemplated by this Agreement, entitled to any brokerage, finder's
or other fee or compensation based on any arrangement or agreement made by or on
behalf of Alpha and for which Alpha, Lima, any of the Alpha Companies or Lima
Companies will have any obligation or liability. A copy of any agreement between
Alpha and Prudential Securities, Inc. relating to this Agreement or the Merger
has been provided to Lima.
3.18 VOTE REQUIRED. The affirmative vote of (a) the holders of a majority
of the outstanding shares of Alpha Common Stock and Alpha Preferred Stock (or
Alpha Depositary Shares with respect thereto), voting together as a single class
in the manner provided in the certificate of designation relating to the Alpha
Preferred Stock filed with the Secretary of State of Delaware and (b) the
holders of at least two-thirds of the outstanding shares of Alpha Preferred
Stock (or Alpha Depositary Shares with respect thereto), are the only votes of
the holders of any class or series of Alpha capital stock or other voting
securities necessary to approve this Agreement, the Merger and the transactions
contemplated hereby.
3.19 AMENDMENT TO ALPHA RIGHTS AGREEMENT.
(a) The Board of Directors of Alpha has taken, or will take, all
necessary action to amend the Alpha Rights Agreement so that none of the
execution and delivery of this Agreement and the consummation of the Merger
or any other transaction contemplated hereby will cause (i) the rights
issuable or issued pursuant to the Alpha Rights Agreement (the "Alpha
Rights") to become exercisable under the Alpha Rights Agreement, (ii) Lima
or any of its affiliates to be deemed an "Acquiring Person" (as defined in
the Alpha Rights Agreement), (iii) any such event to be deemed a "Triggering
Event" (as defined in the Alpha Rights Agreement) or (iv) the "Stock
Acquisition Date" (as defined in the Alpha Rights Agreement) to occur upon
any such event.
(b) As of the date of this Agreement, the Alpha Rights have not
separated from the Alpha Common Stock and no distribution of Rights
Certificates (as defined in the Alpha Rights Agreement)
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will occur as a result of the execution of this Agreement or the
consummation of the transactions contemplated hereby.
3.20 OPINION OF FINANCIAL ADVISOR. The Board of Directors of Alpha has
received the opinion dated as of the date hereof of Prudential Securities, Inc.
addressed to such Board (a copy of which has been provided to Lima for
information purposes only) that, as of such date, the Conversion Number and the
Cash Consideration are fair from a financial point of view to the holders of
Alpha Common Stock.
3.21 AFFILIATE TRANSACTIONS. Other than as disclosed in the Alpha SEC
Documents, there are no transactions between Alpha and any of its Affiliates
(other than directly or indirectly wholly-owned subsidiaries of Alpha) pending
or proposed, except such transactions as are in the ordinary course of business
consistent with past practices and that would not be in violation of the
restrictions upon transactions with Affiliates set forth in Section 5.1(i)
below. There are no agreements pursuant to which any of the Alpha Companies are
obligated to indemnify any of the persons described in Section 5.13(a) other
than any obligation under the certificate of incorporation or bylaws of any
Alpha Company which are not materially broader in scope than the provisions of
the certificate of incorporation and bylaws of Alpha as contained in the Alpha
SEC Documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LIMA AND MERGER SUB
Except as set forth in the Lima Disclosure Schedule, Lima hereby represents
and warrants to Alpha as follows:
4.1 ORGANIZATION. Each of the Lima Companies and Merger Sub (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, (b) has the requisite power and authority to own,
lease and operate its properties and to conduct its business as it is presently
being conducted, and (c) is duly qualified to do business as a foreign
corporation, and is in good standing, in each jurisdiction where the character
of the properties owned or leased by it or the nature of its activities makes
such qualification necessary (except, in each case, where any failure to be so
qualified as a foreign corporation or to be in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on Lima).
Copies of the Certificate of Incorporation and Bylaws of each of the Lima
Companies and Merger Sub have heretofore been delivered to Alpha, and such
copies are accurate and complete as of the date hereof.
4.2 OTHER ENTITIES. Lima has no direct or indirect equity interest in any
corporation, partnership, limited liability company, joint venture, business
association or other entity other than the entities included in the Lima
Companies (other than joint venture, joint operating or ownership arrangements
entered into in the ordinary course of business or other partnerships that,
individually or in the aggregate, are not material to the operations or business
of the Lima Companies, taken as a whole).
4.3 AUTHORITY AND ENFORCEABILITY. Each of Lima and Merger Sub has the
requisite corporate power and authority to enter into and deliver this Agreement
and (with respect to consummation of this Agreement and the Merger, subject to
the approval by the stockholders of Lima) to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and (with
respect to consummation of this Agreement and the Merger, subject to the
approval by the stockholders of Lima) the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Lima and Merger Sub, including approval by the
board of directors of Lima and the board of directors and stockholders of Merger
Sub, and no other corporate proceedings on the part of Lima or Merger Sub are
necessary to authorize the execution or delivery of this Agreement or (with
respect to consummation of this Agreement and the Merger, subject to the
approval by the stockholders of Lima) to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Lima and Merger Sub and (with respect to consummation
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of this Agreement and the Merger, subject to the approval by the stockholders of
Lima, and assuming that this Agreement constitutes a valid and binding
obligation of Alpha) constitutes a valid and binding obligation of each of Lima
and Merger Sub enforceable against each of them in accordance with its terms.
4.4 NO VIOLATIONS. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and compliance by
Lima and Merger Sub with the provisions hereof will not, conflict with, result
in any violation of or default (with or without notice or lapse of time or both)
under, give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of any of the Lima Companies,
including Merger Sub, under, any provision of (a) the Certificate of
Incorporation or Bylaws of any of the Lima Companies, including Merger Sub, (b)
any loan or credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or other agreement or instrument applicable to
any of the Lima Companies, including Merger Sub, or (c) assuming the consents,
approvals, authorizations or permits and filings or notifications referred to in
Section 4.5 are duly and timely obtained or made, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to any of the Lima
Companies, including Merger Sub, or any of their respective properties or
assets, other than, in the case of clause (b) or (c) above, any such conflict,
violation, default, right, loss or Lien that, individually or in the aggregate,
would not have a Material Adverse Effect on Lima.
4.5 CONSENTS AND APPROVALS. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to any of the Lima Companies or Merger
Sub in connection with the execution and delivery of this Agreement by Lima and
Merger Sub or the consummation by Lima and Merger Sub of the transactions
contemplated hereby, except for the following: (a) any such consent, approval,
order, authorization, registration, declaration, filing or permit which the
failure to obtain or make would not, individually or in the aggregate, have a
Material Adverse Effect on Lima; (b) the filing of the Certificates of Merger
with the respective Secretaries of State of Delaware and Oklahoma pursuant to
the provisions of the DGCL and the OGCA; (c) the filing of a pre-merger
notification report by Lima under the HSR Act and the expiration or termination
of the applicable waiting period; (d) the filing with the SEC of the
Registration Statement and such reports under Section 13(a) of the Exchange Act
and such other compliance with the Exchange Act and the Securities Act and the
rules and regulations of the SEC thereunder as may be required in connection
with this Agreement and the transactions contemplated hereby and the obtaining
from the SEC of such orders as may be so required; (e) the filing with the NYSE
of a listing application relating to the shares of Lima Common Stock and Lima
Depositary Shares to be issued pursuant to the Merger and the obtaining from the
NYSE of its approvals thereof; (f) such filings and approvals as may be required
by any applicable state securities, "blue sky" or takeover laws or Environmental
Laws; and (g) such filings and approvals as may be required by any foreign
pre-merger notification, securities, corporate or other law, rule or regulation.
No Third-Party Consent is required by or with respect to any of the Lima
Companies, including Merger Sub, in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (x) any such Third-Party Consent which the failure to obtain would
not, individually or in the aggregate, have a Material Adverse Effect on Lima,
and (y) the valid approval of this Agreement and the Merger by the stockholders
of Lima.
4.6 SEC DOCUMENTS. Lima has made available to Alpha a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Lima with the SEC since December 31, 1994, and prior to the
date of this Agreement (the "Lima SEC Documents"), which are all the documents
(other than preliminary material) that Lima was required to file with the SEC
since such date. As of their respective dates, the Lima SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Lima SEC Documents, and none of the Lima SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated
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therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.7 FINANCIAL STATEMENTS. The Lima Financial Statements were, or will be,
prepared in accordance with the applicable published rules and regulations of
the SEC with respect thereto and in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Rule 10-01 of
Regulation S-X of the SEC) and fairly present, or will fairly present, in
accordance with such requirements (in the case of the unaudited statements,
subject to normal, recurring adjustments which are not expected to be material),
the consolidated financial position of Lima and its subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Lima and its subsidiaries for the periods presented therein. There
are no material imbalances of production from the oil and gas properties of any
of the Lima Companies whether required to be disclosed pursuant to GAAP or
otherwise.
4.8 CAPITAL STRUCTURE.
(a) The authorized capital stock of Lima consists of 100,000,000 shares
of Lima Common Stock and 10,000,000 shares of preferred stock, par value
$.01 per share, of Lima. The authorized capital stock of Merger Sub consists
of 1,000 shares of Merger Sub Common Stock.
(b) As of the date hereof, (i) there are issued and outstanding
27,802,000 shares of Lima Common Stock and no shares of Lima Preferred Stock
and (ii) 963,500 shares of Lima Common Stock are issuable upon exercise of
outstanding stock options. No shares of Lima Common Stock are held by Lima
as treasury stock.
(c) Except as set forth in Section 4.8(b), there are outstanding (i) no
shares of capital stock or other voting securities of Lima, (ii) no
securities of Lima or any other Person convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of Lima,
and (iii) no subscriptions, options, warrants, calls, rights (including
preemptive rights), commitments, understandings or agreements to which Lima
is a party or by which it is bound obligating Lima to issue, deliver, sell,
purchase, redeem or acquire shares of capital stock or other voting
securities of Lima (or securities convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of Lima)
or obligating Lima to grant, extend or enter into any such subscription,
option, warrant, call, right, commitment, understanding or agreement.
(d) All outstanding shares of Lima capital stock are, and (when issued)
the shares of Lima Common Stock to be issued pursuant to the Merger and
issuable upon conversion of the Lima Preferred Stock and exercise of the
Alpha Warrants will be, validly issued, fully paid and nonassessable and not
subject to any preemptive right.
(e) 1,000 shares of Merger Sub Common Stock are issued and outstanding,
all of which are owned by Lima. All outstanding shares of Merger Sub Common
Stock are validly issued, fully paid and nonassessable and not subject to
any preemptive right.
(f) Other than the agreement of Lima Holdings Corp. to vote for this
Agreement and the Merger referred to elsewhere in this Agreement, to the
best knowledge of Lima, there are no voting trusts, proxies or other
agreements or understandings with respect to the voting of shares of capital
stock of Lima.
4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1997, the Lima
Companies have conducted their business only in the ordinary course of business
consistent with past practices and, since such date, there has not been any
event (financial or otherwise, whether or not in the ordinary course of
business), circumstance or condition (a) that would be reasonably likely to have
a Material Adverse Effect; or (b) that would have required the consent of Alpha
pursuant to Section 5.1 had such event occurred
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prior to the date of this Agreement (other than changes, including changes in
commodity prices, generally affecting the oil and gas industry and changes
arising from the announcement of the Merger).
4.10 COMPLIANCE WITH LAWS, MATERIAL AGREEMENTS AND PERMITS. None of the
Lima Companies is in violation of, or in default under, and no event has
occurred that (with notice or the lapse of time or both) would constitute a
violation of or default under, (a) its certificate or articles of incorporation
or by-laws, (b) any applicable law, rule, regulation, order, writ, decree or
judgment of any Governmental Authority, or (c) any Lima Material Agreement,
except (in the case of clause (b) or (c) above) for any violation or default
that would not, individually or in the aggregate, have a Material Adverse Effect
on Lima. Each of the Lima Companies has obtained and holds all permits,
licenses, variances, exemptions, orders, franchises, approvals and
authorizations of all Governmental Authorities necessary for the lawful conduct
of its business or the lawful ownership, use and operation of its assets ("Lima
Permits"), except for Lima Permits which the failure to obtain or hold would
not, individually or in the aggregate, have a Material Adverse Effect on Lima.
Each of the Lima Companies is in compliance with the terms of its Lima Permits,
except where the failure to comply would not, individually or in the aggregate,
have a Material Adverse Effect on Lima. No investigation or review by any
Governmental Authority with respect to any of the Lima Companies is pending or,
to the knowledge of Lima, threatened, other than those the outcome of which
would not, individually or in the aggregate, have a Material Adverse Effect on
Lima. To the knowledge of Lima, no party to any Lima Material Agreement is in
material breach of the terms, provisions and conditions of such Lima Material
Agreement.
4.11 GOVERNMENTAL REGULATION. None of the Lima Companies is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or
any state public utilities laws.
4.12 LITIGATION. There is no litigation, arbitration, investigation or
other proceeding of any Governmental Authority pending or, to the knowledge of
Lima, threatened against any of the Lima Companies or their respective assets
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect on Lima. Lima has no knowledge of any facts that are likely to
give rise to any litigation, arbitration, investigation or other proceeding of
any Governmental Authority which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Lima. No Lima Company is
subject to any outstanding injunction, judgment, order, decree or ruling (other
than routine oil and gas field regulatory orders and any injunction, judgment,
order, decree or ruling that, either individually or in the aggregate, would not
have a Material Adverse Effect). There is no litigation, proceeding or
investigation pending or, to the knowledge of Lima, threatened against or
affecting any of the Lima Companies, including Merger Sub, that questions the
validity or enforceability of this Agreement or any other document, instrument
or agreement to be executed and delivered by Lima or Merger Sub in connection
with the transactions contemplated hereby.
4.13 NO RESTRICTIONS. None of the Lima Companies is a party to (a) any
agreement, indenture or other instrument that contains restrictions with respect
to the payment of dividends or other distributions with respect to its capital,
(b) any financial arrangement with respect to or creating any indebtedness for
borrowed money or indebtedness classified as debt under GAAP to any Person
(other than indebtedness reflected in the Lima Financial Statements or
indebtedness for borrowed money or indebtedness classified as debt under GAAP
incurred in the ordinary course of business), (c) any agreement, contract or
commitment relating to the making of any advance to, or investment in, any
Person (other than advances in the ordinary course of business and to
wholly-owned subsidiaries), (d) any guaranty or other contingent liability with
respect to any indebtedness or obligation of any Person (other than guaranties
undertaken in the ordinary course of business and other than the endorsement of
negotiable instruments for collection in the ordinary course of business), or
(e) any agreement, contract or commitment limiting in any respect its ability to
compete with any Person or otherwise conduct business of any line or nature.
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4.14 TAXES.
(a) Each of the Lima Companies and any affiliated, combined or unitary
group of which any such corporation is or was a member has (i) timely filed
all material Tax Returns required to be filed by it with respect to any
Taxes, and each such Tax Return was true, correct and complete in all
material respects, (ii) timely paid all material Taxes that are due and
payable (except for Taxes that are being contested in good faith by
appropriate proceedings and for which sufficient reserves have been
established in accordance with GAAP) for which any of the Lima Companies may
be liable, and (iii) complied in all material respects with all applicable
laws, rules and regulations relating to the payment and withholding of
Taxes, and has timely withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and
paid over.
(b) No audits or other administrative or court proceedings are presently
pending with regard to any Taxes for which any of the Lima Companies would
be liable. There are no pending requests for rulings from any taxing
authority, no outstanding subpoenas or requests for information by any
taxing authority with respect to any Taxes, no proposed reassessments by any
taxing authority of any property owned or leased, and no agreements in
effect to extend the time to file any material Tax Return or the period of
limitations for the assessment or collection of any material Taxes for which
any of the Lima Companies would be liable.
(c) No Lima Company has entered into any compensatory agreements which
would result in a nondeductible expense pursuant to Section 280G or 162(m)
of the Code.
(d) Except as set forth in the Lima SEC Documents, none of the Lima
Companies is a party to, is bound by or has any obligation under any tax
sharing or allocation agreement or similar agreement or arrangement.
4.15 EMPLOYEE BENEFIT PLANS.
(a) Section 4.15 to the Lima Disclosure Schedule includes a list of all
material "employee benefit plans," as defined in Section 3(3) of ERISA, and
all other material severance, termination, change in control, sick leave,
vacation pay, salary continuation for disability, consulting, employment,
compensation, retirement, deferred compensation, bonus, long-term incentive,
stock option, stock purchase, hospitalization, medical insurance, life
insurance and scholarship programs, plans, arrangements or agreements
maintained by any of the Lima Companies or to which any of the Lima
Companies contributes or is obligated to contribute for the benefit of any
current or former employee, consultant or director of any of the Lima
Companies, or with respect to which any of the Lima Companies would incur
material liability under Section 4069, 4212(c) or 4204 of ERISA (the "Lima
Employee Benefit Plans").
(b) There is no violation of ERISA with respect to the filing of
applicable reports, documents and notices regarding any Lima Employee
Benefit Plan with any Governmental Authority or the furnishing of such
documents to the participants or beneficiaries of the Lima Employee Benefit
Plans that is reasonably likely to have a Material Adverse Effect on the
Lima Companies. With respect to the Lima Employee Benefit Plans, there
exists no condition or set of circumstances in connection with the Lima
Companies that could be expected to result in liability reasonably likely to
have a Material Adverse Effect on the Lima Companies under ERISA, the Code
or any applicable law. With respect to the Lima Employee Benefit Plans,
individually and in the aggregate, there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with GAAP, on the financial statements of the Lima
Companies, which obligations are reasonably likely to have a Material
Adverse Effect on the Lima Companies.
(c) The Lima Employee Benefit Plans have been maintained in accordance
with their terms and in accordance with all applicable federal and state
laws, and none of the Lima Companies has engaged in any "prohibited
transaction" within the meaning of Section 4975 of the Code, except where
the
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violation of any such term or law or the occurrence of a prohibited
transaction would not be reasonably likely to have a Material Adverse Effect
on the Lima Companies.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in any
payment becoming due to any employee or group of employees of any of the
Lima Companies.
4.16 ENVIRONMENTAL MATTERS. Except for any event, circumstance or
condition that would not have a Material Adverse Effect:
(a) Each of the Lima Companies has conducted its business and operated
its assets, and is conducting its business and operating its assets, in
material compliance with all Environmental Laws;
(b) None of the Lima Companies has been notified by any Governmental
Authority or other third party that any of the operations or assets of any
of the Lima Companies is the subject of any investigation or inquiry by any
Governmental Authority or other third party evaluating whether any material
remedial action is needed to respond to a release or threatened release of
any Hazardous Material or to the improper storage or disposal (including
storage or disposal at offsite locations) of any Hazardous Material;
(c) None of the Lima Companies and no other Person has filed any notice
under any federal, state or local law indicating that (i) any of the Lima
Companies is responsible for the improper release into the environment, or
the improper storage or disposal, of any Hazardous Material, or (ii) any
Hazardous Material is improperly stored or disposed of upon any property of
any of the Lima Companies;
(d) None of the Lima Companies has any material contingent liability in
connection with (i) the release or threatened release into the environment
at, beneath or on any property now or previously owned or leased by any of
the Lima Companies, or (ii) the storage or disposal of any Hazardous
Material;
(e) None of the Lima Companies has received any claim, complaint,
notice, inquiry or request for information involving any matter which
remains unresolved as of the date hereof with respect to any alleged
violation of any Environmental Law or regarding potential liability under
any Environmental Law relating to operations or conditions of any facilities
or property (including off-site storage or disposal of any Hazardous
Material from such facilities or property) currently or formerly owned,
leased or operated by any of the Lima Companies;
(f) There are no sites, locations or operations at which any of the Lima
Companies is currently undertaking, or has completed, any remedial or
response action relating to any such disposal or release, as required by
Environmental Laws; and
(g) All underground storage tanks and solid waste disposal facilities
owned or operated by the Lima Companies are used and operated in material
compliance with Environmental Laws.
4.17 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement and
has not engaged in any business or activity (or conducted any operations) of any
kind, entered into any agreement or arrangement with any person or entity, or
incurred, directly or indirectly, any material liabilities or obligations,
except in connection with its incorporation, the negotiation of this Agreement,
the Merger and the transactions contemplated hereby.
4.18 BROKERS. Other than Salomon Brothers Inc., no broker, finder,
investment banker or other Person is or will be, in connection with the
transactions contemplated by this Agreement, entitled to any brokerage, finder's
or other fee or compensation based on any arrangement or agreement made by or on
behalf of Lima or Merger Sub and for which Alpha, Lima or any of the Alpha
Companies or Lima
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Companies, including Merger Sub, will have any obligation or liability. A copy
of any agreement between Lima and Salomon Brothers Inc. relating to this
Agreement or the Merger has been provided to Alpha.
4.19 OPINION OF FINANCIAL ADVISOR. The Board of Directors of Lima has
received the opinion dated as of the date hereof of Salomon Brothers Inc.
addressed to such Board (a copy of which has been provided to Alpha for
information purposes only) that, as of such date, the consideration to be paid
in the Merger is fair from a financial point of view to Lima.
4.20 CERTAIN LIMA GAS CONTRACTS. Lima has provided or made available to
Alpha complete and accurate copies of each of the Lima gas contracts listed in
Section 4.20 of the Lima Disclosure Schedule as in effect on the date of this
Agreement.
4.21 AFFILIATE TRANSACTIONS. Other than as disclosed in the Lima SEC
Documents, there are no transactions between Lima and any of its Affiliates
(other than directly or indirectly wholly-owned subsidiaries of Lima) pending or
proposed, except such transactions as are in the ordinary course of business
consistent with past practices and that would not be in violation of the
restrictions upon transactions with Affiliates set forth in Section 5.1(i)
below.
ARTICLE V
COVENANTS
5.1 CONDUCT OF BUSINESS PENDING CLOSING. Prior to the Effective Time (i)
Alpha agrees as to the Alpha Companies that (except as expressly contemplated or
permitted by this Agreement, or to the extent that Lima shall otherwise consent
in writing) and (ii) Lima agrees as to the Lima Companies that (except as
expressly contemplated or permitted by this Agreement, or to the extent that
Alpha shall otherwise consent in writing) (for purposes of this Section 5.1
Alpha and Lima each being a "Party"):
(a) ORDINARY COURSE. Each Party and its respective subsidiaries shall
carry on its businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall use all
commercially reasonable efforts to preserve intact its present business
organizations, keep available the services of its current officers and
employees, and endeavor to preserve its relationships with customers,
suppliers and others having business dealings with it.
(b) DIVIDENDS; CHANGES IN STOCK. Except for transactions solely among
a Party and its subsidiaries, a Party shall not and it shall not permit any
of its respective subsidiaries to: (i) declare or pay any dividends on or
make other distributions in respect of any of its capital stock or
partnership interests, except in the case of Alpha, for the declaration and
payment of regular cash dividends with respect to the Alpha Preferred Stock
in accordance with its terms; (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
Party's capital stock; or (iii) repurchase, redeem or otherwise acquire, or
permit any of its subsidiaries to purchase, redeem or otherwise acquire, any
shares of its capital stock, except as required by the terms of its
securities outstanding on the date hereof or as contemplated by any existing
employee benefit plan.
(c) ISSUANCE OF SECURITIES. A Party shall not and it shall not permit
any of its subsidiaries to, issue, deliver or sell, or authorize or propose
to issue, deliver or sell, any shares of its capital stock of any class, or
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, other voting securities or
convertible securities, other than: (i) in the case of Alpha, (x) the
issuance of Alpha Common Stock upon the exercise of Alpha Warrants or Alpha
Stock Options that are outstanding on the date hereof, (y) issuances by a
wholly owned subsidiary of Alpha of such subsidiary's capital stock to its
parent, and (z) the issuance of Alpha Common Stock upon the conversion of
the Alpha Preferred Stock in accordance with its terms; and (ii) in the case
of Lima (y) the issuance of Lima Common Stock upon the exercise of stock
options granted under the
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Lima Stock Option Plan that are outstanding on the date hereof, and (z)
issuances by a wholly owned subsidiary of Lima of such subsidiary's capital
stock to its parent.
(d) GOVERNING DOCUMENTS. Except as contemplated hereby or in
connection herewith, no Party shall amend its certificate or articles of
incorporation or bylaws.
(e) NO ACQUISITIONS. A Party shall not, and it shall not permit any of
its subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or any of the assets of, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, other than (i) in the
case of Alpha, any such acquisition or acquisitions having a purchase price
not exceeding $1,000,000 in the aggregate; and (ii) in the case of Lima, any
such acquisition or acquisitions having a purchase price not exceeding
$3,000,000 in the aggregate.
(f) NO DISPOSITIONS. Other than: (i) as may be necessary or required
by law to consummate the transactions contemplated hereby or (ii) sales,
leases, encumbrances or other dispositions in the ordinary course of
business consistent with past practice that are not material, individually
or in the aggregate, to a Party and its subsidiaries taken as a whole, a
Party shall not, and it shall not permit any of its subsidiaries to, sell,
lease, encumber or otherwise dispose of, or agree to sell, lease (whether
such lease is an operating or capital lease), encumber or otherwise dispose
of, any of its material assets.
(g) NO DISSOLUTION, ETC. Except as otherwise permitted or contemplated
by this Agreement, neither Party shall authorize, recommend, propose or
announce an intention to adopt a plan of complete or partial liquidation or
dissolution of such Party or any of its subsidiaries, except that either
Party may merge any of its subsidiaries into itself or another directly or
indirectly wholly-owned subsidiary.
(h) ACCOUNTING. Neither Party shall, nor shall either Party permit any
of its subsidiaries to, make any changes in their accounting methods which
would be required to be disclosed under the rules and regulations of the
SEC, except as required by law, rule, regulation or GAAP.
(i) AFFILIATE TRANSACTIONS. Neither Party shall, nor shall either
Party permit any of its subsidiaries to, enter into any agreement or
arrangement with any of their respective Affiliates other than with wholly
owned subsidiaries of such Party, on terms less favorable to such Party or
such subsidiary, as the case may be, than could be reasonably expected to
have been obtained with an unaffiliated third party on an arm's-length
basis.
(j) CERTAIN EMPLOYEE MATTERS. Except as otherwise required by law, a
Party shall not and it shall not permit any of its subsidiaries to: (i) pay
any bonuses to (whether in cash or property), or grant any increases in the
compensation of, any of its directors, officers or employees, except
increases in salary to employees who are not directors or officers made in
the ordinary course of business and in accordance with past practice; (ii)
pay or agree to pay any material pension, retirement allowance or other
employee benefit not required or contemplated by any of the existing Alpha
Employee Benefit Plans or Lima Employee Benefit Plans as applicable, in each
case as in effect on the date hereof to any such director, officer or
employee, whether past or present; (iii) enter into any new, or amend any
existing, material employment or severance or termination agreement with any
director, officer or employee; (iv) grant any options or other awards under
the Alpha Stock Compensation Plans or Lima Stock Option Plan, as applicable,
or any other equity or incentive plan of Alpha or Lima; or (v) become
obligated under any new Alpha Employee Benefit Plan, or any new Lima
Employee Benefit Plan which was not in existence prior to the date hereof,
or amend any such plan or arrangement in existence on the date hereof if
such amendment would have the effect of materially enhancing any benefits
thereunder.
(k) INDEBTEDNESS; LEASES; CAPITAL EXPENDITURES. No Party shall, nor
shall any Party permit any of its subsidiaries to, (i) incur any
indebtedness for borrowed money (except (x) to finance any
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transactions or capital or other expenditures permitted by this Agreement
and regular borrowings under credit facilities made in the ordinary course
of such Party's business, (y) refinancings of existing debt and (z)
immaterial borrowings that, in each such case, permit prepayment of such
debt without penalty (other than LIBOR breakage costs)) or guarantee any
such indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of such Party or any of its subsidiaries or
guarantee any debt securities of others (other than directly or indirectly
wholly-owned subsidiaries), (ii) except in the ordinary course of business,
enter into any material lease (whether such lease is an operating or capital
lease) or create any material mortgages, liens, security interests or other
encumbrances on the property of such Party or any of its subsidiaries in
connection with any indebtedness thereof, or (iii) make or commit to make
aggregate capital expenditures not described in the Alpha SEC Documents or
Lima SEC Documents in excess, in the case of each of Alpha and Lima, of an
amount equal to the sum of (A) capital expenditures budgeted by such Party
for the fiscal year ending December 31, 1997 as set forth in the capital
expenditure budgets delivered to the other Party, less any budgeted capital
expenditures expended prior to the date of this Agreement, plus (B) capital
expenditures (not otherwise included in budgeted capital expenditures) that
may be incurred in connection with the acquisitions by Alpha and Lima, as
applicable, permitted under Section 5.1(e). Each Party shall consult with
the other in advance prior to actually committing to make budgeted capital
expenditures relating to a single project or field not specifically
identified in the budget in excess of $1,000,000 for Alpha or in excess of
$3,000,000 for Lima.
(l) MATERIAL AGREEMENTS. No Party shall, nor shall any Party permit
any of its subsidiaries to, (i) enter into any new Alpha Material Agreement
or Lima Material Agreement, as applicable, not contemplated by the budgeted
capital expenditures described in Section 5.1(k) or (ii) amend, modify or
alter any existing Alpha Material Agreement or Lima Material Agreement, as
applicable, in a manner materially adverse to Alpha or Lima, as applicable.
(m) AGREEMENTS. No Party shall, nor shall any Party permit any of its
subsidiaries to, agree in writing or otherwise to take any action
inconsistent with any of the foregoing.
5.2 ACCESS TO ASSETS, PERSONNEL AND INFORMATION.
(a) From the date hereof until the Effective Time, Alpha shall afford to
Lima and the Lima Representatives, at Lima's sole risk and expense,
reasonable access to any of the assets, books and records, contracts,
employees, representatives, agents and facilities of the Alpha Companies and
shall, upon request, furnish promptly to Lima (at Lima's expense) a copy of
any file, book, record, contract, permit, correspondence, or other written
information, document or data concerning any of the Alpha Companies (or any
of their respective assets) that is within the possession or control of
Alpha.
(b) From the date hereof until the Effective Time, Lima shall afford to
Alpha and the Alpha Representatives, at Alpha's sole risk and expense,
reasonable access to any of the assets, books and records, contracts,
employees, representatives, agents and facilities of the Lima Companies and
shall, upon request, furnish promptly to Alpha (at Alpha's expense) a copy
of any file, book, record, contract, permit, correspondence, or other
written information, document or data concerning any of the Lima Companies
(or any of their respective assets) that is within the possession or control
of Lima.
(c) From the date hereof until the Effective Time, Alpha will fully and
accurately disclose, and will cause each of the other Alpha Companies to
fully and accurately disclose, to Lima and the Lima Representatives all
information that is (i) reasonably requested by Lima or any of the Lima
Representatives, (ii) known to any of the Alpha Companies, and (iii)
relevant in any material manner or degree to the value, ownership, use,
operation, development or transferability of the assets of any of the Alpha
Companies.
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(d) From the date hereof until the Effective Time, Lima will fully and
accurately disclose to Alpha and the Alpha Representatives all information
that is (i) reasonably requested by Alpha or any of the Alpha
Representatives, (ii) known to any of the Lima Companies, and (iii) relevant
in any manner or degree to the value, ownership, use, operation, development
or transferability of the assets of any of the Lima Companies.
(e) From the date hereof until the Effective Time, each of Lima and
Alpha shall (i) furnish to the other, promptly upon receipt or filing (as
the case may be), a copy of each communication between such party and the
SEC after the date hereof relating to the Merger or the Registration
Statement and each report, schedule, registration statement or other
document filed by such party with the SEC after the date hereof relating to
the Merger, and (ii) promptly advise the other of the substance of any oral
communications between such party and the SEC relating to the Merger or the
Registration Statement.
(f) Alpha will (and will cause each of the other Alpha Companies and the
Alpha Representatives to) fully cooperate in all reasonable respects with
Lima and the Lima Representatives in connection with Lima's examinations,
evaluations and investigations described in this Section 5.2, and Lima will
(and will cause the Lima Representatives to) fully cooperate in all
reasonable respects with Alpha and the Alpha Representatives in connection
with Alpha's examinations, evaluations and investigations described in this
Section 5.2.
(g) Alpha agrees that it will not (and will cause the Alpha
Representatives not to), and Lima agrees that it will not (and will cause
the Lima Representatives not to), use any information obtained pursuant to
this Section 5.2 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement.
(h) Notwithstanding anything in this Section 5.2 to the contrary, (i)
Alpha shall not be obligated under the terms of this Section 5.2 to disclose
to Lima or the Lima Representatives, or grant Lima or the Lima
Representatives access to, information that is within Alpha's possession or
control but subject to a valid and binding confidentiality agreement with a
third party without first obtaining the consent of such third party, and
Alpha, to the extent reasonably requested by Lima, will use its reasonable
best efforts to obtain any such consent; and (ii) Lima shall not be
obligated under the terms of this Section 5.2 to disclose to Alpha or the
Alpha Representatives, or grant Alpha or the Alpha Representatives access
to, information that is within Lima's possession or control but subject to a
valid and binding confidentiality agreement with a third party without first
obtaining the consent of such third party, and Lima, to the extent
reasonably requested by Alpha, will use its reasonable best efforts to
obtain any such consent.
5.3 NO SOLICITATION BY ALPHA.
(a) Immediately following the execution of this Agreement, Alpha will
(and will use its reasonable best efforts to cause each of the Alpha
Representatives to) terminate any and all existing activities, discussions
and negotiations with third parties with respect to any possible transaction
involving any proposal to acquire all or any part of the Alpha Common Stock,
Alpha Preferred Stock or all or any material portion of the assets, business
or equity interest of Alpha (other than the transactions contemplated by
this Agreement), whether by merger, purchase of assets, tender offer,
exchange offer or otherwise.
(b) Alpha will not (and will use its reasonable best efforts to cause
the Alpha Representatives not to), directly or indirectly (i) solicit,
initiate or knowingly encourage the submission of any offer or proposal to
acquire all or more than fifteen (15) percent of the Alpha Common Stock,
Alpha Preferred Stock or all or any material portion of the assets, business
or equity interest of Alpha (other than the transactions contemplated by
this Agreement), whether by merger, purchase of assets, tender
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offer, exchange offer or otherwise (a "Competing Proposal"); (ii) engage in
negotiations or discussions concerning or provide any non-public information
to any Person relating to a Competing Proposal; or (iii) agree to, approve
or recommend, or otherwise facilitate any effort or attempt to make or
implement, any Competing Proposal, or withdraw its recommendation of the
Merger, provided, however, that (i) Alpha's Board of Directors may take and
disclose to the stockholders of Alpha a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act with regard to the Competing
Proposal and (ii) following receipt from a third party (without any
solicitation, initiation or encouragement, directly or indirectly, by Alpha
or any Alpha Representatives) of a bona fide written Competing Proposal, (x)
Alpha may engage in discussions or negotiations with such third party and
may furnish such third party non-public information concerning it, and its
business, properties and assets if such third party executes a
confidentiality agreement in reasonably customary form and on terms,
including so called "standstill" provisions, at least as restrictive as
those contained in the Confidentiality Agreement and (y) the Board of
Directors of Alpha may recommend such Competing Proposal or withdraw, modify
or not make its recommendation referred to in Section 5.4, if and only to
the extent that (1) Alpha's Board of Directors determines in good faith
based on advice of Alpha's financial advisor that such Competing Proposal,
if consummated, would result in a transaction more favorable to Alpha's
stockholders from a financial point of view than the transaction
contemplated by this Agreement (a "Superior Proposal") and that the Person
making such Superior Proposal has the financial means, or the ability to
obtain the necessary financing, to conclude such transaction; and (2)
Alpha's Board of Directors determines in good faith based on the advice of
Alpha's outside counsel that such action is necessary in order for Alpha's
Board of Directors to act in a manner that is consistent with its fiduciary
obligations under applicable law.
(c) Alpha shall promptly notify Lima after receipt by Alpha or the Alpha
Representatives of any Competing Proposal, any inquiries indicating that any
person is considering making or wishes to make a Competing Proposal or any
requests for nonpublic information.
(d) Nothing in this Section 5.3 shall permit Alpha to terminate this
Agreement except as specifically provided in Section 7.1.
5.4 ALPHA STOCKHOLDERS MEETING. Alpha shall take all action necessary in
accordance with applicable law and its certificate of incorporation and by-laws
to convene a meeting of its stockholders as promptly as practicable after the
date hereof for the purpose of voting on this Agreement and the Merger. The
Board of Directors of Alpha shall recommend approval of this Agreement and the
Merger (unless Alpha's Board of Directors determines in good faith based on the
advice of Alpha's outside counsel that such action is inconsistent with its
fiduciary obligations under applicable law, subject, however, to the provisions
of Article VII hereof) and shall take all lawful action to solicit such
approval, including timely mailing the Proxy Statement/Prospectus to the
stockholders of Alpha. Notwithstanding the above, however, the mailing of the
Proxy Statement/Prospectus shall be subject to the condition that Alpha shall
have received an opinion (reasonably acceptable in form and substance to Alpha)
from Shearman & Sterling (or such other firm as is reasonably acceptable to
Alpha) to the effect that (i) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
(ii) each of Lima, Alpha and Merger Sub will be a party to such reorganization
within the meaning of Section 368(b) of the Code, (iii) no gain or loss will be
recognized by Lima, Alpha or Merger Sub as a result of the Merger, and (iv) no
gain or loss, except with respect to the amount of Cash Consideration received
(and cash received in lieu of fractional shares), will be recognized by a
stockholder of Alpha as a result of the Merger with respect to the shares of
Alpha Common Stock converted into shares of Lima Common Stock or the shares of
Alpha Preferred Stock converted into shares of Lima Preferred Stock, and such
opinion shall not have been withdrawn, revoked or modified. Such opinion may be
based upon representations of the parties and shareholders of the parties.
5.5 LIMA STOCKHOLDERS MEETING. Lima shall take all action necessary in
accordance with applicable law and its certificate of incorporation and bylaws
to convene a meeting of its stockholders as promptly as
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practicable after the date hereof for the purpose of voting on this Agreement
and the Merger. The Board of Directors of Lima shall recommend approval of this
Agreement and the Merger and shall take all lawful action to solicit such
approval, including timely mailing the Proxy Statement/Prospectus to the
stockholders of Lima. Notwithstanding the above, however, the mailing of the
Proxy Statement/ Prospectus shall be subject to the condition that Lima shall
have received an opinion of the type described in Section 5.4 from counsel as is
reasonably acceptable to Lima and such opinion shall not have been withdrawn,
revoked or modified.
5.6 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS.
(a) Lima and Alpha shall cooperate and promptly prepare the Registration
Statement, Lima and Alpha shall file the Proxy Statement/Prospectus as soon
as practicable after the date hereof and Lima shall file the Registration
Statement with the SEC as soon as practicable thereafter. Lima shall use its
best efforts, and Alpha shall cooperate with Lima (including furnishing all
information concerning Alpha and the holders of Alpha Common Stock as may be
reasonably requested by Lima), to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such
filing. Lima shall use its best efforts, and Alpha shall cooperate with
Lima, to obtain all necessary state securities laws or "blue sky" permits,
approvals and registrations in connection with the issuance of Lima Common
Stock pursuant to the Merger.
(b) Lima and Alpha will cause the Registration Statement (including the
Proxy Statement/ Prospectus), at the time it becomes effective under the
Securities Act, to comply as to form in all material respects with the
applicable provisions of the Securities Act, the Exchange Act and the rules
and regulations of the SEC thereunder.
(c) Alpha hereby covenants and agrees with Lima that (i) the
Registration Statement (at the time it becomes effective under the
Securities Act and at the Effective Time) will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(provided, however, that this clause (i) shall apply only to information
contained in the Registration Statement that was supplied by Alpha
specifically for inclusion therein); and (ii) the Proxy Statement/Prospectus
(at the time it is first mailed to stockholders of Alpha and Lima, at the
time of the Alpha Meeting and the Lima Meeting, and at the Effective Time)
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading (provided, however, that this clause (ii) shall not
apply to any information contained in the Proxy Statement/ Prospectus that
was supplied by Lima specifically for inclusion therein). If, at any time
prior to the Effective Time, any event with respect to Alpha, or with
respect to other information supplied by Alpha specifically for inclusion in
the Registration Statement, occurs and such event is required to be
described in an amendment to the Registration Statement, Alpha shall
promptly notify Lima of such occurrence and shall cooperate with Lima in the
preparation and filing of such amendment. If, at any time prior to the
Effective Time, any event with respect to Alpha, or with respect to other
information included in the Proxy Statement/ Prospectus, occurs and such
event is required to be described in a supplement to the Proxy Statement/
Prospectus, such event shall be so described and such supplement shall be
promptly prepared, filed and disseminated.
(d) Lima hereby covenants and agrees with Alpha that (i) the
Registration Statement (at the time it becomes effective under the
Securities Act and at the Effective Time) will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(provided, however, that this clause (i) shall not apply to any information
contained in the Registration Statement that was supplied by Alpha
specifically for inclusion therein); and (ii) the Proxy Statement/Prospectus
(at the time it is first mailed to stockholders of Alpha and Lima, at the
time of the Alpha Meeting and the Lima Meeting, and at
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the Effective Time) will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading (provided, however, that this clause
(ii) shall apply only to information contained in the Proxy Statement/
Prospectus that was supplied by Lima specifically for inclusion therein).
If, at any time prior to the Effective Time, any event with respect to Lima,
or with respect to other information included in the Registration Statement,
occurs and such event is required to be described in an amendment to the
Registration Statement, such event shall be so described and such amendment
shall be promptly prepared and filed. If, at any time prior to the Effective
Time, any event with respect to Lima, or with respect to other information
supplied by Lima specifically for inclusion in the Proxy
Statement/Prospectus, occurs and such event is required to be described in a
supplement to the Proxy Statement/Prospectus, Lima shall promptly notify
Alpha of such occurrence and shall cooperate with Alpha in the preparation,
filing and dissemination of such supplement.
(e) Neither the Registration Statement nor the Proxy
Statement/Prospectus nor any amendment or supplement thereto will be filed
or disseminated to the stockholders of Alpha or Lima without the approval of
both Lima and Alpha. Lima shall advise Alpha, promptly after it receives
notice thereof, of the time when the Registration Statement has become
effective under the Securities Act, the issuance of any stop order with
respect to the Registration Statement, the suspension of the qualification
of the Lima Common Stock issuable in connection with the Merger for offering
or sale in any jurisdiction, or any comments or requests for additional
information by the SEC with respect to the Registration Statement.
5.7 STOCK EXCHANGE LISTING. Lima shall cause the shares of Lima Common
Stock to be issued in the Merger, the shares of Lima Common Stock issuable upon
conversion of the Lima Preferred Stock to be issued in the Merger, the shares of
Lima Common Stock issuable upon exercise of the Alpha Warrants assumed by Lima
in connection with the Merger, and the Lima Preferred Stock and/or Lima
Depositary Shares, as applicable, to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
5.8 ADDITIONAL ARRANGEMENTS. Subject to the terms and conditions herein
provided, each of Alpha and Lima shall take, or cause to be taken, all action
and shall do, or cause to be done, all things necessary, appropriate or
desirable under the HSR Act and any other applicable laws and regulations or
under applicable governing agreements to consummate and make effective the
transactions contemplated by this Agreement, including using its best efforts to
obtain all necessary waivers, consents and approvals and effecting all necessary
registrations and filings. Each of Alpha and Lima shall take, or cause to be
taken, all action or shall do, or cause to be done, all things necessary,
appropriate or desirable to cause the covenants and conditions applicable to the
transactions contemplated hereby to be performed or satisfied as soon as
practicable. In addition, if any Governmental Authority shall have issued any
order, decree, ruling or injunction, or taken any other action that would have
the effect of restraining, enjoining or otherwise prohibiting or preventing the
consummation of the transactions contemplated hereby, each of Alpha and Lima
shall use its reasonable efforts to have such order, decree, ruling or
injunction or other action declared ineffective as soon as practicable.
5.9 AGREEMENTS OF AFFILIATES. At least 30 days prior to the Effective
Time, Alpha shall cause to be prepared and delivered to Lima a list identifying
all Persons who, at the time of the Alpha Meeting, may be deemed to be
"affiliates" of Alpha as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act. Alpha shall use its best efforts to cause each Person
who is identified as an affiliate of Alpha in such list to execute and deliver
to Lima, on or prior to the Closing Date, a written agreement, in the form
attached hereto as EXHIBIT "5.9" (if such Person has not executed and delivered
an agreement substantially to the same effect contemporaneously with the
execution of this Agreement). Lima shall be entitled to place legends as
specified in such agreements on the Lima Certificates representing any Lima
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Common Stock or Lima Preferred Stock (or Depositary Shares with respect thereto)
to be issued to such Persons in the Merger.
5.10 PUBLIC ANNOUNCEMENTS. Prior to the Closing, Alpha and Lima will
consult with each other before issuing any press release or otherwise making any
public statements with respect to the transactions contemplated by this
Agreement and shall not issue any press release or make any such public
statement prior to obtaining the approval of the other party; provided, however,
that such approval shall not be required where such release or announcement is
required by applicable law or the rules of the NYSE; and provided further, that
either Alpha or Lima may respond to inquiries by the press or others regarding
the transactions contemplated by this Agreement, so long as such responses are
consistent with such party's previously issued press releases.
5.11 NOTIFICATION OF CERTAIN MATTERS. Alpha shall give prompt notice to
Lima of (a) any representation or warranty contained in Article III being untrue
or inaccurate when made, (b) the occurrence of any event or development that
would cause (or could reasonably be expected to cause) any representation or
warranty contained in Article III to be untrue or inaccurate on the Closing
Date, or (c) any failure of Alpha to comply with or satisfy any covenant,
condition, or agreement to be complied with or satisfied by it hereunder. Lima
shall give prompt notice to Alpha of (x) any representation or warranty
contained in Article IV being untrue or inaccurate when made, (y) the occurrence
of any event or development that would cause (or could reasonably be expected to
cause) any representation or warranty contained in Article IV to be untrue or
inaccurate on the Closing Date, or (z) any failure of Lima to comply with or
satisfy any covenant, condition, or agreement to be complied with or satisfied
by it hereunder.
5.12 PAYMENT OF EXPENSES. Except as otherwise provided in Section 7.3,
each party hereto shall pay its own expenses incident to preparing for, entering
into and carrying out this Agreement and the consummation of the transactions
contemplated hereby, whether or not the Merger shall be consummated, except that
(a) the fee for filing the Registration Statement with the SEC shall be borne by
Lima; (b) the costs and expenses associated with printing the Proxy
Statement/Prospectus shall be borne equally by Lima and Alpha; and (c) the costs
and expenses associated with mailing the Proxy Statement/Prospectus to the
stockholders of (i) Alpha, and soliciting the votes of the stockholders of
Alpha, shall be borne by Alpha, and (ii) Lima, and soliciting the votes of the
stockholders of Lima, shall be borne by Lima.
5.13 INDEMNIFICATION.
(a) For a period of six (6) years after the Effective Time, Lima and the
Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former
director or officer of the Alpha Companies and each such person who served
at the request of Alpha or any Alpha Company as a director, officer,
trustee, partner, fiduciary, employee or agent of Alpha or of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or enterprise against all costs and expenses (including
reasonable attorneys fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after
the Effective Time), whether civil, administrative or investigative, arising
out of or pertaining to any action or omission in their capacity as an
officer, director, employee, agent or other person to whom this section
applies, in each case occurring before the Effective Time, including the
transactions contemplated by this Agreement; provided, however, that neither
Lima nor the Surviving Corporation shall be liable for any amounts in
connection with any settlement effected by any indemnified party without
Lima's prior written consent (which consent shall not be unreasonably
withheld). Without limiting the foregoing, in the event of any such claim,
action, suit, proceeding or investigation, Lima or the Surviving Corporation
shall pay the fees and expenses of counsel selected by any such indemnified
party, which counsel shall be reasonably satisfactory to Lima and the
Surviving Corporation, as the case may be, promptly after statements
therefor are received (unless Lima or the Surviving Corporation shall elect
to defend such action). If Lima or the Surviving Corporation shall elect to
defend any
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such action, Lima and the Surviving Corporation shall have the right to
control the investigation, defense and/or settlement of each such action or
matter, at its cost and expense, including use of counsel of its choice
reasonably satisfactory to the indemnified party; provided, however, that
Lima and the Surviving Corporation will consult with the indemnified party
and take the views of the indemnified party into consideration in effecting
or rejecting any settlement; provided, further, that if both Lima or the
Surviving Corporation and any indemnified party are parties to any
litigation, such indemnified party shall be entitled to retain separate
counsel if there are actual or potential conflicts of interest between such
indemnified party and Lima or the Surviving Corporation, as the case may be;
provided, further, that neither Lima nor the Surviving Corporation shall
enter into any settlement of any action or matter, except for any action
relating solely to money damages that includes a complete and unconditional
release of such indemnified party, without the prior written consent of such
indemnified party which consent shall not be unreasonably withheld. Lima and
the Surviving Corporation and any indemnified party shall cooperate with
each other in connection with the investigation and defense of any action or
matter for which indemnification is provided under this Section 5.13(a).
(b) From and after the Effective Time, Lima and the Surviving
Corporation shall continue and guarantee the continuation of the rights to
indemnification, including provisions relating to advances of expenses
incurred in defense of any action or suit, and exculpation from liability
existing in favor of the parties so indemnified in the Certificate of
Incorporation and Bylaws of Alpha as in effect on the date of this Agreement
with respect to matters occurring through the Effective Time for a period of
six (6) years from the Effective Time.
(c) In the event Lima or the Surviving Corporation or any of their
respective successor or assigns (i) consolidates with or merges with or into
any other person and shall not be the continuing or surviving corporation or
entity in such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then, in each
case proper provision shall be made so that the successors and assigns of
Lima or the Surviving Corporation, as the case may be, honor the
indemnification obligations set forth in this Section 5.13.
(d) The obligations of Lima and the Surviving Corporation under this
Section 5.13 shall not be terminated or modified in such manner as to
adversely affect any indemnified party without the consent of the affected
indemnified party (it being expressly agreed that each such indemnified
party shall be a third party beneficiary of this Section 5.13).
5.14 ALPHA EMPLOYEES.
(a) As soon as reasonably practicable after the Effective Time, Lima
shall provide employee benefit plans and arrangements to active employees of
the Alpha Companies that are the same as, or substantially the equivalent
of, the employee benefit plans and arrangements of the Lima Companies as in
effect immediately prior to the Effective Time or as may be modified or
terminated from time to time thereafter by Lima. Pending such action, Lima
shall, or shall cause the Surviving Corporation to, maintain the
effectiveness of the Alpha Benefit Plans. From and after the Effective Time,
Lima shall also honor, and shall cause the Alpha Companies to honor, in
accordance with their terms, all employment and severance agreements and
arrangements which apply to employees of the Alpha Companies as disclosed in
the Alpha Disclosure Schedule. Lima further agrees that the employees of the
Alpha Companies shall be credited for their actual and credited service with
the Alpha Companies for purposes of eligibility, vesting and benefit accrual
(except in the case of a defined benefit pension plan) in the employee plans
provided by Lima. Such employees' benefits under Lima's medical benefit plan
shall not be subject to any exclusions for any pre-existing conditions, and
credit shall be received for any deductibles or out-of-pocket amounts
previously paid.
(b) As soon as practicable after the Effective Time, the participants in
the Alpha annual incentive and bonus plans for 1997 will be paid a pro-rata
cash bonus through the Effective Time
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determined by the Board of Directors of Alpha, which bonuses shall not
exceed in any event a total of $750,000.
5.15 BOARD OF DIRECTORS OF LIMA FOLLOWING EFFECTIVE TIME. Lima and Alpha
shall take such action as may be necessary or advisable (including seeking
approval of such matters as may be necessary or advisable at the Lima Meeting
and including a solicitation of proxies for such matters in the Proxy Statement/
Prospectus) to ensure that, immediately after the Effective Time, the Board of
Directors of Lima shall consist of not more than eleven individuals, including
three individuals acceptable to Lima who shall be designated by Alpha, including
Mark Andrews (who shall be appointed as Vice Chairman of the Board of Directors
and shall serve on the Executive Committee of the Board of Directors of Lima),
and to cause such persons (or such substitute nominees as may be designated by
Mark Andrews and acceptable to Lima) to be nominated for reelection at the next
annual meeting of the stockholders of Lima, each to serve until his or her
respective successor shall be duly elected and shall qualify.
5.16 EMPLOYEE AGREEMENTS; CERTAIN PAYMENTS.
(a) Lima will enter into, and Alpha will use reasonable best efforts to
cause each of the employees of Alpha listed in Section 5.16(a) of the Alpha
Disclosure Schedule to enter into, agreements of employment or retention in
the forms attached to the Alpha Disclosure Schedule (the "Alpha Employee
Agreements").
(b) At the Effective Time, Alpha shall make the payments in amounts no
greater than set forth in Section 5.16(b) of the Alpha Disclosure Schedule
to the employees listed therein and, as a condition to receipt of any such
payment by any such employee, such employee must agree, in form satisfactory
to Lima, to waive any rights to any severance payments for any termination
of employment occurring within two years after the Effective Time, except as
may be otherwise specifically provided in any of the Alpha Employee
Agreements.
5.17 TAX-FREE REORGANIZATION. Subject to the terms and conditions hereof,
Alpha and Lima shall each use its best efforts to cause the Merger to be treated
as a reorganization within the meaning of Section 368(a) of the Code and to
obtain the opinions of counsel referred to in Sections 5.4 and 5.5 to such
effect.
5.18 ALPHA RIGHTS PLAN. Unless and until this Agreement is terminated in
accordance with its terms, Alpha shall maintain the Alpha Rights Agreement in
effect and shall not make any other amendments or modifications, except such
amendments or modifications that are contemplated by Section 3.19 and such other
amendments or modifications that (a) would not adversely affect this Agreement,
the Merger or the transactions contemplated hereby and (b) would not (1)
facilitate or permit the acquisition by any Person of 15% of the outstanding
Alpha Common Stock without such Person becoming an "Acquiring Person" pursuant
to the Alpha Rights Agreement or (2) otherwise modify or impair the operation of
the Alpha Rights Plan in a manner that would diminish the anti-takeover effects
thereof.
5.19 RESTRUCTURING OF REORGANIZATION. If, as a result of any facts
relating to Alpha, Lima or their respective shareholders, either of the opinions
required by Section 5.4 or 5.5 are not obtained or if either of the conditions
to closing in Section 6.2(d) or 6.3(c) are not either satisfied or waived by the
party entitled to waive such condition, Alpha and Lima shall use their
reasonable best efforts to restructure the transaction contemplated by this
Agreement pursuant to which (a) Lima will cause there to be organized a newly
created holding company corporation ("Newco") with a certificate of
incorporation and bylaws substantially equivalent to those of Lima as of the
date hereof; (b) the holders of Lima Common Stock will receive one share of
common stock ("Newco Common Stock") of Newco in exchange for each share of Lima
Common Stock as a result of a merger of a newly created subsidiary of Newco with
and into Lima; and (c) another newly created subsidiary of Newco will be merged
with and into Alpha and the terms of this Agreement shall apply to such merger
except that Newco Common Stock and Newco Preferred Stock shall be issued to
Alpha security holders in lieu of the Lima Common Stock and Lima Preferred Stock
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issuable hereunder and the Alpha Warrants shall be exercisable for shares of
Newco Common Stock instead of Lima Common Stock. In such event, this Agreement
shall be deemed to be appropriately modified to reflect such restructuring and
the parties hereto shall use their reasonable best efforts to effect such
restructured transaction. It shall be a condition to the obligations of Alpha
and Lima to close the Merger as provided in Sections 6.3(c) and 6.2(d),
respectively, that each party shall have received tax opinions in satisfactory
form and substance to the effect that the restructured transaction will be
treated for federal income tax purposes as a transaction to which Section 351
and/or Section 368(a) of the Code applies and will otherwise have the tax
attributes and effects described in Section 5.4(iii) and (iv) as to Alpha, Lima
and their respective stockholders.
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been duly and validly approved and adopted by the stockholders of Alpha and
Lima, all as required by the DGCL, the NYSE and the charter and bylaws of
Alpha and Lima.
(b) OTHER APPROVALS. Any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated and
all filings required to be made prior to the Effective Time with, and all
consents, approvals, permits and authorizations required to be obtained
prior to the Effective Time from, any Governmental Authority or other person
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Alpha, Lima and
Merger Sub shall have been made or obtained (as the case may be), except
where the failure to obtain such consents, approvals, permits and
authorizations would not result in a Material Adverse Effect on Lima
(assuming the Merger has taken place) or to materially adversely affect the
consummation of the Merger.
(c) SECURITIES LAW MATTERS. The Registration Statement shall have been
declared effective by the SEC under the Securities Act and shall be
effective at the Effective Time, and no stop order suspending such
effectiveness shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend such effectiveness shall have been
initiated and be continuing, and all necessary approvals under state
securities laws relating to the issuance or trading of the Lima Common Stock
to be issued in the Merger shall have been received.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction preventing the consummation of the Merger shall be in
effect; provided, however, that prior to invoking this condition, each party
shall have complied fully with its obligations under Section 5.8 and, in
addition, shall use all reasonable efforts to have any such decree, ruling,
injunction or order vacated, except as otherwise contemplated by this
Agreement.
(e) NYSE LISTING. The shares of Lima Common Stock and Lima Preferred
Stock and/or Lima Depositary Shares, as applicable, described in Section 5.7
shall have been authorized for listing on the NYSE, subject to official
notice of issuance.
6.2 CONDITIONS TO OBLIGATIONS OF LIMA AND MERGER SUB. The obligations of
Lima and Merger Sub to effect the Merger are subject to the satisfaction of the
following conditions, any or all of which may be waived in whole or in part by
Lima and Merger Sub:
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(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Alpha set forth in Article III shall be true and correct in all material
respects as of the Closing Date as though made on and as of that time other
than any breach that would not, either individually or in the aggregate,
have a Material Adverse Effect, and Lima shall have received a certificate
signed by the chief executive officer of Alpha to such effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY ALPHA. Alpha shall have
performed all covenants and agreements required to be performed by it under
this Agreement at or prior to the Closing Date other than any breach that
would not, either individually or in the aggregate, have a Material Adverse
Effect, and Lima shall have received a certificate signed by the chief
executive officer of Alpha to such effect.
(c) NO ADVERSE CHANGE. From the date of this Agreement through the
Closing, except as disclosed in the Alpha Disclosure Schedule, there shall
not have occurred any change in the condition (financial or otherwise),
operations or business of any of the Alpha Companies that would have or
would be reasonably likely to have a Material Adverse Effect on Alpha (other
than changes, including changes in commodity prices, generally affecting the
oil and gas industry or changes due to the announcement of the Merger).
(d) TAX OPINION. The tax opinion described in Section 5.5 shall have
been confirmed as of the Closing Date.
(e) DISSENTING STOCKHOLDERS. The holders of no more than fifteen (15)
percent of the outstanding Alpha Common Stock shall have exercised their
right to dissent from the Merger under the DGCL.
6.3 CONDITIONS TO OBLIGATION OF ALPHA. The obligation of Alpha to effect
the Merger is subject to the satisfaction of the following conditions, any or
all of which may be waived in whole or in part by Alpha:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Lima and Merger Sub set forth in Article IV shall be true and correct in
all material respects as of the Closing Date as though made on and as of
that time other than any breach that would not, either individually or in
the aggregate, have a Material Adverse Effect, and Alpha shall have received
a certificate signed by the chief executive officer of Lima to such effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY LIMA AND MERGER
SUB. Lima and Merger Sub shall have performed all covenants and agreements
required to be performed by them under this Agreement at or prior to the
Closing Date other than any breach that would not, either individually or in
the aggregate, have a Material Adverse Effect, and Alpha shall have received
a certificate signed by the chief executive officer of Lima to such effect.
(c) TAX OPINION. The tax opinion described in Section 5.4 shall have
been confirmed as of the Closing Date.
(d) NO ADVERSE CHANGE. From the date of this Agreement through the
Closing, there shall not have occurred any change in the condition
(financial or otherwise), operations or business of the Lima Companies that
would have or would be reasonably likely to have a Material Adverse Effect
on Lima (other than changes, including changes in commodity prices,
generally affecting the oil and gas industry or changes due to the
announcement of the Merger).
(e) ALPHA EMPLOYEE AGREEMENTS. Lima shall have entered into the Alpha
Employee Agreements with those applicable employees of Alpha who have also
agreed to enter into such respective Alpha Employee Agreements.
A-41
<PAGE>
ARTICLE VII
TERMINATION
7.1 TERMINATION RIGHTS. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after approval of this Agreement and the Merger by the stockholders of Alpha and
Lima:
(a) By mutual written consent of Lima and Alpha;
(b) By neither Alpha or Lima if (i) the Merger has not been consummated
by November 15, 1997 (provided, however, that the right to terminate this
Agreement pursuant to this clause (i) shall not be available to any party
whose breach of any representation or warranty or failure to perform any
covenant or agreement under this Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date); or (ii) any
Governmental Authority shall have issued an order, decree or ruling or taken
any other action permanently restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action shall have become
final and nonappealable (provided, however, that the right to terminate this
Agreement pursuant to this clause (ii) shall not be available to any party
until such party has used all reasonable efforts to remove such injunction,
order or decree).
(c) By Lima, if there has been a breach of the representations,
warranties or covenants made by Alpha in this Agreement which would cause
the conditions in Section 6.2 not to be satisfied and such breach is not
capable of being cured or if capable of being cured, shall not have been
cured within ten (10) business days following receipt by Alpha of written
notice of such breach from Lima.
(d) By Alpha, if there has been a breach of the representations,
warranties or covenants made by Lima in this Agreement which would cause the
conditions in Section 6.3 not to be satisfied and such breach is not capable
of being cured or if capable of being cured, shall not have been cured
within ten (10) business days following receipt by Lima of written notice of
such breach from Alpha.
(e) By Alpha or Lima if this Agreement and the Merger shall not have
been approved by the required vote of the Alpha stockholders at the Alpha
Meeting or at any adjournment thereof.
(f) By Alpha if (i) Alpha is prepared to enter into a binding definitive
agreement to effect a Superior Proposal; and (ii) Alpha has given Lima at
least three (3) business days' prior notice of its intention to terminate
this Agreement pursuant to this Section 7.1(f), during which period Lima
shall have the opportunity to propose amendments or modifications to the
terms of the Merger.
(g) By Lima if (i) the board of directors of Alpha shall have withdrawn
or modified its recommendation or otherwise failed to recommend adoption of
this Agreement and the Merger or shall have resolved or publicly announced
or disclosed to any third party its intention to do so; (ii) an Alternative
Transaction involving Alpha shall have taken place or the Board of Directors
of Alpha shall have recommended such an Alternative Transaction to the
stockholders of Alpha or shall have resolved or publicly announced its
intention to recommend or engage in such an Alternative Transaction; or
(iii) a tender offer or exchange offer for thirty percent (30%) or more of
the outstanding shares of Alpha Common Stock shall be commenced or a
registration statement with respect thereto shall have been filed (other
than by Lima or an affiliate thereof), and the Board of Directors of Alpha
shall have (A) recommended (or shall have resolved or publicly announced its
intention to recommend) that the stockholders of Alpha tender their shares
in such tender or exchange offer or (B) resolved or publicly announced its
intention to take no position with respect to such tender or exchange offer.
(h) By Alpha if the banks parties to the Pledge Agreements dated as of
December 23, 1994 and December 27, 1996 among S. A. Louis Dreyfus, et Cie
and the banks named therein shall not have
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<PAGE>
consented to the voting of the shares of Lima Common Stock pledged pursuant
thereto in favor of the transactions contemplated hereby on or prior to the
twentieth business day after the date hereof; provided, however, that the
period for obtaining the consent of the banks shall be extended an
additional five (5) business days, and Alpha shall not have the right to
terminate this Agreement pursuant to Section 7.1(h) prior to such time, if
Lima and Louis Dreyfus Natural Gas Holdings Corp. shall have used, and shall
be continuing to use, their reasonable best efforts in good faith to obtain
any required consents or waivers of such banks.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated by either Alpha
or Lima pursuant to the provisions of Section 7.1, this Agreement shall
forthwith become void, and there shall be no further obligation on the part of
any party hereto or its respective Affiliates, directors, officers, or
stockholders, except pursuant to the provisions of Sections 5.2 (but only to the
extent of the confidentiality and indemnification provisions contained therein),
5.6(c), 5.6(d), 5.10, 5.12 and 7.3, Article VIII and the Confidentiality
Agreement (which shall continue pursuant to their terms); provided, however,
that a termination of this Agreement shall not relieve any party hereto from any
liability for damages incurred as a result of a breach by such party of its
representations, warranties, covenants, agreements or other obligations
hereunder occurring prior to such termination.
7.3 TERMINATION FEES AND EXPENSES.
(a) If this Agreement is terminated (i) by Lima pursuant to Sections
7.1(e) or 7.1(g) or (ii) by Alpha pursuant to Sections 7.1(e) or 7.1(f),
then Alpha shall promptly, but in no event later than one business day after
termination of this Agreement, pay to Lima a termination fee in cash
("Initial Termination Fee") equal to $3,000,000; provided, however, the
Initial Termination Fee shall not be payable for a termination pursuant to
Section 7.1(e) or Section 7.1(g)(i), if, in either case, both (A) the Lima
Ratio is less than 85% of the Index Ratio and (B) no Competing Proposal has
been made which has not been rejected by Alpha prior to the date of the
Alpha Meeting in the case of a termination pursuant to Section 7.1(e) or, in
the case of a termination pursuant to Section 7.1(g)(i) prior to the action
of the board of Alpha referred to therein. In addition, if the Initial
Termination Fee is payable and if, within 12 months after payment of the
Initial Termination Fee, an Alternative Transaction involving Alpha is
consummated or Alpha enters into a definitive agreement with respect to an
Alternative Transaction, Alpha shall pay to Lima an additional fee (the
"Additional Termination Fee") of $5,000,000 in cash, at or prior to
consummation of such Alternative Transaction, or within one business day
following the effective date of such definitive agreement, whichever is
earlier.
(b) For purposes of this Section 7.3, the following terms shall have the
meanings indicated:
(i) "Alternative Transaction" means (A) a transaction or series of
transactions to which any person or group (as such term is defined under
the Exchange Act) other than Lima or any Affiliate thereof (a "Third
Party") acquires or would acquire (upon completion of such transaction or
series of transactions) shares (or securities exercisable or convertible
into shares) representing more than fifteen percent (15%) of the
outstanding shares of Alpha's Common Stock, pursuant to a tender offer or
exchange offer or otherwise, (B) a merger, consolidation, share exchange
or other business combination involving Alpha or any of its material
subsidiaries, if, upon consummation of such merger, consolidation, share
exchange or other business combination such Third Party owns or would own
more than 15% of the outstanding equity securities of Alpha or any of its
material subsidiaries or the entity surviving such merger or business
combination or resulting from such consolidation, or (C) any other
transaction or series of transactions pursuant to which any control of
assets of Alpha or any of its material subsidiaries (including for this
purpose, outstanding equity securities of subsidiaries of Alpha) having a
fair market value equal to more than 25% of the fair market value of all
of the consolidated assets of Alpha immediately prior to such transaction
or series of transactions.
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<PAGE>
(ii) "Average Closing Price" means the average of the daily last
sale prices of Lima Common Stock as reported on the NYSE Composite
Transactions reporting system (as reported in The Wall Street Journal or,
if not reported therein, in another mutually agreed upon authoritative
source) for the ten consecutive full trading days on which such shares
are traded on the NYSE ending at the close of trading on the
Determination Date.
(iii) "Average Index Price" means the average of the Index Prices for
the ten consecutive full NYSE trading days ending at the close of trading
on the Determination Date.
(iv) "Determination Date" means (A) for purposes of a termination
pursuant to Section 7.1(e), the last business day before the date of the
Alpha Meeting at which the vote of the stockholders of Alpha is taken
with respect to this Agreement and the Merger; or (B) for purposes of a
termination pursuant to Section 7.1(g)(i), the last business day before
the date of any action of the board of directors of Alpha referred to in
such Section 7.1(g)(i).
(v) "Index Group" means the group of each of the twelve oil and gas
companies listed below, the common stock of all of which shall be
publicly traded and as to which there shall not have been since the
Starting Date and before the Determination Date, any public announcement
of a proposal for such company to be acquired or for such company to
acquire another company or companies in transactions with a value
exceeding 25% of the acquiror's market capitalization. In the event that
the common stock of any such company ceases to be publicly traded or such
an announcement is made, such company will be removed from the Index
Group, and the weights (which have been determined based on their
relative market capitalization) redistributed proportionately for
purposes of determining the Index Price. The twelve oil and gas companies
and the weights attributed them are as follows:
<TABLE>
<CAPTION>
OIL AND GAS COMPANY WEIGHTING
- ------------------------------------------------------------------------- -----------
<S> <C>
Barrett Resources........................................................ 14.70
Cabot Oil and Gas........................................................ 5.42
Comstock Resources....................................................... 2.97
Cross Timbers Oil and Gas................................................ 6.00
Devon Energy............................................................. 15.31
HS Resources............................................................. 2.81
Lomak Petroleum.......................................................... 4.97
Nuevo Energy............................................................. 10.09
Seagull Energy........................................................... 15.42
Snyder Oil and Gas....................................................... 7.12
Swift Energy............................................................. 4.54
Vintage Petroleum........................................................ 10.65
-----------
Total.................................................................... 100%
-----------
-----------
</TABLE>
(vi) "Index Price" on a given date means the weighted average
(weighted in accordance with the factors listed above) of the closing
prices on such date of the companies composing the Index Group.
(vii) "Index Ratio" means the number obtained by dividing the Average
Index Price by the Index Price on the Starting Date.
(viii) "Lima Ratio" means the number obtained by dividing the Average
Closing Price by the Starting Price.
(ix) "Starting Date" means the last full day on which the NYSE was
open for trading prior to the execution of this Agreement.
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<PAGE>
(x) "Starting Price" shall mean the last sale price per share of
Lima Common Stock on the Starting Date, as reported by the NYSE Composite
Transactions reporting system (as reported in The Wall Street Journal or,
if not reported therein, in another mutually agreed upon authoritative
source.)
(c) In no event shall Alpha be required to pay any termination fee to
Lima if, immediately prior to the applicable termination of this Agreement,
Lima was in breach of its material obligations under this Agreement.
(d) If Alpha fails to promptly pay any fee or expense due hereunder,
Alpha shall pay the costs and expenses (including reasonable documented
legal fees and expenses) in connection with any action, including the filing
of any lawsuit or other legal action, taken to collect payment, together
with interest on the amount of any unpaid fee at the prime rate as quoted in
the Wall Street Journal, Southwest Edition as in effect from time to time
from the date such fee was required to be paid to the date of payment.
ARTICLE VIII
MISCELLANEOUS
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations or warranties contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the consummation of the
Merger, except for covenants and agreements which, by their terms, are to be
performed after the Effective Time.
8.2 AMENDMENT. This Agreement may be amended by the parties hereto at any
time before or after approval of this Agreement and the Merger by the
stockholders of Alpha or Lima; provided, however, that after any such approval,
no amendment shall be made that by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by a written instrument signed on behalf of each of the parties hereto.
8.3 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally, by facsimile
transmission or by registered or certified mail (postage prepaid and return
receipt requested) and shall be deemed given when received (or, if mailed, five
business days after the date of mailing) at the following addresses or facsimile
transmission numbers (or at such other address or facsimile transmission number
for a party as shall be specified by like notice):
(a) If to Lima or Merger Sub: Louis Dreyfus Natural Gas Corp., 14000
Quail Springs Parkway, Suite 600, Oklahoma City, Oklahoma 73134-2600,
Attention: Mark E. Monroe, President and CEO (facsimile transmission number
(405) 749-6659), with a copy (which shall not constitute notice) to Crowe &
Dunlevy, A Professional Corporation, 1800 Mid-America Tower, Oklahoma City,
Oklahoma 73102, Attention: Michael M. Stewart (facsimile transmission number
(405) 272-5238).
(b) If to Alpha: American Exploration Company, 1331 Lamar Street, Suite
900, Houston, Texas 77010-3088, Attention: Mark Andrews, Chairman and CEO
(facsimile transmission number (713) 659-5620), with a copy (which shall not
constitute notice) to Shearman & Sterling, 599 Lexington Avenue, New York,
New York 10022, Attention: Peter D. Lyons (facsimile transmission number
(212) 848-7179).
8.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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<PAGE>
8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(together with the Confidentiality Agreement and the documents and instruments
delivered by the parties in connection with this Agreement) (a) constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; and (b) except as provided in Article II or Section 5.13, 5.14 or 5.16,
is solely for the benefit of the parties hereto and their respective successors,
legal representatives and assigns and does not confer on any other person any
rights or remedies hereunder.
8.6 APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with by the laws of the State of Delaware regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof,
except to the extent the OGCA is required to govern the Merger.
8.7 NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article VII. Except as otherwise contemplated by this Agreement, to
the extent that a party hereto took an action inconsistent herewith or failed to
take action consistent herewith or required hereby pursuant to an order or
judgment of a court or other competent Governmental Authority, such party shall
not incur any liability or obligation unless such party breached its obligations
under Section 5.8 or did not in good faith seek to resist or object to the
imposition or entering of such order or judgment.
8.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, except that Merger Sub may assign, in its sole discretion, any or all
of its rights, interests and obligations hereunder to any newly-formed direct or
indirect wholly-owned corporate subsidiary of Lima. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
8.9 WAIVERS. At any time prior to the Effective Time, the parties hereto
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (c) waive performance of any of the
covenants or agreements, or satisfaction of any of the conditions, contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party. Except as provided in this Agreement, no action taken pursuant to
this Agreement, including any investigation by or on behalf of any party, shall
be deemed to constitute a waiver by the party taking such action of compliance
with any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision hereof
shall not operate or be construed as a waiver of any prior or subsequent breach
of the same or any other provisions hereof.
8.10 CONFIDENTIALITY AGREEMENT. The Confidentiality Agreement shall remain
in full force and effect following the execution of this Agreement until
terminated according to its terms, and is hereby incorporated herein by
reference and shall constitute a part of this Agreement for all purposes. Any
and all information received by Lima or Alpha pursuant to the terms and
provisions of this Agreement shall be governed by the applicable terms and
provisions of the Confidentiality Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives, on the date first written above.
<TABLE>
<S> <C>
"ALPHA" "LIMA"
AMERICAN EXPLORATION COMPANY LOUIS DREYFUS NATURAL GAS CORP.
BY: /S/ MARK ANDREWS By: /s/ MARK E. MONROE
-------------------------------------- ----------------------------------------
Name: Mark Andrews Name: Mark E. Monroe
Title: CHAIRMAN OF THE BOARD OF DIRECTORS Title: PRESIDENT AND CHIEF EXECUTIVE
AND CHIEF EXECUTIVE OFFICER OFFICER
"MERGER SUB"
LDNG ACQUISITION, INC.
By: /s/ MARK E. MONROE
----------------------------------------
Name: Mark E. Monroe
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
A-47
<PAGE>
ANNEX B
June 24, 1997
Board of Directors
Louis Dreyfus Natural Gas Corp.
14000 Quail Springs Parkway
Oklahoma City, OK 73134
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to Louis Dreyfus Natural Gas Corp. ("Parent"), of the consideration to be
paid by Parent in connection with the proposed merger (the "Merger") of American
Exploration Company (the "Company") with and into LDNG Acquisition, Inc.
("Sub"), a wholly owned subsidiary of Parent, pursuant to a draft dated June 20,
1997 of an Agreement and Plan of Reorganization (the "Merger Agreement"), among
the Company, Parent and Sub. Upon the effectiveness of the Merger, each share of
common stock, par value $0.05 per share ("Company Common Stock"), of the Company
issued and outstanding immediately prior to the effectiveness of the Merger
(other than shares owned by Parent, any subsidiary of Parent, the Company or any
subsidiary of the Company and any shares held by stockholders who exercise their
appraisal rights) will be converted into and represent the right to receive 0.72
of a share of the common stock, par value $0.01 per share ("Parent Common
Stock"), of Parent and $3.00 in cash (together, the "Merger Consideration"). In
addition, upon the effectiveness of the Merger, each share of preferred stock of
the Company that is issued and outstanding immediately prior thereto will be
converted into the right to receive one share of preferred stock of Parent, and
each outstanding Company warrant will be assumed by Parent and will become
exercisable for common stock of Parent and such other consideration as may be
required pursuant to the terms thereof.
In connection with rendering our opinion, we have reviewed the principal
financial terms of the Merger Agreement. We have also reviewed certain publicly
available information concerning Parent and the Company and certain other
financial information concerning Parent and the Company, including operating and
financial forecasts, that were provided to us by Parent and the Company,
respectively. We have discussed the past and current business operations,
financial condition and prospects of Parent and the Company with certain
officers and employees of Parent and the Company, respectively. We have also
considered such other information, financial studies, analyses, investigations
and financial, economic and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the information reviewed by us
for the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the operating and
financial forecasts of the Parent and the Company, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective management of Parent or the Company,
and we express no opinion with respect to such forecasts or the assumptions on
which they are based. We have not assumed any responsibility for any independent
evaluation or appraisal of any of the assets (including properties and
facilities) or liabilities of Parent or the Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for Parent Common Stock following the
consummation of the Merger, which may vary depending upon, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
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<PAGE>
conditions and other factors that generally influence the price of securities.
Our opinion does not address Parent's underlying business decision to effect the
Merger. Our opinion is directed only to the fairness, from a financial point of
view, of the Merger Consideration to Parent and does not constitute a
recommendation concerning how holders of Parent Common Stock should vote with
respect to the issuance of shares of Parent Common Stock in connection with the
Merger.
We have acted as financial advisor to the Board of Directors of Parent in
connection with the Merger and will receive a fee for our services, a portion of
which is payable upon initial delivery of this fairness opinion and the
remainder of which is payable upon the filing of a proxy statement in connection
with the Merger. In the ordinary course of business, we may actively trade the
securities of Parent and the Company for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, we have previously rendered certain investment
banking and financial advisory services to Parent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration to be paid by Parent is fair to Parent
from a financial point of view.
Very truly yours,
SALOMON BROTHERS INC
B-2
<PAGE>
ANNEX C
June 24, 1997
Board of Directors
American Exploration Company
1331 Lamar, Suite 900
Houston, TX 77010-3088
Gentlemen:
We understand that American Exploration Company ("the Company"), a Delaware
corporation, Louis Dreyfus Natural Gas Corp. ("Louis Dreyfus"), an Oklahoma
corporation, and LDNG Acquisition, Inc., an Oklahoma corporation, and a
wholly-owned subsidiary of Louis Dreyfus ("Merger Sub"), have entered into an
Agreement and Plan of Reorganization dated June 24, 1997 (the "Agreement"),
whereby the Company will merge with and into Merger Sub and Merger Sub shall be
the surviving corporation (the "Merger"). In the Merger, among other things,
each share of the Company's common stock, par value $.05 per share, shall be
converted into the right to receive (i) 0.72 (the "Conversion Number") shares of
validly issued, fully paid and nonassessable Louis Dreyfus common stock, par
value $.01 per share; and (ii) $3.00 cash ("the Cash Consideration").
In connection with the Merger, you have requested our opinion (the
"Opinion") as to the fairness, from a financial point of view, of the Conversion
Number and the Cash Consideration to the stockholders of the Company. In
conducting our analysis and arriving at the Opinion expressed herein, we have
reviewed such materials and considered such financial and other factors as we
deemed relevant under the circumstances, including, among others, the following:
1. reviewed the Agreement;
2. reviewed certain publicly-available historical financial and operating
data of the Company including, but not limited to, (a) the Annual Reports
to Stockholders and Annual Reports on Form 10-K of the Company for the
three fiscal years ended December 31, 1996, (b) the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, and (c) the Proxy
Statement for the Annual Meeting of Stockholders held on May 21, 1997;
3. reviewed certain publicly-available historical financial and operating
data of Louis Dreyfus including, but not limited to, (a) the Annual
Reports to Stockholders and Annual Reports on Form 10-K of Louis Dreyfus
for the three fiscal years ended December 31, 1996, (b) the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, and (c) the
Proxy Statement for the Annual Meeting of Stockholders held on May 20,
1997;
4. reviewed with the Company's management certain information relating to
the Company, including financial forecasts, prospects and business plans
for the fiscal years ending December 31, 1997 and 1998, prepared by the
management of the Company;
5. reviewed with Louis Dreyfus' management certain information relating to
Louis Dreyfus, including financial forecasts, prospects and business
plans for the fiscal years ending December 31, 1997 and 1998, prepared by
the management of Louis Dreyfus:
6. reviewed certain schedules regarding gas and oil swaps and futures
contracts entered into by Louis Dreyfus, provided by the management of
Louis Dreyfus;
7. reviewed evaluation reports of estimated oil and gas reserves of Louis
Dreyfus prepared by Ryder Scott Co. Petroleum Engineers, Inc. and
Netherland, Sewell & Associates, Inc., independent petroleum reserve
engineers;
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<PAGE>
8. discussed with senior management of the Company the results of the
Company's due diligence review of Louis Dreyfus;
9. reviewed the reported prices and trading activity for the common stock
of the Company and Louis Dreyfus, as well as the reported prices and
trading activity for the common stock of certain publicly-traded
companies which we deemed reasonably similar to the Company and to Louis
Dreyfus;
10. reviewed financial and operating data of the Company and Louis Dreyfus,
as well as publicly available financial and operating data of certain
publicly traded companies which we deemed reasonably similar to the
Company and Louis Dreyfus;
11. reviewed the financial terms of certain recent transactions in the oil
and gas exploration and production industry we deemed relevant to our
inquiry;
12. analyzed certain pro forma financial projections for the combined
company prepared by the Company;
13. analyzed the pro forma impact of the Merger on the cash flow from
operations per share and earnings per share of Louis Dreyfus; and
14. performed such other financial studies, analyses and investigations as
we deemed appropriate.
In preparing our Opinion, we have, with your consent, also assumed and
relied upon the accuracy and completeness of all information supplied or
otherwise made available to us from public sources or by the Company and Louis
Dreyfus and have not independently verified such information. We have neither
obtained nor performed any independent evaluation or appraisal of the assets or
liabilities of either the Company or Louis Dreyfus.
With respect to the financial forecasts of the Company and Louis Dreyfus
provided to us by the companies, respectively, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the senior management of the Company and Louis Dreyfus as to the
future financial performance of the respective companies and have not undertaken
any independent analysis to verify the reasonableness of the assumptions
underlying such forecasts. Our Opinion is predicated on the Merger qualifying
(i) as a tax-free transaction under the Internal Revenue Code of 1986, as
amended; and (ii) for "purchase" accounting treatment.
In connection with our advisory assignment, we have not been authorized by
the Company or its Board of Directors to solicit, nor have we solicited,
indications of interest from any third party for the acquisition of all or any
part of the Company. Our Opinion does not address, nor should it be construed to
address, the relative merits of the Merger and any alternative business
combination with any third party. In addition, this Opinion does not in any
manner address the prices at which the Louis Dreyfus common stock will actually
trade following the consummation of the Merger.
Our Opinion is necessarily based upon information available to us and on
economic, financial, market and other conditions as they exist and can be
evaluated as of the date hereof. No limitations were imposed on, or instructions
given by either the Company or Louis Dreyfus with respect to our investigation
or the procedures we followed in rendering our Opinion, and the management of
the Company and Louis Dreyfus cooperated fully in connection with our
investigation. In the past, Prudential Securities has provided financing
services for the Company and received compensation for such services. In
addition, we make a market in the Company's common stock and in the ordinary
course of business may actively trade the Company's common stock or Louis
Dreyfus' common stock for our own account or for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Prudential Securities also provides equity research coverage for the Company.
C-2
<PAGE>
Our advisory services and the Opinion expressed herein are provided for the
use of the Board of Directors of the Company in its evaluation of the proposed
Merger, and our Opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Merger. This Opinion may be reproduced in full in any proxy or information
statement mailed to stockholders of the Company but may not otherwise be
disclosed publicly, referred to or communicated by you in any manner without our
prior written approval and this Opinion must be treated as confidential. Any
summary of the Opinion included in such proxy statement must be in a form
acceptable to Prudential Securities Incorporated.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Conversion Number and Cash Consideration are fair, from a
financial point of view, to the stockholders of the Company.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
C-3
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ANNEX D
DELAWARE GENERAL CORPORATION LAW
SEC. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word"stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words"depository
receipt" mean a receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, sec. 252, sec. 254, sec. 257, sec. 258, sec.
263or sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsections (f) or (g) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to sec.sec.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be
sent by certified or registered mail, return receipt requested, addressed to
the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such
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<PAGE>
written statement shall be mailed to the stockholder within 10 days after his
written request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
<PAGE>
ANNEX E
DEFINITIONS OF CERTAIN OIL AND GAS INDUSTRY TERMS
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to oil or other liquid hydrocarbons.
BCF. Billion cubic feet.
BCFE. Billion cubic feet of natural gas equivalent, determined using the
ratio of one Bbl of oil or condensate to six Mcf of natural gas.
BTU. British thermal unit, which is the heat required to raise the
temperature of a one pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
BBTU. Billion Btus.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
DEVELOPMENT LOCATION. A location on which a development well can be
drilled.
DEVELOPMENT WELL. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive in an
attempt to recover proved undeveloped reserves.
DRY HOLE. A well found to be incapable of producing either oil or gas in
sufficient quantities to justify completion as an oil or gas well.
ESTIMATED FUTURE NET REVENUES. Revenues from production of oil and gas, net
of all production-related taxes, lease operating expenses and capital costs.
EXPLORATORY WELL. A well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir, or to extend a known reservoir.
FINDING COST. Total costs incurred to acquire, explore and develop oil and
gas properties divided by the increase in proved reserves through acquisition of
proved properties, extensions and discoveries, improved recoveries and revisions
of previous estimates.
GROSS ACRE. An acre in which a working interest is owned.
GROSS WELL. A well in which a working interest is owned.
LEASE OPERATING EXPENSE. All direct costs associated with and necessary to
operate a producing property.
MBBL. Thousand barrels.
MBTU. Thousand Btus.
MCF. Thousand cubic feet.
MCFE. Thousand cubic feet of natural gas equivalent, determined using the
ratio of one Bbl of oil or condensate to six Mcf of natural gas.
MMBBL. Million barrels.
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MMBTU. Million Btus.
MMCF. Million cubic feet.
MMCFE. Million cubic feet of natural gas equivalent, determined using the
ratio of one Bbl of oil or condensate to six Mcf of natural gas.
NET ACRES OR NET WELLS. The sum of the fractional working interests owned
in gross acres or gross wells.
OVERRIDING ROYALTY INTEREST. An interest in an oil and gas property
entitling the owner to a share of oil and gas production free of well or
production costs.
PRESENT VALUE. When used with respect to oil and gas reserves, present
value means the estimated future gross revenue to be generated from the
production of proved reserves, net of estimated production and future
development costs, using prices and costs in effect as of the date of the report
or estimate, without giving effect to non-property related expenses such as
general and administrative expenses, debt service and future income tax expense
or to depreciation, depletion and amortization, discounted using an annual
discount rate of 10%. The prices used to estimate future revenues of LDNG and
American include the effects of Fixed-Price Contracts except where otherwise
specifically noted. Estimated quantities of proved reserves are determined
without regard to such contracts.
PRODUCTIVE WELL. A well that is producing or that is capable of producing
oil or gas.
PROVED DEVELOPED RESERVES. Proved reserves that are expected to be
recovered through existing wells with existing equipment and operating methods.
PROVED RESERVES. The estimated quantities of oil and gas which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
PROVED UNDEVELOPED RESERVES. Proved reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion.
RESERVE LIFE. A measure of how long it will take to produce a quantity of
reserves, calculated by dividing estimated reserves by production for the twelve
months immediately preceding the date of determination (in gas equivalents).
RESERVE REPLACEMENT RATIO. A percentage determined by dividing the
estimated proved reserves added during a year from exploration and development
activities, acquisitions of proved reserves and revisions of previous estimates
by the oil and gas volumes produced during that year.
TBTU. One trillion Btus.
TCFE. Trillion cubic feet of gas equivalent, determined using the ratio of
one Bbl of oil or condensate to six Mcf of natural gas.
UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
WORKING INTEREST. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation provides that, pursuant to
Oklahoma law, its directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty of care to the Registrant and its stockholders.
The provision in the Certificate of Incorporation does not eliminate the duty of
care and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Oklahoma law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Registrant, as well as for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Oklahoma law. The provision also does not
affect a director's responsibilities under any other law, such as the state or
federal securities laws.
Under Section 1031 of the Oklahoma General Corporation Act, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation provides that the Registrant
shall indemnify its directors and officers to the fullest extent permitted by
Oklahoma law. The Certificate of Incorporation requires the Registrant to
indemnify such persons against expenses, judgments, fines, settlements and other
amounts incurred in connection with any proceeding, whether actual or
threatened, to which any such person may be made a party by reason of the fact
that such person is or was a director or an officer of the Registrant or any of
its affiliated enterprises, provided such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Registrant, and, with respect to any criminal proceeding, had
no reasonable cause to believe his conduct was unlawful. However, in the case of
a derivative action, an officer or director will not be entitled to
indemnification in respect of any claim, issue or matter as to which such person
is adjudged to be liable to the Registrant, unless and only to the extent that
the court in which the action was brought determines that such person is fairly
and reasonably entitled to indemnity for expenses.
The Registrant has entered into Indemnification Agreements with each
director of the Registrant which require the Registrant to indemnify such
persons against certain liabilities and expenses incurred by any such persons by
reason of their status or service as directors of the Registrant. The
Indemnification Agreements also set forth procedures that will apply in the
event of a claim for indemnification under such agreements. In addition, the
Indemnification Agreements require that the Registrant use commercially
reasonable efforts to maintain policies of directors' liability insurance.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of June 24, 1997, as amended, by and between the
Registrant and American Exploration Company (included as Annex A in the Joint Proxy
Statement/Prospectus forming part of this Registration Statement).
4.1 Form of Certificate of Designation of $450 Cumulative Convertible Preferred Stock, par value $.01 per
share, of the Registrant.
4.2 Form of Stock Certificate representing shares of $450 Cumulative Convertible Preferred Stock, par value
$.01 per share, of the Registrant.
4.3 Deposit Agreement, dated as of December 10, 1993, by and among American Exploration Company, Harris Trust
and Savings Bank and the holders from time to time of Depositary Receipts (to be assumed by the
Registrant as successor to American Exploration Company as a result of the proposed merger)
(Incorporated by reference to Exhibit 4.5 of the Registration Statement on Form S-3, Registration No.
33-51795, of American Exploration Company).
4.4 Form of Depositary Receipt representing Depositary Shares.
5.1 Opinion of Crowe & Dunlevy, A Professional Corporation, regarding the legality of the securities being
registered.
8.1 Opinion of Shearman & Sterling regarding certain tax matters.
8.2 Opinion of Crowe & Dunlevy, A Professional Corporation, regarding certain tax matters.
12.1 Statement re Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ryder Scott Company.
23.4 Consent of Netherland, Sewell & Associates, Inc.
23.5 Consent of William M. Cobb & Associates, Inc.
23.6 Consent of Salomon Brothers Inc.
23.7 Consent of Prudential Securities Incorporated.
23.8 Consent of Shearman & Sterling (included in Exhibit 8.1).
23.9 Consent of Crowe & Dunlevy, A Professional Corporation (included in Exhibit 5.1).
24.1 Powers of Attorney.
99.1 Form of Proxy for Special Meeting of Stockholders of American Exploration Company.
99.2 Form of Proxy for Special Meeting of Stockholders of the Registrant.
99.3 Opinion of Salomon Brothers Inc dated June 24, 1997 (included as Annex B in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement).
99.4 Opinion of Prudential Securities Incorporated dated June 24, 1997 (included as Annex C in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement).
99.5 Consent of Mark Andrews as a person named as about to become a director of the Registrant.
99.6 Shareholder Agreement, dated as June 24, 1997, by and among the Registrant, Louis Dreyfus Natural Gas
Holdings Corp. and American Exploration Company (Incorporated by reference to Exhibit 10.4 to Form 8-K
dated June 24, 1997 of American Exploration Company).
</TABLE>
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<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in this
effective Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that clauses (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
clauses is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended,
that are incorporated by reference into this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that,
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for purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 herein, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma, on September 2, 1997.
<TABLE>
<S> <C> <C>
LOUIS DREYFUS NATURAL GAS CORP.
BY: /S/ JEFFREY A. BONNEY
-----------------------------------------
Jeffrey A. Bonney
VICE PRESIDENT AND CHIEF ACCOUNTING
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ MARK E. MONROE* Officer and Director
- ------------------------------ (principal executive September 2, 1997
Mark E. Monroe officer)
/s/ RICHARD E. BROSS*
- ------------------------------ Executive Vice President September 2, 1997
Richard E. Bross and Director
Vice President and Chief
/s/ JEFFREY A. BONNEY Accounting Officer
- ------------------------------ (principal financial and September 2, 1997
Jeffrey A. Bonney accounting officer)
/s/ SIMON B. RICH, JR.*
- ------------------------------ Chairman of the Board of September 2, 1997
Simon B. Rich, Jr. Directors
/s/ JOHN J. HOGAN, JR.*
- ------------------------------ Director September 2, 1997
John J. Hogan, Jr.
/s/ JAMES R. PAUL*
- ------------------------------ Director September 2, 1997
James R. Paul
/s/ JAMES T. RODGERS, III*
- ------------------------------ Director September 2, 1997
James T. Rodgers, III
*By /s/ JEFFREY A. BONNEY
-------------------------
Jeffrey A. Bonney
ATTORNEY-IN-FACT
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of June 24, 1997, as amended, by and between the
Registrant and American Exploration Company (included as Annex A in the Joint Proxy
Statement/Prospectus forming part of this Registration Statement).
4.1 Form of Certificate of Designation of $450 Cumulative Convertible Preferred Stock, par value $.01 per
share, of the Registrant.
4.2 Form of Stock Certificate representing shares of $450 Cumulative Convertible Preferred Stock, par value
$.01 per share, of the Registrant.
4.3 Deposit Agreement, dated as of December 10, 1993, by and among American Exploration Company, Harris Trust
and Savings Bank and the holders from time to time of Depositary Receipts (to be assumed by the
Registrant as successor to American Exploration Company as a result of the proposed merger)
(Incorporated by reference to Exhibit 4.5 of the Registration Statement on Form S-3, Registration No.
33-51795, of American Exploration Company).
4.4 Form of Depositary Receipt representing Depositary Shares.
5.1 Opinion of Crowe & Dunlevy, A Professional Corporation, regarding the legality of the securities being
registered.
8.1 Opinion of Shearman & Sterling regarding certain tax matters.
8.2 Opinion of Crowe & Dunlevy, A Professional Corporation, regarding certain tax matters.
12.1 Statement re Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ryder Scott Company.
23.4 Consent of Netherland, Sewell & Associates, Inc.
23.5 Consent of William M. Cobb & Associates, Inc.
23.6 Consent of Salomon Brothers Inc.
23.7 Consent of Prudential Securities Incorporated.
23.8 Consent of Shearman & Sterling (included in Exhibit 8.1).
23.9 Consent of Crowe & Dunlevy, A Professional Corporation (included in Exhibit 5.1).
24.1 Powers of Attorney.
99.1 Form of Proxy for Special Meeting of Stockholders of American Exploration Company.
99.2 Form of Proxy for Special Meeting of Stockholders of the Registrant.
99.3 Opinion of Salomon Brothers Inc dated June 24, 1997 (included as Annex B in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement).
99.4 Opinion of Prudential Securities Incorporated dated June 24, 1997 (included as Annex C in the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement).
99.5 Consent of Mark Andrews as a person named as about to become a director of the Registrant.
99.6 Shareholder Agreement, dated as June 24, 1997, by and among the Registrant, Louis Dreyfus Natural Gas
Holdings Corp. and American Exploration Company (Incorporated by reference to Exhibit 10.4 to Form 8-K
dated June 24, 1997 of American Exploration Company).
</TABLE>
<PAGE>
Exhibit 4.1
CERTIFICATE OF DESIGNATION
OF THE
$450 CUMULATIVE CONVERTIBLE PREFERRED STOCK
($0.01 Par Value)
OF
LOUIS DREYFUS NATURAL GAS CORP.
--------------------------------------------------------
Pursuant to Section 1032 of the
General Corporation Act of the State of Oklahoma
--------------------------------------------------------
The undersigned, President and Chief Executive Officer of Louis Dreyfus
Natural Gas Corp., does hereby certify that the following resolution was duly
adopted on June 24, 1997 by the Board of Directors ("Board") of Louis Dreyfus
Natural Gas Corp., an Oklahoma corporation (hereinafter referred to as the
"Company"), acting pursuant to the provisions of Section 1032(A) of the General
Corporation Act of the State of Oklahoma:
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board by the provisions of the Amended and Restated Certificate of
Incorporation of the Company, as amended (the "Certificate of Incorporation"),
the issuance of a series of the preferred stock, par value $0.01 per share (the
"Preferred Stock"), of the Company, which shall consist of 4,000 shares of the
10,000,000 shares of Preferred Stock that the Company now has authority to
issue, be, and the same hereby is, authorized, and the powers, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions of the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, set forth in the Certificate of Incorporation which may be
applicable to the Preferred Stock) are fixed as follows:
(a) DESIGNATION. The designation of such series of the Preferred
Stock authorized by this resolution shall be the $450 Cumulative Convertible
Preferred Stock (the "Convertible Preferred Stock"), and the total number of
shares which shall constitute such series shall be 4,000 shares. Fractional
shares of Convertible Preferred Stock may be issued in increments of .005 of a
share of Convertible Preferred Stock.
<PAGE>
(b) DIVIDEND RIGHTS. Holders of shares of the Convertible Preferred
Stock will be entitled to receive, when, as and if declared by the Board out of
funds of the Company at the time legally available for payment, a cash dividend
of $450 per share per annum, which dividend shall be fully cumulative, shall
accrue without interest from __________________ [last dividend payment date
prior to Effective Time of Merger] and shall be payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year, commencing on
______________________ [the first such date occurring after the Effective Time]
(except that if any such date is a Saturday, Sunday or a legal holiday then such
dividends shall be payable without interest on the next day that is not a
Saturday, Sunday or legal holiday) to holders of record as they appear on the
stock records of the Company at the close of business on such record dates not
more than 60 nor less than 10 days preceding the payment dates for such
dividends, as are fixed by the Board. For purposes hereof, the term "legal
holiday" shall mean any day on which banking institutions are authorized to
close in New York City, New York or in Oklahoma City, Oklahoma. Subject to the
rights of any series of Preferred Stock which ranks senior as to dividends to
the Convertible Preferred Stock, dividends on the Convertible Preferred Stock on
account of arrears for any past dividend period may be declared and paid at any
time, without reference to any regular dividend payment date. The amount of
dividends payable per share of Convertible Preferred Stock for each full
quarterly dividend period shall be computed by dividing the annual dividend by
four. The amount of dividends payable for any period greater or less than a
full quarterly dividend period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
If at any time the Company has failed to pay accrued dividends on any
shares of Convertible Preferred Stock at the time such dividends are payable,
the Company shall not (i) declare or pay any dividend on the shares of Common
Stock (as defined in Section (k) below) or on any shares of Junior Stock (as
defined in Section (j) below) or make any payment on account of, or set apart
money for, a sinking fund for, the purchase, redemption retirement or other
acquisition of, any shares of Common Stock or any Junior Stock or make any
distribution m respect thereof, whether in cash or property or in obligations or
shares of the Company (other than in shares of Common Stock or Junior Stock) or
(ii) purchase any shares of Convertible Preferred Stock or any other shares of
Parity Stock (as defined in Section (j) below) (except for a consideration
payable in shares of Common Stock or Junior Stock) or redeem fewer than all of
the Convertible Preferred Stock and Parity Stock then outstanding, unless, in
each case all accrued and payable but unpaid dividends on the Convertible
Preferred Stock have been or contemporaneously are declared and paid in full or
declared and a sum sufficient for payment of such dividends has been set aside.
Unless and until all dividends accrued and payable but unpaid on the Convertible
Preferred Stock and any Parity Stock at the time outstanding have been paid in
full, all dividends declared by the Company upon such Convertible Preferred
Stock or Parity Stock shall be declared pro rata with respect to all shares of
Convertible Preferred Stock and Parity Stock then outstanding, so that the
amounts of any dividends declared on the Convertible Preferred Stock and such
Parity Stock shall in all cases bear to each other the same ratio that, at the
time of such declaration, all accrued and payable but unpaid dividends on the
Convertible Preferred Stock and such other Parity Stock, respectively, bear to
each other.
2
<PAGE>
For purposes hereof, dividends payable on the Convertible Preferred Stock
shall be deemed to have been declared and set apart for payment if such
dividends have been duly declared and the Company has deposited with a bank or
trust company that has a combined capital and surplus of at least $50,000,000,
any funds necessary for the payment of such dividend, in trust, and in an
account separate and apart from any other funds of the Company with irrevocable
instructions that such funds be applied to payment of such dividend; whereupon
neither the Company (except as described in the following paragraph) nor any
other third party shall have any right to challenge the rights of the holders of
the Convertible Preferred Stock to receive payment of such dividends.
No interest shall accrue for the benefit of the holders of Convertible
Preferred Stock on any funds so set aside by the Company for the payment of
dividends. Subject to applicable escheat laws, any such funds unclaimed at the
end of two years from the dividend payment date shall revert to the general
funds of the Company, after which reversion the holders of such shares shall
look only to the general funds of the Company for the payment of such funds.
(c) REDEMPTION.
(i) The Convertible Preferred Stock shall not be redeemable by
the Company prior to December 31, 1997. On and after December 31, 1997
the Convertible Preferred Stock may be redeemed, in whole or in part, at
the option of the Company at any time for cash at the following
redemption prices per share if redeemed during the 12-month period
beginning December 31 of the years indicated below:
Redemption price per share of
YEAR CONVERTIBLE PREFERRED STOCK
---- -----------------------------
1997 $5,270
1998 $5,225
1999 $5,180
2000 $5,135
2001 $5,090
2002 $5,045
2003 and thereafter $5,000
and if redeemed at any time on or after December 31, 2003 at $5,000 per
share, plus, in each case, an amount equal to the dividends accrued and
unpaid thereon to the date of redemption.
3
<PAGE>
(ii) At least 30 days but not more than 60 days prior to the
dare fixed for the redemption of the Convertible Preferred Stock, a
written notice will be mailed to each holder of record of the shares of
Convertible Preferred Stock to be redeemed, notifying such holder of the
Company election to redeem such shares, stating the date fixed for
redemption thereof, and calling upon such holder to surrender to the
Company on the redemption date at the place designated in such notice the
certificate or certificates representing the number of shares specified
therein to be redeemed. On or after the redemption date, each holder of
the Convertible Preferred Stock to be redeemed must present and surrender
his certificate or certificates for such shares to the Company at the
place designated in such notice, and thereupon the redemption price of
such shares will be paid to or on the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate will be canceled.
(iii) If at any time all cumulative dividends that have become
payable on the Convertible Preferred Stock have not been paid or declared
and set apart for payment, the Convertible Preferred Stock may not be
redeemed in part and the Company may not purchase or acquire shares of
Convertible Preferred Stock otherwise than pursuant to a purchase or
exchange offer made on the same terms to all holders of shares of the
Convertible Preferred Stock.
(iv) If fewer than all the outstanding shares of Convertible
Preferred Stock are called for redemption, the shares to be redeemed
shall be selected by the Company from outstanding shares of Convertible
Preferred Stock not previously called for redemption by lot or pro rata
(as nearly as may be). If fewer than all the shares represented by any
certificate are redeemed, a new certificate shall be issued representing
the unredeemed shares without cost to the holder thereof. Neither the
failure to mail any notice of redemption required by this Section (c),
nor any defect therein or in the mailing thereof, to any particular
holder, shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any notice
which was mailed in the manner herein provided shall be conclusively
presumed to have been duly given on the date mailed whether or not the
holder receives the notice.
(v) Notice of any redemption pursuant to this Section (c)
having been duly mailed, from and after the redemption date (unless the
Company shall fail to make available the amount of funds necessary to
effect such redemption), (x) except as otherwise provided herein,
dividends on the shares of the Convertible Preferred Stock so called for
redemption shall cease to accrue (except that, in the case of a
redemption date after a dividend payment record date and prior to the
related dividend payment date, holders of Convertible Preferred Stock on
the dividend payment record date will be entitled on such dividend
payment date to receive the dividend payable on such shares), (y) said
shares shall no longer be deemed to be outstanding, and (z) all rights of
the holders thereof as holders of Convertible Preferred Stock of the
Company shall cease (except the rights to receive the amount payable upon
such redemption, without interest thereon, upon surrender and
endorsement, if so required, of their
4
<PAGE>
certificates and to receive any dividend's payable thereon). The Company's
obligation to provide cash in accordance with the preceding sentence
shall be deemed fulfilled if, on or before the redemption date, the
Company shall deposit with a bank or trust company that has a combined
capital and surplus of at least $50,000,000, all funds necessary for
such redemption, in trust, and in an account separate and apart from any
other funds of the Company with irrevocable instructions that such funds
be applied to the redemption of the shares of Convertible Preferred
Stock so called for redemption.
No interest shall accrue for the benefit of the holders of
Convertible Preferred Stock to be redeemed on any funds so set aside by
the Company. Subject to applicable escheat laws, any such funds
unclaimed at the end of two years from the redemption date shall revert
to the Company, after which reversion the holders of such shares so
called for redemption shall look only to the general funds of the Company
for such payment.
Shares of Convertible Preferred Stock redeemed by the Company or
otherwise acquired by the Company will be restored to the status of
authorized but unissued shares of Preferred Stock without designation as
to class or series and may thereafter be issued, but not as shares of
Convertible Preferred Stock.
(d) CONVERSION. Holders of the Convertible Preferred Stock shall
have the right to convert all or a portion of such shares into shares of Common
Stock, as follows:
(i) Subject to and upon compliance with the provisions of this
Section (d), shares of Convertible Preferred Stock will be convertible,
in whole or in part, at any time, at the option of the holders thereof,
into "Conversion Units" (as defined below) at an initial conversion price
of $15.00 per Conversion Unit, subject to adjustment as described below
(the "Conversion Price") by surrendering such shares to be converted,
such surrender to be made in the manner provided in paragraph (ii) of
this Section (d); PROVIDED, HOWEVER, that the right to convert shares of
the Convertible Preferred Stock called for redemption pursuant to Section
(c) shall terminate at the close of business on the date fixed for such
redemption, unless the Company shall default in making available any
funds payable upon such redemption under Section (c) hereof. For purposes
hereof, a "Conversion Unit" means $3.00 and 0.72 shares of Common Stock,
subject to adjustment as provided herein. The cash portion of each
Conversion Unit is hereinafter referred to as the "Cash Consideration."
For purposes of determining the aggregate Conversion Price paid upon
surrender of a share of Convertible Preferred Stock, the deemed value of
each share of Convertible Preferred Stock for such purpose shall be
$5,000.
(ii) In order to exercise the conversion right, the holder of
each share of Convertible Preferred Stock to be converted shall surrender
the certificate(s) representing such shares, duly endorsed or assigned to
the Company or in blank, at the office of the Transfer Agent (as defined
in Section (k) below), accompanied by written notice to the Company that
the holder thereof elects to convert such shares of Convertible Preferred
Stock
5
<PAGE>
represented by such certificates or a specified portion thereof. Unless
the shares of Common Stock issuable and the Cash Consideration payable
on conversion are to be issued and paid in the same name as the name in
which such shares of Convertible Preferred Stock are registered, each
certificate surrendered for conversion shall be accompanied by instruments
of transfer, in form satisfactory to the Company, duly executed by the
holder or such holder's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax (or evidence reasonably satisfactory
to the Company demonstrating that such taxes have been paid) payable in
connection with such transfer.
Holders of shares of Convertible Preferred Stock at the close of
business on a dividend record date shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment
date notwithstanding the conversion thereof following such dividend
record date and prior to such dividend payment date. However, shares of
Convertible Preferred Stock surrendered for conversion during the period
between the close of business on any dividend record date and the opening
of business on the corresponding dividend payment date (except shares
converted after the issuance of a notice of redemption with respect to a
redemption date during such period, which shall be entitled to retain
such dividend on the dividend payment date) must be accompanied by
payment of an amount equal to the dividend payable on such shares on such
dividend record date. A holder of shares of Convertible Preferred Stock
on a dividend record date who (or whose transferee) tenders any such
shares for conversion on the corresponding dividend payment date will
receive the dividend payable by the Company on such shares of Convertible
Preferred Stock on such date, and such a converting holder need not
include payment of the amount of such dividend upon surrender of shares
of Convertible Preferred Stock for conversion. Except as provided above,
the Company shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares of the Convertible
Preferred Stock or for dividends on the shares of Common Stock issued
upon such conversion.
As promptly as practicable after the surrender of certificates
representing shares of Convertible Preferred Stock surrendered for
conversion as aforesaid, the Company shall issue and shall deliver at the
office of the Transfer Agent to such holder, or on his or her written
order, (i) a certificate or certificates representing the number of full
shares of Common Stock issuable upon the conversion of such shares of
Convertible Preferred Stock in accordance with provisions of this Section
(d) and (ii) the Cash Consideration in immediately available funds
payable to such holder upon conversion of such shares of Convertible
Preferred Stock in accordance with the provisions of this Section (d).
Any fractional interest in respect of a share of Common Stock arising
upon such conversion shall be settled as provided in paragraph (iii) of
this Section (d).
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates
representing shares of Convertible Preferred Stock shall have been
surrendered and such notice (and if applicable, payment of an amount
equal to the dividend payable on such shares) received by the Company as
aforesaid, and the
6
<PAGE>
person or persons in whose name or names any certificate or certificates
representing shares of Common Stock shall be issuable and any Cash
Consideration shall be payable upon such conversion shall be deemed to
have become the holder or holders of record of the shares of Common
Stock represented thereby at such time on such date. Any such conversion
shall be at the Conversion Price in effect at such time on such date,
unless the stock transfer books of the Company shall be closed on that
date, in which event such person or persons shall be deemed to have become
such holder or holders of record at the close of business on the next
succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon
which such shares shall have been surrendered and such notice received by
the Company.
(iii) No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of the shares of
Convertible Preferred Stock. Instead of any fractional interest in
respect of a share of Common Stock that would otherwise be deliverable to
a holder upon the conversion of a share of Convertible Preferred Stock,
the Company shall pay to the holder of such share an amount in cash
(computed to the nearest cent) based upon the Current Market Price (as
defined in Section (k) below) of the Common Stock on the Trading Day (as
defined in Section (k) below) immediately preceding the date of
conversion. If more than one share of Convertible Preferred Stock shall
be surrendered for conversion at one time by the same holder, the number
of full shares of Common Stock issuable to such holder upon conversion
thereof shall be computed on the basis of the aggregate number of shares
of Convertible Preferred Stock so surrendered.
(iv) The Conversion Price shall be adjusted from time to time as
follows:
(A) If the Company shall (i) pay a dividend or make a
distribution on its capital stock in shares of its Common Stock,
(ii) subdivide its outstanding Common Stock into a greater number
of shares, (iii) combine its outstanding Common Stock into a
smaller number of shares or (iv) issue any shares of capital stock
by reclassification of its Common Stock, the Conversion Price in
effect at the opening of business on the day next following the
date fixed for the determination of stockholders entitled to
receive such dividend or distribution or at the opening of
business on the day next following the day on which such
subdivision, combination or reclassification becomes effective, as
the case may be, shall be adjusted so that the holder of each
share of Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive, in addition to the Cash
Consideration, the number of shares of Common Stock or such other
capital stock that such holder would have owned or have been
entitled to receive after the happening of any of the events
described above had such share been converted immediately prior to
the record date in the case of a dividend or distribution or the
effective date in the case of a subdivision, combination or
reclassification. An adjustment made pursuant to this
subparagraph (A) shall become effective immediately after the
opening of business on the day next following the record date
(except as provided in paragraph
7
<PAGE>
(viii) below) in the case of a dividend or distribution and shall
become effective immediately after the opening of business on the
day next following the effective date in the case of a subdivision,
combination or reclassification.
(B) If the Company shall issue rights or warrants to all
holders of Common Stock entitling them (for a period expiring
within 45 days after the record date mentioned below) to subscribe
for or purchase shares of Common Stock at a price per share less
than the Fair Market Value (as defined in Section (k) below) per
share of Common Stock on the record date for the determination of
stockholders entitled to receive such rights or warrants, then the
Conversion Price in effect at the opening of business on the day
next following such record date shall be adjusted to equal the
price determined by multiplying (x) the Conversion Price in effect
immediately prior to the opening of business on the day next
following the date fixed for such determination by (y) a fraction,
the numerator of which shall be the sum of (A) the number of
shares of Common Stock outstanding on the close of business on the
date fixed for such determination and (B) the number of shares
that the aggregate proceeds to the Company from the issuance
and/or exercise of such rights or warrants for Common Stock (which
are actually exercised) would purchase at such Fair Market Value,
and the denominator of which shall be the sum of (i) the number of
shares of Common Stock outstanding on the close of business on the
date fixed for such determination and (ii) the number of
additional shares of Common Stock actually issued upon exercise of
such rights or warrants. Such adjustment shall become effective
immediately after the opening of business on the day next
following the date fixed for the expiration of such rights or
warrants (except as provided in paragraph (viii) below). In
determining whether any rights or warrants entitle the holders of
Common Stock to subscribe for or purchase shares of Common Stock
at less than such Fair Market Value, there shall be taken into
account any consideration received by the Company upon issuance
and upon exercise of such rights or warrants, with the value of
such consideration, if other than cash, to be determined by the
Board.
(C) If the Company shall distribute to all holders of
its Common Stock any shares of capital stock of the Company (other
than Common Stock) or evidences of its indebtedness or assets
(excluding cash dividends or distributions paid from profits or
surplus of the Company) or rights or warrants to subscribe for or
purchase any of its securities (excluding those rights and
warrants issued to all holders of Common Stock entitling them for
a period expiring within 45 days after the record date referred to
in subparagraph (B) above to subscribe for or purchase Common
Stock, which rights and warrants are referred to in and treated
under subparagraph (B) above) (any of the foregoing being
hereinafter in this subparagraph (C) called the "Securities"),
then in each such case the Conversion Price shall be adjusted so
that it shall equal the price determined by multiplying (x) the
Conversion Price in effect immediately prior to the close of
business on the date fixed for the determination of
8
<PAGE>
stockholders entitled to receive such distribution by (y) a
fraction, the numerator of which shall be the Fair Market Value per
share of the Common Stock on the record date mentioned below less
the then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the portion
of the Securities attributable to one share of Common Stock, and
the denominator of which shall be the Fair Market Value per share
of the Common Stock on the record date mentioned below. Such
adjustment shall become effective immediately following the
opening of business on the Business Day (as defined in Section (k)
below) next following (except as provided in paragraph (viii)
below) the record date for the determination of stockholders
entitled to receive such distribution. For the purposes of this
subparagraph (C), the distribution of a Security, which is
distributed not only to the holders of the Common Stock on the
date fixed for the determination of stockholders entitled to such
distribution of such Security, but also is distributed with each
share of Common Stock delivered to a person converting a share of
Convertible Preferred Stock after such determination date, shall
not require an adjustment of the Conversion Price pursuant to this
subparagraph (C); PROVIDED that on the date, if any, on which a
person converting a share of Convertible Preferred Stock would no
longer be entitled to receive such Security with a share of Common
Stock (other than as a result of the termination of all such
Securities), a distribution of such Securities shall be deemed to
have occurred and the Conversion Price shall be adjusted as
provided in this subparagraph (C) (and such day shall be deemed to
be "the date fixed for the determination of the stockholders
entitled to receive such distributions" and "the record date"
within the meaning of the two preceding sentences).
(D) No adjustment in the Conversion Price shall be
required unless such adjustment would require a cumulative
increase or decrease of at least 1% in such price; PROVIDED,
HOWEVER, that any adjustments that by reason of this subparagraph
(D) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment until made; and
PROVIDED, FURTHER, that any adjustment shall be required and made
in accordance with the provisions of this Section (d) (other than
this subparagraph (D)) not later than such time as may be required
in order to preserve the tax-free nature of a distribution to the
holders of shares of Common Stock. Notwithstanding any other
provisions of this Section (d), the Company shall not be required
to make any adjustment of the Conversion Price for the issuance of
any shares of Common Stock pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of the
Company and the investment of additional optional amounts in
shares of Common Stock under such plan. All calculations under
this Section (d) shall be made to the nearest 1/100 of a cent
(with $.00005 being rounded upward) or to the nearest 1/10,000 of
a share (with .00005 of a share being rounded upward), as the case
may be. Anything in this paragraph (iv) to the contrary
notwithstanding, the Company shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Price,
in addition to those required by this paragraph (iv), as it in its
discretion shall determine to be
9
<PAGE>
advisable in order that any stock dividends, subdivision of shares,
reclassification or combination of shares, distribution of rights
or warrants to purchase stock or securities, or a distribution of
other assets (other than case dividends) hereafter made by the
Company to its stockholders shall not be taxable.
(v) If the Company shall be a party to any transaction
(including without limitation a merger, consolidation, sale of all or
substantially all of the Company's assets or recapitalization of the
Common Stock and excluding any transaction as to which subparagraph
(iv)(A) of this Section (d) applies) (each of the foregoing being
referred to herein as a "Transaction"), in each case as a result of which
shares of Common Stock shall be converted into the right to receive
stock, securities or other property (including cash), or any combination
thereof, each share of Convertible Preferred Stock which is not converted
into the right to receive stock, securities or other property as a result
of such Transaction shall thereafter be convertible into, in addition to
the Cash Consideration, the kind and amount of shares of stock,
securities and other property (including cash), or any combination
thereof, receivable upon the consummation of such Transaction by a holder
of that number of shares or fraction thereof of Common Stock into which
one share of Convertible Preferred Stock was convertible immediately
prior to such Transaction at the Conversion Price in effect at such time,
assuming such holder of Common Stock (i) is not a person with which the
Company consolidated or into which the Company merged or which merged
into the Company or to which such sale or transfer was made, as the case
may be ("Constituent Person"), or an affiliate of a Constituent Person
and (ii) failed to exercise his rights of election, if any, as to the
kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction (provided that if the kind or amount of
stock, securities and other property (including cash) receivable upon
such Transaction is not the same for each share of Common Stock of the
Company held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such
rights of election shall not have been exercised ("non-electing share"),
then for the purpose of this paragraph (v) the kind and amount of stock,
securities and other property (including cash) receivable upon such
Transaction by each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing
shares). The Company shall not be a party to any Transaction unless the
terms of such Transaction are consistent with the provisions of this
paragraph (v), and it shall not consent or agree to the occurrence of any
Transaction until the Company has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of
the holders of the Convertible Preferred Stock that provides that the
holders of the Convertible Preferred Stock that remains outstanding after
such Transaction will be entitled to convert such shares into, in
addition to the Cash Consideration, the consideration received by holders
of Common Stock at the Conversion Price in effect immediately prior to
such Transaction. The provisions of this paragraph (v) shall similarly
apply to successive Transactions.
(vi) If:
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(A) the Company shall declare a dividend (or any other
distribution) on the Common Stock (other than in cash out of
profits or surplus); or
(B) the Company shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe for
or purchase any shares of any class or any other rights or
warrants; or
(C) there shall be any reclassification of the Common
Stock (other than an event to which subparagraph (iv)(A) of this
Section (d) applies) or any consolidation or merger to which the
Company is a party and for which approval of any stockholders of
the Company is required, or the sale or transfer of all or
substantially all of the assets of the Company as an entirety; or
(D) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Company;
then the Company shall cause to be filed with the Transfer Agent and
shall cause to be mailed to the holders of shares of the Convertible
Preferred Stock at their addresses as shown on the stock records of the
Company, as promptly as possible, but at least 15 days prior to the
applicable date hereinafter specified, a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights or warrants are to be determined
or (B) the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution or winding up is expected to
become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up. Failure to give or receive such
notice or any defect therein shall not affect the legality, validity or
effectiveness of the proceedings described in this Section (d).
(vii) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Transfer Agent a
certificate of an officer of the Company setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment, and such certificate shall be prima
facie evidence of the correctness of such adjustment. Promptly after
delivery of such certificate, the Company shall prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted Conversion
Price and the effective date of such adjustment and shall mail such
notice of such adjustment of the Conversion Price to each record holder
of the Convertible Preferred Stock at such holder's last address as shown
on the stock records of the Company.
(viii) In any case in which paragraph (iv) of this Section (d)
provides that an adjustment shall become effective on the day next
following a record date for an event, the
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Company may defer until the occurrence of such event (A) issuing to the
holder of any share of Convertible Preferred Stock converted after such
record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (B) paying to such
holder any amount in cash in lieu of any fraction pursuant to paragraph
(iii) of this Section (d).
(ix) For purposes of this Section (d), the number of shares of
Common Stock at any time outstanding shall not include any shares of
Common Stock then held in treasury or otherwise owned or held by or for
the account of the Company. The Company shall not pay a dividend or make
any distribution on shares of Common Stock held in the treasury of the
Company.
(x) There shall be no adjustment of the Conversion Price in
case of the issuance of any stock of the Company in a reorganization,
acquisition or other similar transaction except as specifically set forth
in this Section (d).
(xi) If the Company shall take any action affecting the Common
Stock, other than action described in this Section (d), that in the
opinion of the Board would materially adversely affect the conversion
rights of the holders of the shares of Convertible Preferred Stock, the
Conversion Price for the Convertible Preferred Stock may be adjusted, to
the extent permitted by law, in such manner, if any, and at such time, as
the Board may determine to be equitable in the circumstances. In
addition to the foregoing adjustments, the Company will be permitted to
make such reductions in Conversion Price as it considers to be advisable
in order that any event treated for Federal income purposes as a dividend
of stock or stock rights or other similar transactions will not be
taxable to holders of the Common Stock.
(xii) The Company covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its issued shares of
Common Stock held in its treasury, or both, for the purpose of effecting
conversion of shares of the Convertible Preferred Stock, the full number
of shares of Common Stock then deliverable upon the conversion of all
outstanding shares of Convertible Preferred Stock, not theretofore
converted, at the Conversion Price then in effect. For purposes of this
paragraph (xii), the number of shares of Common Stock that shall be
deliverable upon the conversion of all outstanding shares of Convertible
Preferred Stock shall be computed as if at the time of computation all
such outstanding shares were held by a single holder.
(xiii) The Company covenants that any shares of Common Stock
issued upon conversion of the Convertible Preferred Stock shall be
validly issued, fully paid and nonassessable. Before taking any action
that would cause an adjustment reducing the Conversion Price below the
then par value of the shares of Common Stock deliverable upon
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conversion of the Convertible Preferred Stock, the Company will take any
corporate action that, in the opinion of its counsel, may be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Conversion Price.
The Company shall endeavor to list the shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock, prior to
such issuance, upon each national securities exchange, if any, on which
the outstanding Common Stock is listed at the time of such issuance.
(xiv) Anything herein to the contrary notwithstanding, the
Company shall not be obligated to pay any federal, state or local income
or other taxes relating to the receipt by any holder of Convertible
Preferred Stock of the Cash Consideration upon conversion. Subject to
the foregoing, the Company will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock or other securities or property on
conversion of the Convertible Preferred Stock pursuant hereto; PROVIDED,
HOWEVER, that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issue or delivery
of shares of Common Stock or other securities or property in a name other
than that of the holder of the Convertible Preferred Stock to be
converted and no such issue or delivery shall be made unless and until
the person requesting such issue or delivery has paid to the Company the
amount of any such tax or established, to the reasonable satisfaction of
the Company, that such tax has been paid to the extent required to be
paid prior to such issue or delivery.
(e) SPECIAL CONVERSION RIGHTS. Each holder of shares of
Convertible Preferred Stock shall have a special right to convert all, but
not less than all, of such shares owned by such holder into Conversion Units
as set forth in Section (d) if a Change of Control or a Fundamental Change
(each as defined below) of the Company occurs (the "Special Conversion
Right").
(i) Upon the occurrence of a Change of Control or a Fundamental
Change, each holder of Convertible Preferred Stock shall have the right,
at the holder's option during the 30-day period following the mailing of
notice as described below, to convert all, but not less than all, the
holder's Convertible Preferred Stock into Conversion Units at a
conversion price equal to the Special Conversion Price (as defined
below). A holder exercising a Special Conversion Right shall have the
right to receive Conversion Units if a Change of Control occurs and, if a
Fundamental Change occurs, shall have the right to receive Conversion
Units consisting of the Cash Consideration and the same consideration
received for the number of shares of Common Stock included in the
Conversion Units into which the holder's Convertible Preferred Stock
would have been convertible at the Special Conversion Price. In either
case, however, the Company or its successor may, at its option, elect to
provide the holder with, in addition to the applicable Cash
Consideration, additional cash or a combination of cash and other
consideration received in respect of the Common Stock (with respect to a
Fundamental Change), having an aggregate Market Value equal to the Market
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Value (as defined below) of the number of shares of Common Stock into
which the holder's Convertible Preferred Stock is convertible at the
Special Conversion Price.
(ii) The Company shall mail to each registered holder of
Convertible Preferred Stock, and shall publish on a business day in a
newspaper that is published in the English language on business days and
is of general circulation in the City of New York, a notice setting forth
details of any Special Conversion Right occasioned by a Change of Control
or Fundamental Change within 30 days after the event occurs. A Special
Conversion Right may be exercised only within the 30-day period after the
notice is mailed and will expire at the end of that period. To the extent
permitted by law, exercise of a Special Conversion Right is irrevocable,
and all Convertible Preferred Stock tendered for conversion pursuant to
the exercise of a Special Conversion Right will be converted at the end
of the 30-day period mentioned in the preceding sentence. A holder of
Convertible Preferred Stock that elects to exercise the Special
Conversion Right will be subject to the terms of Section (d) with respect
to the payment of dividends, the issuance of fractional shares and other
rights related to conversion.
(iii) Convertible Preferred Stock that is not converted pursuant
to a Special Conversion Right will continue to be convertible pursuant to
the conversion rights described in Section (d).
As used herein, a "Change of Control" with respect to the Company shall
be deemed to have occurred at the first time after the first issuance of any
Convertible Preferred Stock that any Person (as defined below) first files or
becomes obligated to file a report (or any amendment or supplement thereto)
on Schedule 13D or 14D-1 pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), disclosing that such person has become the
beneficial owner of either (i) more than 50% of the shares of Common Stock
then outstanding or (ii) securities representing more than 50% of the
combined voting power of the Voting Stock (as defined below) of the Company
then outstanding, PROVIDED that a Change of Control shall not be deemed to
have occurred with respect to any transaction that constitutes a Fundamental
Change.
As used in this Section (e), a "Person" includes any person (within the
meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act), including a
group (within the meaning of Rule 13d-5 under the Exchange Act), together
with any of its Affiliates or Associates; PROVIDED, HOWEVER, that a "Person"
shall not include Louis Dreyfus Natural Gas Holdings Corp. or any Affiliate
thereof, and a "Change of Control" shall not be deemed to occur in connection
with any acquisition of securities of the Company by Louis Dreyfus Natural
Gas Holdings Corp. or its Affiliates. An "Affiliate" of a specified person is
a person that directly or indirectly controls, or is controlled by or is
under common control with, the person specified. An "Associate" of a person
means (a) any corporation or organization, other than the Company or any
subsidiary of the Company, of which the person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class
of equity securities, (b) any trust or estate in which the person has a
substantial beneficial interest or as to which the person serves as trustee
or in a similar fiduciary capacity and (c) any relative or
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spouse of the person or any relative of the spouse, who has the same home as
the person or who is a director or officer of the person or any of its
parents or subsidiaries.
As used herein, a "Fundamental Change," with respect to the Company,
means (i) the occurrence of any transaction or event in connection with which
all or substantially all of the Common Stock is exchanged for, converted
into, acquired for or constitutes solely the right to receive cash,
securities, property or other assets (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination,
reclassification or otherwise) or (ii) the conveyance, sale, lease,
assignment, transfer or other disposal of all or substantially all of the
Company's property, business or assets; PROVIDED, HOWEVER, that a Fundamental
Change shall not be deemed to have occurred with respect to either of the
following transactions or events: (a) any transaction or event in which more
than 50% (by value as determined in good faith by the Board of Directors of
the Company) of the consideration received by holders of Common Stock
consists of Marketable Stock (as defined below); or (b) any consolidation or
merger of the Company in which the holders of Common Stock immediately prior
to such transaction own, directly or indirectly, (1) 50% or more of the
common stock of the sole surviving corporation (or of the ultimate parent of
such sole surviving corporation) outstanding at the time immediately after
such consolidation or merger and (2) securities representing 50% or more of
the combined voting power of the surviving corporation's Voting Stock (or the
Voting Stock of the ultimate parent of such surviving corporation)
outstanding at such time. The phrase "all or substantially all," as used in
this definition in reference to the Common Stock, means 66 2/3% or more of
the aggregate outstanding amount.
As used herein, "Voting Stock" means, with respect to any person,
capital stock of such person having general power under ordinary
circumstances to elect at least a majority of the board of directors,
managers or trustees of such person (irrespective of whether or not at the
time capital stock or any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
As used herein, "Special Conversion Price" means the higher of the
Market Value of the Common Stock and $11.25 per share (which amount will,
each time the Conversion Price is adjusted, be adjusted so that the ratio of
the Special Conversion Price to the Conversion Price, after giving effect to
any such adjustment, shall always be equal to the ratio of $11.25 to the
initial Conversion Price, without giving effect to any such adjustment).
As used in this Section (e), "Market Value" of the Common Stock or any
other Marketable Stock means the average of the last reported sales prices of
the Common Stock or such other Marketable Stock, as the case may be, for the
five business days ending on the last business day preceding the date of the
Fundamental Change or Change of Control; PROVIDED, HOWEVER, that if the
Marketable Stock is not traded on any national securities exchange or similar
quotation system as described in the definition of "Marketable Stock" during
such period, then the Market Value of such Marketable Stock means the average
of the last reported sales price per share of such Marketable Stock during
the first five business days commencing on the day after the date on which
such Marketable Stock was first distributed to the general public and traded
on the New York Stock
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Exchange ("NYSE"), the American Stock Exchange ("AMEX"), the NASDAQ National
Market System or any similar system of automated dissemination of quotations
of securities prices in the United States.
As used herein, the term "Marketable Stock" means the Common Stock or
common stock of any corporation that is the successor to all or substantially
all of the business or assets of the Company as a result of a Fundamental
Change or of the ultimate parent of such successor, which is (or will, upon
distribution thereon, be) listed or quoted on the NYSE, AMEX, the NASDAQ
National Market System or any similar system of automated dissemination of
quotations of securities prices in the United States.
(f) LIQUIDATION RIGHTS. The shares of Convertible Preferred Stock
shall rank prior to the shares of Common Stock and of any other class of
stock of the Company ranking junior to the Convertible Preferred Stock upon
liquidation, so that in the event of any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, the holders of the
Convertible Preferred Stock shall be entitled to receive out of the assets of
the Company available for Distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution is made to holders of
shares of Common Stock or any other such junior stock, an amount equal to
$5,000 per share of Convertible Preferred Stock (the "Liquidation
Preference"), plus an amount equal to all dividends (whether or not earned or
declared) accumulated and unpaid on the shares of Convertible Preferred Stock
to the date of such final distribution. After payment of the full amount of
the Liquidation Preference and such dividends, the holders of shares of
Convertible Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Company. If, upon any liquidation,
dissolution or winding up of the Company, the assets of the Company, or
proceeds thereof, distributable among the holders of shares of the
Convertible Preferred Stock and any Parity Stock shall be insufficient to pay
in full the preferential amounts aforesaid, then such assets, or the proceeds
thereof, shall be distributable among such holders ratably in accordance with
the respective amounts which would be payable on such shares if all amounts
payable thereon were payable in full. For the purposes hereof, neither a
consolidation or merger of the Company with or into any other corporation,
nor a merger of any other corporation with or into the Company, nor a sale or
transfer of all or any part of the Company's assets for cash, securities or
other property shall be considered a liquidation, dissolution or winding up
of the Company.
(g) VOTING RIGHTS.
(i) The holders of shares of Convertible Preferred Stock shall
be entitled to vote on all matters submitted to a vote of the holders of
Common Stock of the Company, voting together as one class with the
holders of Common Stock and any other preferred stock or other security
of the Company with similar voting rights, under the laws of the State of
Oklahoma. When voting as one class together with the holders of Common
Stock, each holder of Convertible Preferred Stock will be entitled to one
vote for each share of Common Stock into which a share of Convertible
Preferred Stock would be convertible as of the applicable record date for
the meeting of the stockholders at which the vote is to be taken.
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The amount of any Cash Consideration payable upon conversion shall not be
taken into account in determining such relative voting rights.
(ii) If at any time or times any cumulative dividends payable on
the Convertible Preferred Stock have been in arrears and unpaid in an
aggregate amount equal to or exceeding the amount of dividends payable
thereon for six quarterly dividend periods, then the holders of the
Convertible Preferred Stock shall have, in addition to the other voting
rights set forth herein, the right, voting together as a class with each
other class or series of Parity Stock then outstanding, the terms of
which expressly grant similar voting rights which are then exercisable,
to elect two directors of the Company at the next regular or special
meeting of stockholders, such directors to be in addition to the
number of directors constituting the Board immediately prior to the
accrual of such right, the remaining directors to be elected by the other
classes or series of stock entitled to vote therefor. Such voting right
shall continue until such time as all cumulative dividends accumulated
and unpaid on the Convertible Preferred Stock shall have been paid in
full (or declared and set aside for payment), at which time such voting
right of the holders of the Convertible Preferred Stock shall terminate
in respect of such arrearage. Notwithstanding the provisions of this
paragraph, however, no such special meeting shall be called during a
period within 90 days immediately preceding the date fixed for the next
annual meeting of stockholders.
At any meeting held for the purpose of electing directors at which
the holders of the Convertible Preferred Stock shall have the right to
elect directors as provided herein, the presence in person or by proxy of
the holders of one-third of the then outstanding shares of Preferred
Stock (including the Convertible Preferred Stock) entitled to vote in the
election of such two additional directors shall be required and be
sufficient to constitute a quorum of such Preferred Stock for the
election of such two additional directors. At any such meeting or
adjournment thereof (y) the absence of a quorum of the holders of such
Preferred Stock shall not prevent the election of directors other than
those to be elected by the holders of such Preferred Stock and the
absence of a quorum or quorums of the holders of other classes of capital
stock entitled to elect such other directors shall not prevent the
election of directors to be elected by the holders of such Preferred
Stock and (z) in the absence of a quorum of the holders of any class of
stock entitled to vote for the election of directors, a majority of the
holders present in person or by proxy of such class shall have the power
to adjourn the meeting for the election of the directors which the
holders of such class are entitled to elect, from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present.
The directors elected pursuant to this paragraph (ii) shall serve
until the next meeting of stockholders at which directors are elected or
until their respective successors shall be elected and shall qualify,
PROVIDED, HOWEVER, that when the right of the holders of the Convertible
Preferred Stock to elect directors as herein provided shall terminate,
the terms of office of all directors so elected by the holders of the
Convertible Preferred Stock shall thereupon automatically terminate, and
the number of directors constituting the entire Board
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shall thereupon be the number directors remaining following said
termination or otherwise as may be determined in accordance with the
Bylaws of the Company notwithstanding any increase made pursuant to this
paragraph (ii).
So long as any shares of Convertible Preferred Stock are
outstanding, the By-laws of the Company shall contain provisions ensuring
that the number of directors of the Company shall at all times be such
that the exercise by the holders of shares of Convertible Preferred Stock
of the right to elect directors under the circumstances provided in this
paragraph (ii) will not contravene any provisions of the Company's
Restated Certificate of Incorporation or Bylaws.
(iii) So long as any shares of the Convertible Preferred Stock
remain outstanding, the Company will not, either directly or indirectly,
without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of at least two-thirds (2/3) in number
of shares of the Convertible Preferred Stock then outstanding, (x)
approve any merger, consolidation or compulsory share exchange of the
Company with or into any other entity unless (a) the terms of such
merger, consolidation or compulsory share exchange do not provide for a
material adverse change in the preferences, special rights or powers of
the Convertible Preferred Stock and (b) the Convertible Preferred Stock
is, after such merger, consolidation or compulsory share exchange, on a
parity with or prior to any other class or series of capital stock
authorized by the surviving corporation as to dividends and upon
liquidation, other than any class or series of stock of the Company as
may have previously been created with the requisite approval of the
holders of the Convertible Preferred Stock (or other than a class or
series into which such prior stock is converted as the result of such
merger, consolidation or compulsory shares exchange), (y) create any
class or series of stock ranking prior to the Convertible Preferred Stock
either as to dividends or upon liquidation or increase the authorized
number of shares of any class or series of stock ranking prior to the
Convertible Preferred Stock either as to dividends or upon liquidation;
PROVIDED, HOWEVER, that the creation or issuance of any class or series
of Preferred Stock of the Company ranking junior to the Convertible
Preferred Stock as to dividend or liquidation rights shall not require
the consent of the holders of the Convertible Preferred Stock and
PROVIDED, FURTHER, that the creation or issuance of any class or series
of Preferred Stock of the Company ranking on a parity with the
Convertible Preferred Stock as to dividend or liquidation rights shall
require the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of at least a majority in number of
shares of the Convertible Preferred Stock then outstanding; and PROVIDED,
FURTHER, that the number of authorized shares of any class or classes of
stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a
majority of the stock of the Company entitled to vote irrespective of
this Section (g)(iii) or Section 1077(B)(2) of the General Corporation
Act of the State of Oklahoma, or (z) amend, alter or repeal any of the
provisions of the Certificate of Incorporation (including this
resolution) so as to adversely affect the preferences, special rights or
powers of the Convertible Preferred Stock. A stock split or a reverse
stock split of the Common Stock of
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the Company shall be deemed not to adversely affect the preferences,
special rights or powers of the Convertible Preferred Stock.
(iv) Holders of the Convertible Preferred Stock and holders of
any such Parity Stock of the Company upon which like voting rights have
been conferred and are exercisable, when voting together as a class, will
be entitled to one vote for each $25 of liquidation preference of the
Convertible Preferred Stock or such other preferred stock, as the case
may be, as of the applicable record date for the meeting of the
stockholders.
(h) CERTAIN LIMITATIONS. No consent of the holders of the
Convertible Preferred Stock shall be required for (a) the creation of any
indebtedness of any kind of the Company, (b) the creation or issuance of any
class or series of Preferred Stock of the Company ranking junior to the
Convertible Preferred Stock as to dividend or liquidation rights or (c) the
increase or decrease (but not below the number of shares thereof then
outstanding) in the number of the authorized shares of any class or classes
of stock, which may be effected by the affirmative vote of the holders of a
majority of the stock of the Company entitled to vote irrespective of Section
1077(B)(2) of the General Corporation Act of the State of Oklahoma.
(i) AMENDMENTS. Subject to the provisions of Section (g) hereof,
the Board reserves the right by subsequent amendment of this resolution from
time to time to increase or decrease the number of shares which constitute
the Convertible Preferred Stock (but not below the number of shares thereof
then outstanding) and in other respects to amend this Certificate of
Designation subject to the limitations provided by law, this Certificate of
Designation and the Certificate of Incorporation.
(j) RANKING. For the purposes of this resolution, any stock of any
class or series of the Company shall be deemed to rank:
(i) prior to shares of the Convertible Preferred Stock, either
as to dividends or upon liquidation, if the holders of stock of such
class or series shall be entitled by the terms thereof to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders
of shares of the Convertible Preferred Stock;
(ii) on a parity with shares of the Convertible Preferred Stock,
as to dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share
thereof be different from those of the Convertible Preferred Stock, if
the holders of stock of such class or series shall be entitled by the
terms thereof to the receipt of dividends or of amounts distributable
upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices,
without preference or priority of one over the other as between the
holders of such stock and the holders of shares of the Convertible
Preferred Stock (the term "Parity Stock" being used
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to refer to any stock on a parity with the shares of the Convertible
Preferred Stock, as to dividends and upon liquidation as the context may
require); and
(iii) junior to shares of the Convertible Preferred Stock, either
as to dividends or upon liquidation, if such class or series shall be
Common Stock or if the holders of the Convertible Preferred Stock shall
be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of stock of such class or series (the term
"Junior Stock" being used to refer to any stock junior to the shares of
the Convertible Preferred Stock, as to dividends and upon liquidation as
the context may require).
(k) For purposes of the Convertible Preferred Stock, the following
terms shall have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York,
New York are not required to be open.
"Common Stock" shall mean the common stock of the Company, par value
$.01 per share.
"Current Market Price" of publicly traded shares of Common Stock or any
other class of capital stock or other security of the Company or any other
issuer for any trading day shall mean the last reported sales price, regular
way on such day, or if no sale takes place on such day, the average of the
reported closing bid and asked prices on such day, regular way, in either
case as reported on the NYSE or, if such security is not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such security is listed or admitted for trading or, if not listed or
admitted for trading on any national securities exchange, on the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or, if such security is not quoted on
such National Market System, the average of the closing bid and asked prices
for such security on such day shall not have been reported through NASDAQ,
the average of the bid and asked prices on such day as furnished by any NYSE
member firm regularly making a market in such security selected for such
purpose by the Board.
"Fair Market Value" shall mean the average of the daily Current Market
Prices of a share of Common Stock during the five (5) consecutive Trading
Days selected by the Company commencing not more than twenty (20) Trading
Days before, and ending not later than, the earlier of the day in question
and the day before the "ex" date with respect to the issuance or
distribution, means the first day on which the Common Stock trades regular
way, without the right to receive such issuance or distribution, on the
exchange or in the market, as the case may be, used to determine that day's
Current Market Price.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which
such securities are listed or admitted, or if not listed or
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admitted for trading on any national securities exchange, on the National
Market System of the NASDAQ, or if such securities are not quoted on such
National Market System, in the applicable securities market in which the
securities are traded.
"Transfer Agent" means the Company or such other agent or agents of the
Company as may be designated by the Board from time to time as the transfer
agent for the Convertible Preferred Stock.
IN WITNESS WHEREOF, Louis Dreyfus Natural Gas Corp. has caused this
certificate to be duly executed on its behalf by the undersigned, Mark E.
Monroe, President and Chief Executive Officer and attested by Kevin R. White,
its Secretary, this _____ day of __________, 1997.
LOUIS DREYFUS NATURAL GAS CORP.
By:
----------------------------------
Mark E. Monroe, President and
Chief Executive Officer
Attest:
- ----------------------------
Kevin R. White, Secretary
21
<PAGE>
Exhibit 4.2
[FRONT]
$450 CUMULATIVE CONVERTIBLE
PREFERRED STOCK
NUMBER SHARES
--------------- ---------------
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF OKLAHOMA CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE
IN NEW YORK, NEW YORK
$450 CUMULATIVE CONVERTIBLE PREFERRED STOCK
LOUIS DREYFUS NATURAL GAS CORP.
CUSIP
--------------
This certifies that
----------------------------------------------------
is the owner of
---------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF $450 CUMULATIVE CONVERTIBLE PREFERRED
STOCK, PAR VALUE $0.01 PER SHARE, OF
Louis Dreyfus Natural Gas Corp., an Oklahoma corporation (hereinafter and on
the back hereof called the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed. This Certificate and
the shares represented hereby are issued and shall be subject to all of the
provisions of the Amended and Restated Certificate of Incorporation and the
By-laws of the Corporation (copies of which are on file with the Transfer
Agent) as now or hereafter amended pursuant to their terms, to all of which
the holder hereof by acceptance hereof assents. This Certificate is not
valid unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
AND REGISTRAR
By
------------------------ --------------------- --------------------
Authorized Signature Secretary President
[SEAL]
<PAGE>
[REVERSE]
LOUIS DREYFUS NATURAL GAS CORP.
$450 CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of the $450 Cumulative
Convertible Preferred Stock and the qualifications, limitations or
restrictions of such preferences and/or rights. Such request may be made to
the Corporation or the Transfer Agent.
Keep this certificate in a safe place. If it is lost, stolen or
destroyed, the Corporation may required a bond of indemnity as a condition to
the issuance of a replacement certificate.
- -------------------------------------------------------------------------------
<TABLE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may
also be used though not in the following list:
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - .........Custodian.........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants under..........Uniform Gifts to Minors Act
in common (State)
</TABLE>
- -------------------------------------------------------------------------------
FOR VALUE RECEIVED, ________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------------
- -----------------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
--------------------------------------------
(Signature must be guaranteed by a commercial bank
or trust company or a member firm of a recognized
United States securities exchange)
X
------------------------------------------------
NOTICE:The signature to this assignment must
correspond with the name as written upon the
face of the within Certificate in every
particular, without alteration or enlargement
or any change whatsoever.
<PAGE>
Exhibit 4.4
[FRONT]
INCORPORATED UNDER THE LAWS OF THIS RECEIPT IS TRANSFERABLE AT THE OFFICE
THE STATE OF OKLAHOMA OR AGENCY OF THE DEPOSITARY IN
NEW YORK, NEW YORK
NUMBER DEPOSITARY SHARES
------ -----------------
(EACH SUCH SHARE REPRESENTING A 1/200
INTEREST IN A SHARE OF $450 CUMULATIVE
CONVERTIBLE PREFERRED STOCK, PAR VALUE
$0.01 PER SHARE)
DEPOSITARY RECEIPT FOR
$450 CUMULATIVE CONVERTIBLE PREFERRED STOCK OF
LOUIS DREYFUS NATURAL GAS CORP.
CUSIP
---------------
SEE REVERSE FOR
CERTAIN DEFINITIONS
1. The undersigned depositary (the "Depositary") hereby certifies
that__________________________________ is the registered owner of
__________________________________________________ DEPOSITARY SHARES
("Depositary Shares") representing $450 Cumulative Convertible Preferred
Stock, par value $0.01 per share ("Convertible Preferred Stock"), of Louis
Dreyfus Natural Gas Corp. incorporated under the laws of the State of
Oklahoma (the "Company"). Each such Depositary Share represents a 1/200
interest in a share of Convertible Preferred Stock at the date hereof
deposited at the principal office of the Depositary in New York, New York
(such office or the corporate trust office of the Depositary or the office of
the Registrar at which its business in respect of matters governed by the
Deposit Agreement is administered at any later time, being at the relevant
time, the "Corporate Office"). The rights, preferences and limitations of
the Convertible Preferred Stock are set forth in the Company's Amended and
Restated Certificate of Incorporation, as amended, and in the Certificate of
Designation with respect to the Convertible Preferred Stock, copies of which
are on file at the Corporate Office.
2. THE DEPOSIT AGREEMENT. The Depositary Receipts, of which this Receipt
is one ("Receipts"), are made available upon the terms and conditions set
forth in the Deposit Agreement dated as of December 10, 1993 (the "Deposit
Agreement") among the Company, as successor, the Depositary and all holders
from time to time of Receipts. The Deposit Agreement (copies of which are on
file at the Corporate Office) sets forth the rights of holders of the
Receipts and the rights and duties of the Depositary in respect of the
Convertible Preferred Stock deposited and any and all other property and cash
from time to time held thereunder. The statements made on the face and the
reverse of this Receipt are summaries of certain provisions of the Deposit
Agreement and are subject in all respects to the detailed provisions thereof,
the precise terms of which are hereby incorporated by reference herein.
Defined terms used in the Receipt shall have the same meaning as assigned to
them in the Deposit Agreement.
3. REDEMPTION. Whenever the Company shall be permitted and shall elect,
under the Company's Amended and Restated Certificate of Incorporation, as
amended, and the Certificate of Designation, to redeem shares of the
Convertible Preferred Stock, it shall give the Depositary (or, at the
election of the Depositary, the Registrar) not less than 40 days' notice of
the date of such redemption, the number of shares of Convertible Preferred
Stock held by the Depositary to be redeemed and the applicable redemption
price, which price shall include the amount, if any, equal to accumulated and
unpaid dividends to the date of such redemption. The Depositary (or, at the
election of the Depositary, the Registrar) shall mail notice of such
redemption and the simultaneous redemption of the number of Depositary Shares
representing the Convertible Preferred Stock to be redeemed, not less than 30
nor more than 60 days prior to the date fixed for the
1
<PAGE>
redemption to the holders of record of Receipts representing the number of
Depositary Shares to be redeemed. In case less than all the outstanding
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed
shall be selected by lot or pro rata with adjustments to avoid fractional
shares. Notice having been mailed as aforesaid, from and after the
redemption date (unless the Company shall have failed to redeem the shares of
Convertible Preferred Stock to be redeemed by it as set forth in the
Company's notice provided for in this paragraph), all dividends in respect of
the Depositary Shares so called for redemption shall cease to accrue, said
Depositary Shares shall be deemed no longer to be outstanding, all rights of
the holders of Receipts with respect to such Depositary Shares (except the
right to receive the redemption price and any other amounts payable in
connection with such redemption) shall terminate, and, upon surrender in
accordance with said notice of the Receipts representing any such Depositary
Shares (properly endorsed or assigned for transfer, if the Depositary or the
Registrar shall so require), such Depositary Shares shall be redeemed by the
Depositary (or, at the election of the Depositary, the Registrar) at the
redemption price therefor set forth in said notice. If less than all the
Depositary Shares represented by this Receipt are called for redemption, the
Depositary (or, at the election of the Depositary, the Registrar) will
deliver to the holder of this Receipt upon its surrender to the Depositary
(or, at the election of the Depositary, the Registrar), together with the
applicable redemption price and any other amounts per share payable with
respect to such Depositary Shares, a new Receipt representing the Depositary
Shares, if any, not called for redemption.
4. SURRENDER OF RECEIPTS AND WITHDRAWAL OF CONVERTIBLE PREFERRED STOCK.
Upon surrender of this Receipt to the Depositary (or, at the election of the
Depositary, the Registrar) at such office as may be hereafter designated, and
subject to the terms and conditions of the Deposit Agreement, the holder
hereof is entitled to delivery to him or, upon his order, of such number of
whole or fractional (in increments of .005 of a share of Convertible
Preferred Stock) shares of Convertible Preferred Stock and any other property
at the time represented hereby as the holder hereof may designate. The
Depositary (or, at the election of the Depositary, the Registrar) will also
deliver to the holder hereof one or more Receipts for (a) the number of
Depositary Shares representing the number of whole or fractional (in
increments of .005 of a share of Convertible Preferred Stock) shares of
Convertible Preferred Stock, if any, which the holder hereof does not wish to
withdraw and (b) the number of Depositary Shares representing any fraction of
one whole share of Convertible Preferred Stock represented by such
surrendered Receipt.
5. TRANSFERS, SPLIT-UPS, COMBINATIONS. This Receipt is transferable on
the books of the Registrar upon surrender of this Receipt to the Registrar,
properly endorsed or accompanied by a properly executed instrument of
transfer, and upon such transfer the Registrar shall sign and deliver a
Receipt or Receipts to or upon the order of the person entitled thereto, as
provided in the Deposit Agreement. This Receipt may be split into other
Receipts or combined with other Receipts into one Receipt, each representing
the whole number of Depositary Shares requested, together representing the
same aggregate whole number of Depositary Shares as the Receipt or Receipts
surrendered.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH HOLDER OF RECEIPTS WHO SO
REQUESTS A FULL STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF
CONVERTIBLE PREFERRED STOCK OR SERIES THEREOF WHICH THE COMPANY IS AUTHORIZED
TO ISSUE AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST IS TO BE ADDRESSED TO THE
SECRETARY OF THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR TO THE
REGISTRAR.
This Receipt shall not be entitled to any benefits under the Deposit
Agreement or be valid or obligatory for any purpose, unless this Receipt
shall have been executed by the Depositary by the signature of a duly
authorized officer and by the signature of a duly authorized officer of the
Registrar.
Dated:
------------------------------
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Depositary and Registrar
By
---------------------------------
AUTHORIZED SIGNATURE
2
<PAGE>
[REVERSE]
LOUIS DREYFUS NATURAL GAS CORP.
DEPOSITARY RECEIPT FOR $450 CUMULATIVE CONVERTIBLE PREFERRED STOCK
6. SUSPENSION OF DELIVERY, TRANSFER, ETC. The deposit of Convertible
Preferred Stock may be refused, the delivery of this Receipt against
Convertible Preferred Stock may be suspended or the transfer of Receipts may
be refused, or the transfer, surrender or exchange of this Receipt may be
suspended if any such action is deemed necessary or advisable by the
Depositary, the Registrar or the Company at any time or from time to time
because of any requirement of law or of any government or governmental body
or commission, or under any provision of the Deposit Agreement or for any
other reason.
7. PAYMENT OF TAXES OR OTHER GOVERNMENTAL CHARGES. If any tax or other
governmental charge shall become payable by or on behalf of the Depositary,
the Registrar or any Depositary's Agent with respect to this Receipt or with
respect to the Depositary Shares represented by this Receipt, such tax
(including transfer taxes, if any) or governmental charge shall be payable by
the holder hereof. Transfer of this Receipt, or any withdrawal of
Convertible Preferred Stock and all money or other property, if any,
represented by the Depositary Shares evidenced by this Receipt, may be
refused until such payment is made, and any dividends, interest payments or
other distributions may be withheld, or any part or all of the Depositary
Shares represented by this Receipt and not theretofore sold may be sold for
the account of the holder hereof (after attempting by reasonable means to
notify the holder hereof prior to such sale), and such dividends, interest
payments or other distributions or the proceeds of any such sale may be
applied to any payment of such tax or other governmental charge or such
expenses, the holder of this Receipt remaining liable for any deficiency.
8. WARRANTIES BY DEPOSITOR. Every person depositing Convertible
Preferred Stock under the Deposit Agreement shall be deemed thereby to
represent and warrant that each certificate for such Convertible Preferred
Stock is valid and that the person making such deposit is duly authorized to
do so.
9. AMENDMENT. The form of the Receipts and any provisions of the Deposit
Agreement may at any time and from time to time be amended by agreement
between the Company and the Depositary in any respect which they may deem
necessary or desirable. Any amendment which imposes any fees or charges
(other than taxes, fees and charges provided for in the Deposit Agreement),
shall not become effective as to outstanding Receipts until the expiration of
three months after notice of such amendment has been given to the record
holders of outstanding Receipts. If any other such amendment shall be
prejudicial to any existing right of holders of Receipts, it shall not become
effective as to outstanding Receipts until the holders of record of Receipts
representing not less than 66 2/3% of the number of Depositary Shares then
outstanding shall have consented thereto in writing or by voting therefor in
person or by proxy at a meeting held on notice for such purpose or any
adjournment or adjournments thereof. The holder of this Receipt at the time
any such amendment so becomes effective shall be deemed, by continuing to
hold this Receipt, to consent and agree to such amendment and to be bound by
the Deposit Agreement as amended thereby. In no event shall any such
amendment impair the right of the holder of this Receipt to surrender this
Receipt and receive therefor the Convertible Preferred Stock and any money or
other property represented hereby, except in order to comply with mandatory
provisions of applicable law.
10. CHARGES OF DEPOSITARY AND REGISTRAR. The Company will pay all
reasonable charges of the Depositary and the Registrar, except for taxes and
other governmental charges, and such facsimile transmissions, telegram, telex
and other charges as are expressly provided in the Deposit Agreement to be at
the expense of persons depositing Convertible Preferred Stock or holders of
Depositary Shares.
11. TITLE TO RECEIPTS. It is a condition of this Receipt, and every
successive holder hereof by accepting or holding the same consents and
agrees, that title to this Receipt (and to the Depositary Shares evidenced
hereby), when properly endorsed or accompanied by a properly executed
instrument of transfer, is transferable by delivery with the same effect as
in the case of a negotiable instrument; provided, however, that until this
Receipt shall be transferred on the books of the Registrar, the Depositary
and the Registrar may, notwithstanding any notice to the contrary, treat the
record holder hereof at such time as the absolute owner hereof for the
purpose of determining the person entitled to dividends or other
distributions or to any notice provided for in the Deposit Agreement and for
all other purposes.
3
<PAGE>
12. DIVIDENDS AND DISTRIBUTIONS. Whenever the Depositary receives any
cash dividend or other cash distribution on the Convertible Preferred Stock,
the Depositary will make or will cause to be made, subject to the provisions
of the Deposit Agreement, such distribution to the record holders of Receipts
as is attributable to the number of Depositary Shares held by them; provided,
however, that the amount distributed will be reduced by any amounts required
to be withheld by the Company, the Depositary, the Registrar or any
Depositary's Agent on account of taxes. Other distributions received on the
Convertible Preferred Stock may be distributed to record holders of Receipts
as provided in the Deposit Agreement.
13. SUBSCRIPTION RIGHTS, PREFERENCES OR PRIVILEGES. Whenever the Company
shall offer or cause to be offered to the record holders of the Convertible
Preferred Stock any rights, preferences or privileges to subscribe for or to
purchase any securities or any rights, preferences or privileges of any other
nature, such rights, preferences or privileges shall in each instance be made
available by the Depositary (or, at the election of the Depositary, the
Registrar) to the holders of Receipts in such manner as the Depositary (or,
at the election of the Depositary, the Registrar) may determine, either by
the issuance to the record holders of Receipts entitled thereto of warrants
representing such rights, preferences or privileges or by such other method
as may be approved by the Depositary (or, at the election of the Depositary,
the Registrar) in its discretion; provided, however, that if at the time of
issuance or offer of any such rights, preferences or privileges the
Depositary (or, at the election of the Depositary, the Registrar) determines
that it is not lawful or not feasible to make such rights, preferences or
privileges available to holders of Receipts by the issue of warrants or
otherwise, or if and to the extent so instructed by holders of Receipts who
do not desire to exercise such rights, preferences or privileges, the
Depositary (or, at the election of the Depositary, the Registrar) in its
discretion, may, if applicable laws and the terms of such rights, preferences
or privileges permit transfer, sell such rights, preferences or privileges at
public or private sale, at such place or places and upon such terms as it may
deem proper. The net proceeds at any such sale shall be distributed by the
Depositary (or, at the election of the Depositary, the Registrar) to the
record holders of Receipts entitled thereto as in the case of a distribution
received in cash.
If any other action, including the registration under the Securities Act
of 1933, as amended (the "Securities Act"), of the securities to which any
rights, preferences or privileges relate, under the laws of any jurisdiction
or any governmental or administrative authorization, consent or permit is
required in order for such rights, preferences or privileges to be made
available to holders of Receipts, the Company will use its reasonable best
efforts to take such action or obtain such registration, authorization,
consent or permit sufficiently in advance of the expiration of the rights,
preferences or privileges to enable such record holders of Receipts to
exercise such rights, preferences or privileges.
14. FIXING THE RECORD DATE. Whenever any cash dividend or other cash
distribution shall become payable or any distribution other than cash shall
be made, or whenever rights, preferences or privileges shall be offered, with
respect to the Convertible Preferred Stock, or whenever the Depositary (or,
at the election of the Depositary, the Registrar) shall receive notice of any
meeting at which holders of Convertible Preferred Stock are entitled to vote
or of which holders of Convertible Preferred Stock are entitled to notice,
the Depositary (or, at the election of the Depositary, the Registrar) shall
fix a record date, which shall be the record date fixed by the Company with
respect to the Convertible Preferred Stock.
15. VOTING RIGHTS. Upon receipt of notice of any meeting at which the
holders of Convertible Preferred Stock are entitled to vote, the Depositary
(or, at the election of the Depositary, the Registrar) shall, as soon as
practicable thereafter, mail to the record holders of Receipts a notice which
shall contain (a) such information as is contained in such notice of meeting,
and (b) a statement that the record holders of Receipts at the close of
business on a specified record date will be entitled, subject to any
applicable provisions of law and of the Amended and Restated Certificate of
Incorporation, as amended, of the Company and the Certificate of Designation
with respect to the Convertible Preferred Stock, to instruct the Depositary
as to the exercise of the voting rights pertaining to the amount of
Convertible Preferred Stock represented by each of their respective
Depositary Shares, and a brief statement as to the manner in which such
instructions may be given. Upon the written request of a record holder of a
Receipt on such record date, the Depositary shall endeavor in so far as
practicable to vote or cause to be voted in accordance with the instructions
set forth in such request the amount of Convertible Preferred Stock
represented by such Receipt. In the absence of specific instructions from
the holder of a Receipt, the Depositary will abstain from voting to the
extent of the Convertible Preferred Stock underlying such Receipt.
4
<PAGE>
16. CHANGES AFFECTING DEPOSITED SECURITIES. Upon any change in par
value, split-up, consolidation or any other reclassification of the
Convertible Preferred Stock, or upon any recapitalization, reorganization,
merger, amalgamation or consolidation affecting the Company or to which it is
a party, or the sale of substantially all of the Company's assets, the
Depositary may in its discretion with the approval of the Company, and in
such manner as the Depositary may deem equitable, treat any securities which
shall be received by the Depositary in exchange for or upon conversion of or
in respect of the Convertible Preferred Stock as new deposited securities
under the Deposit Agreement, and Receipts then outstanding shall thenceforth
represent the new deposited securities so received in exchange or conversion.
In any such case the Depositary (or, at the election of the Depositary, the
Registrar) may in its discretion, with the approval of the Company, execute
and deliver additional Receipts, or may call for the surrender of all
outstanding Receipts to be exchanged for new Receipts specifically describing
such new deposited securities.
17. REPORTS; INSPECTION OF TRANSFER BOOKS. The Depositary and the
Registrar shall deliver to the record holders of Receipts any reports and
communications received from the Company which are both (a) received by the
Depositary as the holder of the Convertible Preferred Stock, and (b) made
generally available to the holders of such Convertible Preferred Stock by the
Company. During any period in which the Company is neither subject to
Sections 13 or 15(d) of the Exchange Act, nor exempt from Exchange Act
reporting pursuant to Rule 12g3-2(b) under the Exchange Act, each record
holder of a Receipt or Receipts and a prospective purchaser designated by a
holder shall have the right to obtain from the Company, upon request by the
holder, the information required by paragraph (d)(4)(i) of Rule 144A. The
Registrar will keep books for the transfer of Receipts, which at all
reasonable times will be open for inspection by the record holders of
Receipts to the same extent as a record holder of Convertible Preferred Stock
may inspect books for the transfer of Convertible Preferred Stock.
18. LIABILITY OF THE DEPOSITARY, THE DEPOSITARY'S AGENTS, THE REGISTRAR
OR THE COMPANY. Neither the Depositary, any Depositary's Agent, the
Registrar nor the Company shall incur any liability to any holder of any
Receipt, if by reason of any provision of any present or future law of the
United States of America, or of any other governmental authority, or, in the
case of the Depositary, the Depositary's Agent or the Registrar, by reason of
any provision, present or future, of the Amended and Restated Certificate of
Incorporation, as amended, of the Company or the Certificate of Designation
with respect to the Convertible Preferred Stock, or by reason of any act of
God or war or other circumstance beyond their control, the Depositary, the
Depositary's Agent, the Registrar or the Company shall be prevented or
forbidden from doing or performing any act or thing which by the terms of the
Deposit Agreement it is provided shall be done or performed; nor shall the
Depositary, any Depositary's Agent, the Registrar or the Company incur any
liability to any holder of a Receipt by reason of any non-performance or
delay, caused as aforesaid, in the performance of any act or thing which by
the terms of the Deposit Agreement it is provided shall or may be done or
performed, or by reason of any exercise of, or failure to exercise, any
discretion provided for in the Deposit Agreement except, in the case of any
such exercise or failure to exercise discretion not caused as aforesaid, if
caused by the negligence or willful misconduct of the party charged with such
exercise or failure to exercise.
19. OBLIGATIONS OF THE DEPOSITARY, THE DEPOSITARY'S AGENTS, THE REGISTRAR
AND THE COMPANY. Neither the Depositary, the Depositary's Agent, the
Registrar nor the Company assumes any obligation or shall be subject to any
liability under the Deposit Agreement to holders of Receipts other than that
each of them agrees to use its reasonable care and good faith in the
performance of such duties as are specifically set forth in the Deposit
Agreement.
None of the Depositary, any Depositary's Agent and the Registrar will be
under any obligation to appear in, prosecute or defend any action, suit or
other proceeding in respect of the Convertible Preferred Stock or in respect
of the Receipts, which in its opinion may involve it in expense or liability,
unless indemnity satisfactory to it against all expense and liability be
furnished as often as may be required. Neither the Depositary, any
Depositary's Agent, the Registrar nor the Company will be liable for any
action or non-action by it in reliance upon the advice of or information from
legal counsel, accountants, any person presenting Convertible Preferred Stock
for deposit, any holder of a Receipt or any other person believed by it in
good faith to be competent to give such advice or information. The
Depositary will not be responsible for any failure to carry out any
instructions to vote any of the shares of Convertible Preferred Stock or for
the manner or effect of any such vote made, as long as any such action or
non-action is in good faith. The Depositary will indemnify the Company
against any liability which may arise out of acts performed or omitted by the
Depositary or its agents due to negligence or bad faith. The Registrar will
indemnify the Company and the Depositary against any liability which may
arise out of acts performed or omitted by the Registrar or its agents due to
negligence
5
<PAGE>
or bad faith. The Depositary, the Depositary's Agents and the Registrar may
also act as transfer agent or registrar of any of the securities of the
Company and its affiliates.
20. RESIGNATION AND REMOVAL OF DEPOSITARY. The Depositary may at any
time (i) resign by written notice of its election to do so delivered to the
Company, such resignation to take effect upon the appointment of a successor
depositary and its acceptance of such appointment, or (ii) be removed by the
Company, effective upon the appointment of a successor depositary and its
acceptance of such appointment, all as provided in the Deposit Agreement.
21. TERMINATION OF DEPOSIT AGREEMENT. The Company shall be entitled to
terminate the Deposit Agreement at any time upon not less than 60 days' prior
written notice to the Depositary, in which case, upon a date that is not
later than 30 days after the date of such notice, the Depositary shall
deliver or make available for delivery to each record holder, upon surrender
of the Receipt or Receipts held by each record holder, such number of whole
or fractional shares of Convertible Preferred Stock represented by such
Receipt or Receipts. If the record holder of any Receipt or Receipts shall
not have so surrendered such Receipt or Receipts in exchange for whole or
fractional shares of convertible Preferred Stock on or prior to the effective
date of termination of the Deposit Agreement, such record holder shall for
all purposes, including the payment of dividends, be deemed to be a record
holder of the appropriate number of whole or fractional shares of Convertible
Preferred Stock previously represented by such Receipt or Receipts and shall
thereafter surrender to the Company such Receipt or Receipts in exchange for
whole or fractional shares of Convertible Preferred Stock. If any Receipts
remain outstanding after the date of termination, the Depositary and the
Registrar thereafter shall discontinue all functions and be discharged from
all obligations as provided in the Deposit Agreement, except as specifically
provided therein.
22. GOVERNING LAW. The Deposit Agreement and this Receipt and all rights
thereunder and hereunder and provisions hereof and thereof shall be governed
by and construed in accordance with the laws of the State of New York.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations:
<TABLE>
<S> <C>
TENCOM - as tenants in common UNIF GIFT MIN ACT - ............Custodian.................
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors Act
in common ........................................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
--------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------
- ------------------------------------------------------------------------------
the within Receipt and all rights and interests represented thereby, and
hereby irrevocably constitutes and appoints
- ------------------------------------------------------------------------------
to transfer the same on the books of the within named Registrar, with full
power of substitution in the premises.
Dated X
----------------------- ----------------------------------------------
X
----------------------------------------------
(Sign here exactly as name(s) is (are) shown on
the face of the certificate without any change or
alteration whatsoever.)
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Receipt in every particular, without
alteration or enlargement or any change whatever.
6
<PAGE>
Exhibit 5.1
[Letterhead of Crowe & Dunlevy]
September 2, 1997
Louis Dreyfus Natural Gas Corp.
14000 Quail Springs Parkway, Suite 600
Oklahoma City, Oklahoma 73134
Gentlemen:
We have acted as counsel to Louis Dreyfus Natural Gas Corp., an Oklahoma
corporation (the "Company"), in connection with the Agreement and Plan of
Reorganization dated as of June 24, 1997, as amended (the "Merger Agreement"),
by and between the Company and American Exploration Company, a Delaware
corporation ("American"), providing, among other things, for the merger of
American with and into Merger Sub (the "Merger"). Pursuant to the Merger
Agreement, upon consummation of the Merger, (i) the Company will issue shares of
Common Stock, par value $0.01 per share (the "Common Stock"), and make a payment
of cash in exchange for all of the outstanding shares of common stock of
American, par value $0.05 per share, (ii) the Company will issue shares of $450
Cumulative Convertible Preferred Stock, par value $0.01 per share ("Preferred
Stock"), in exchange for all of the outstanding shares of preferred stock of
American, and (iii) the Company will issue depositary shares ("Depositary
Shares"), each representing a 1/200 interest in a share of Preferred Stock, in
exchange for all outstanding depositary shares of American.
We have also acted as counsel to the Company in connection with the
Company's Registration Statement on Form S-4 concurrently being filed with the
Securities and Exchange Commission (the "Registration Statement") relating to
the Common Stock, Preferred Stock and Depositary Shares to be issued by the
Company in connection with the Merger.
We have, as counsel, examined such corporate records, certificates and
other documents and reviewed such questions of law as we have deemed necessary,
relevant or appropriate to enable us to render the opinions set forth below. In
rendering such opinions, we have assumed the genuineness of all signatures and
the authenticity of all documents submitted to us as originals, and the
conformity to the original documents of all documents submitted to us as
certified or photostatic copies. As to various questions of fact material to
such opinions, we have relied, to the extent we deem reasonably appropriate,
upon representations or certificates of officers of the Company and upon
documents, records and instruments furnished to us by the Company, without
independent verification of their accuracy.
<PAGE>
Louis Dreyfus Natural Gas Corp.
September 2, 1997
Page 2
Based upon such examination and representations, we advise you that, in our
opinion:
A. Subject to approval of the Merger by the stockholders of the Company,
the shares of Common Stock which are to be issued and delivered by the Company
as contemplated by the Merger Agreement have been duly and validly authorized
by the Company and, when issued and delivered by the Company as contemplated
by the Merger Agreement, will be validly issued, fully paid and nonassessable.
B. Subject to approval of the Merger by the stockholders of the Company,
(i) the shares of Preferred Stock which are to be issued and delivered by the
Company as contemplated by the Merger Agreement have been duly and validly
authorized by the Company and, upon proper filing with the Secretary of State of
the State of Oklahoma of a Certificate of Designation relating to the Preferred
Stock (the "Certificate of Designation") as described in the Registration
Statement and the issuance and delivery of the Preferred Stock as contemplated
by the Merger Agreement, will be validly issued, fully paid and nonassessable
and (ii) the shares of Common Stock issuable upon conversion of the Preferred
Stock, upon delivery thereof in accordance with the terms of the Certificate
of Designation, will be validly issued, fully paid and nonassessable.
C. Subject to approval of the Merger by the stockholders of the
Company, when depositary receipts evidencing the Depositary Shares have been
duly issued by the depositary pursuant to the Deposit Agreement described in
the Registration Statement, the Depositary Shares will be legally issued,
valid and binding obligations of the Company entitled to the benefits of the
Deposit Agreement.
We consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Joint Proxy Statement/Prospectus contained therein. In giving such consent,
we do not admit that we come within the category of persons whose consent is
required by Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
CROWE & DUNLEVY,
A Professional Corporation
By: /s/ J. BRADFORD HAMMOND
---------------------------------
J. Bradford Hammond
<PAGE>
[Letterhead of Shearman & Sterling]
September 2, 1997
American Exploration Company
1331 Lamar Street, Suite 900
Houston, Texas 77010
Ladies and Gentlemen:
We have acted as special counsel to American Exploration Company, a
Delaware corporation ("American"), in connection with the proposed merger (the
"Merger") of American with and into Louis Dreyfus Natural Gas Corp., a Oklahoma
corporation ("LDNG"), upon the terms and conditions set forth in the Agreement
and Plan of Reorganization dated as of June 24, 1997, as amended, by and among
LDNG and American (the "Agreement"). At your request, in connection with the
filing of the Registration Statement on Form S-4 filed with the Securities and
Exchange Commission in connection with the Merger (the "Registration
Statement"), we are rendering our opinion concerning certain federal income tax
consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of American and the consent of LDNG, upon the accuracy and completeness
of the statements and representations (which statements and representations we
have neither investigated nor verified) contained, respectively, in the
certificates of the officers of American and LDNG (copies of which are attached
hereto and which are incorporated herein by reference), and have assumed that
such certificates will be complete and accurate as of the Effective Time. We
have also relied upon the accuracy of the Registration Statement and the Joint
Proxy Statement/Prospectus included therein (together, the "Proxy Statement").
Any capitalized term used and not defined herein has the meaning given to it in
the Proxy Statement or the appendices thereto (including the Agreement).
We have also assumed that the transactions contemplated by the
Agreement will be consummated in accordance therewith and as described in the
Proxy Statement and that the Merger will qualify as a statutory merger under the
applicable laws of the States of Oklahoma and Delaware.
Based upon and subject to the foregoing, the discussion contained in
the Proxy Statement under the caption "THE MERGER -- Material Federal Income Tax
Consequences", except as otherwise indicated, represents our opinion as to the
material federal income tax consequences of the Merger under currently
applicable law.
<PAGE>
2
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement, and to the
references to us under the caption "THE MERGER -- Material Federal Income Tax
Consequences" and elsewhere in the Proxy Statement. In giving such consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
SHEARMAN & STERLING
Attachments
127030
<PAGE>
Exhibit 8.2
[Letterhead of Crowe & Dunlevy]
September 2, 1997
Louis Dreyfus Natural Gas Corp.
14000 Quail Springs Parkway, Suite 600
Oklahoma City, Oklahoma 73134
Ladies/Gentlemen:
We have acted as counsel to Louis Dreyfus Natural Gas Corp., an
Oklahoma Corporation ("LDNG"), in connection with the proposed merger (the
"Merger") of American Exploration Company, a Delaware corporation ("American"),
with and into LDNG upon the terms and conditions set forth in the Merger
Agreement dated as of June 24, 1997, as amended, by and between LDNG and
American (the "Agreement"). At your request, in connection with the filing of
the Registration Statement on Form S-4 filed with the Securities and Exchange
Commission in connection with the Merger (the "Registration Statement"), we are
rendering our opinion concerning certain federal income tax consequences of the
Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of LDNG and the consent of American, upon the accuracy and completeness
of the statements and representations (which statements and representations we
have neither investigated nor verified) contained, respectively, in the
certificates of the officers of LDNG and American (copies of which are attached
hereto and which are incorporated herein by reference), and have assumed that
such certificates will be complete and accurate as of the Effective Time. We
have also relied upon the accuracy of the Registration Statement and the Joint
Proxy Statement/Prospectus included therein (together, the "Proxy
Statement/Prospectus"). Any capitalized term used and not defined herein has
the meaning given to it in the Proxy Statement/Prospectus or the appendices
thereto (including the Agreement).
<PAGE>
Louis Dreyfus Natural Gas Corp.
September 2, 1997
Page 2
We have also assumed that the transactions contemplated by the
Agreement will be consummated in accordance therewith and as described in the
Proxy Statement/Prospectus and that the Merger will qualify as a statutory
merger under the applicable laws of the States of Oklahoma and Delaware.
Based upon and subject to the foregoing, the discussion contained in
the Proxy Statement/Prospectus under the caption "THE MERGER - Material Federal
Income Tax Consequences", except as otherwise indicated, represents our opinion
as to the material federal income tax consequences of the Merger under currently
applicable law.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement, and to the
reference to this opinion under the caption "THE MERGER - Material Federal
Income Tax Consequences" and elsewhere in the Proxy Statement/Prospectus. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended.
Very truly yours,
CROWE & DUNLEVY
A Professional Corporation
By: /s/ JAMES H. HOLLOMAN, JR.
-----------------------------------
James H. Holloman, Jr.
<PAGE>
Exhibit 12.1
LOUIS DREYFUS NATURAL GAS CORP.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
For purposes of these computations, earnings consist of income before
income taxes and fixed charges less capitalized interest. Fixed charges consist
of interest expense, including amortization of debt discount and financing
costs, capitalized interest, the portion of rental expense which LDNG believes
is representative of the interest component of rental expense.
<TABLE>
PRO FORMA (1)
------------------
SIX SIX
MONTHS YEAR MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------------------------------- JUNE 30, DEC. 31, JUNE 30,
1992 1993 1994 1995 1996 1997 1996 1997
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EARNINGS:
Income before income taxes ............... $ 2,699 $ 3,631 $ 16,038 $ 15,739 $ 31,500 $ 28,062 $ 8,451 $ 20,109
Interest ................................. 9,939 14,364 16,856 21,736 26,822 12,519 33,976 16,040
Amortization of debt issue costs.......... 452 871 894 1,111 1,073 537 1,073 537
Interest portion of rental expense........ 176 184 293 291 307 159 843 295
--------- -------- -------- -------- -------- -------- -------- --------
$ 13,266 $ 19,050 $ 34,081 $ 38,877 $ 59,702 $ 41,277 $ 44,343 $ 36,981
--------- -------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- -------- --------
FIXED CHARGES:
Interest................................ $ 9,939 $ 14,364 $ 16,856 $ 21,736 $ 26,822 $ 12,519 $ 33,976 $ 16,040
Capitalized interest.................... - - - 266 431 356 967 493
Amortization of debt issue costs........ 452 871 894 1,111 1,073 537 1,073 537
Interest portion of rental expense...... 176 184 293 291 307 159 843 295
PREFERRED DIVIDEND FACTOR................. - - - - - - 2,903 1,452
--------- -------- -------- -------- -------- -------- -------- --------
$ 10,567 $ 15,419 $ 18,043 $ 23,404 $ 28,633 $ 13,571 $ 39,762 $ 18,817
--------- -------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- -------- --------
Ratio of earnings to combined fixed
charges and preferred stock dividends... 1.3:1 1.2:1 1.9:1 1.7:1 2.1:1 3.0:1 1.1:1 2.0:1
--------- -------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
(1) - See the unaudited pro forma financial statements, including the notes
thereto, appearing elsewhere in the Registration Statement.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-4 No. 333-__________) and related
Prospectus of Louis Dreyfus Natural Gas Corp. for the registration of
12,074,427 shares of its common stock, 800,000 shares of its depositary
shares, 4,000 shares of its preferred stock and 1,280,000 shares of its
common stock issuable upon conversion of the preferred stock and to the
incorporation by reference therein of our report dated January 31, 1997,
except for the second paragraph of Note 13, as to which the date is March 10,
1997, with respect to the consolidated financial statements and schedule of
Louis Dreyfus Natural Gas Corp. included in its Annual Report on Form 10-K,
as amended on Form 10-K/A dated March 19, 1997, for the year ended December
31, 1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Oklahoma City, Oklahoma
September 2, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report dated February 25,
1997 on the audited consolidated financial statements of American Exploration
Company and subsidiaries included in the American Exploration Company Annual
Report on Form 10-K for the year ended December 31, 1996, and to all references
to our Firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
September 2, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the reference in the Registration Statement on Form
S-4 of Louis Dreyfus Natural Gas Corp. and the related Prospectus to our
report dated January 22, 1997 relating to our review of the oil and gas
reserves of Louis Dreyfus Natural Gas Corp. as of December 31, 1996. We also
consent to all references to our firm included in or made a part of such
Registration Statement and Prospectus.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
September 2, 1997
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the incorporation by reference and use in the
Registration Statement on Form S-4 and related Prospectus of Louis Dreyfus
Natural Gas Corp. of information contained in our reserve report dated
January 29, 1997, relating to the oil and gas reserves and revenue, as of
December 31, 1996, of American Exploration Company set forth in such report.
We also consent to all references to our firm included in or made a part of
such Registration Statement and Prospectus.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By /s/ Frederic D. Sewell
---------------------------------------
Frederic D. Sewell
President
Dallas, Texas
September 2, 1997
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the incorporation by reference and use in the
Registration Statement on Form S-4 and related Prospectus of Louis Dreyfus
Natural Gas Corp. of information contained in our reserve report dated
January 14, 1997, relating to the oil and gas reserves, as of December 31,
1996, of American Exploration Company set forth in such report. We also
consent to all references to our firm included in or made a part of such
Registration Statement and Prospectus.
WILLIAM M. COBB & ASSOCIATES, INC.
By /s/ Frank J. Marek
Dallas, Texas ----------------------------------
September 2, 1997 Frank J. Marek, Vice President
<PAGE>
Exhibit 23.6
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our
opinion letter, dated June 24, 1997, under the caption "The Merger -- Opinion
of Financial Advisor to LDNG" in, and to the inclusion of such opinion letter
as Appendix B to, the Joint Proxy Statement/Prospectus of Louis Dreyfus
Natural Gas Corp., which Joint Proxy Statement/Prospectus is part of the
Registration Statement on Form S-4 (File Number ) of
Louis Dreyfus Natural Gas Corp. By giving such consent we do not thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in, or that we come
within the category of persons whose consent is required under, the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
SALOMON BROTHERS INC
By /s/ Thomas C. King
---------------------------------------
Managing Director
New York, New York
September 2, 1997
<PAGE>
Exhibit 23.7
CONSENT OF PRUDENTIAL SECURITIES INCORPORATED
As financial advisor to the Board of Directors of American Exploration
Company ("American"), we hereby consent to the references to our firm under
the captions "SUMMARY -- Opinion of Financial Advisors," "THE MERGER --
Background of the Merger," "THE MERGER -- Recommendation of the American
Board and Reasons for the Merger," and "THE MERGER -- Opinion of Financial
Advisor to American" in the Joint Proxy Statement/Prospectus of Louis Dreyfus
Natural Gas Corp. ("LDNG") included in the Registration Statement on Form S-4
(File No. ___-__________) of LDNG and to the inclusion of a copy of our
opinion letter as Appendix C to such Joint Proxy Statement/Prospectus. By
giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we admit that we are experts with respect to
any part of such Registration Statement within the meaning of "experts" as
used in the Securities Act of 1933, as amended, or the rules and regulations
of the Securities and Exchange Commission thereunder.
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Allen Morton
-------------------------------------
Managing Director
New York, New York
September 2, 1997
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Mark E. Monroe, Kevin R. White and Jeffrey A. Bonney, and each
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the registration statement of Form S-4 under
the Securities Act of 1933 of Louis Dreyfus Natural Gas Corp. (the
"Corporation") relating to securities of the Corporation issuable
in connection with the acquisition by the Corporation of American Exploration
Company, and any and all amendments thereto (including post-effective
amendments), and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority
to do and perform each and every act and thing requisite and necessary to be
done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or
any of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Mark E. Monroe President, Chief Executive Officer June 24, 1997
- ------------------------- and Director
Mark E. Monroe
/s/ Richard E. Bross Executive Vice President June 24, 1997
- ------------------------- and Director
Richard E. Bross
/s/ Jeffrey A. Bonney Vice President and Chief June 24, 1997
- ------------------------- Accounting Officer
Jeffrey A. Bonney
/s/ Simon B. Rich, Jr. Chairman of the Board of Directors June 24, 1997
- -------------------------
Simon B. Rich, Jr.
/s/ John J. Hogan, Jr. Director June 24, 1997
- -------------------------
John J. Hogan, Jr.
/s/ James R. Paul Director June 24, 1997
- -------------------------
James R. Paul
/s/ James T. Rodgers, III Director June 24, 1997
- -------------------------
James T. Rodgers, III
<PAGE>
PROXY PROXY
AMERICAN EXPLORATION COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [ ], 1997
The undersigned hereby appoints John M. Hogan and T. Frank Murphy, jointly
and severally, proxies, with full power of substitution, to vote all shares
of Common Stock and Depositary Shares of American Exploration Company that
the undersigned is entitled to vote at the Special Meeting of Stockholders to
be held on [ ], 1997, at [ ], local time, at
[ ], and at any adjournments thereof with respect to the
matters set forth in the Joint Proxy Statement/ Prospectus dated
[ ], 1997, and all supplements and amendments thereto,
with the same effect as though the undersigned were present in person and
voting such shares and are further authorized in their discretion to vote
upon such other business as may properly come before the Special Meeting of
Stockholders, and any adjournments thereof. The undersigned hereby revokes
all proxies heretofore given to vote at the Special Meeting of Stockholders
and any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IN THE ABSENCE OF SPECIFIC DIRECTIONS TO THE CONTRARY, THIS PROXY WILL BE VOTED
"FOR" PROPOSAL NO. 1 AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO SUCH
OTHER MATTERS AS MAY PROPERLY BE BROUGHT BEFORE THE SPECIAL MEETING AND AT ANY
ADJOURNMENT THEREOF.
(CONTINUED, AND TO BE MARKED, SIGNED AND DATED ON THE REVERSE SIDE)
-- FOLD AND DETACH HERE --
- -------------------------------------------------------------------------------
<PAGE>
AMERICAN EXPLORATION COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY /X/
[ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1 SET FORTH BELOW.
FOR AGAINST ABSTAIN
1. APPROVAL OF THE AGREEMENT AND PLAN OF / / / / / /
REORGANIZATION DATED AS OF JUNE 24, 1997,
AS AMENDED, BY AND BETWEEN
LOUIS DREYFUS NATURAL GAS CORP.,
AND AMERICAN EXPLORATION COMPANY,
AND THE MERGER CONTEMPLATED THEREBY.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and of the Joint Proxy Statement/Prospectus (with all enclosures
and attachments) dated [ ], 1997, relating to the meeting.
Signature(s)
-------------------------------------------
-------------------------------------------
Dated: , 1997
-------------------------------------------
IMPORTANT: Please sign EXACTLY as name(s) appear hereon. Joint Owners should
each sign. When signing as executor, administrator, trustee, guardian, attorney
or corporate officer, please give full title.
-- FOLD AND DETACH HERE --
- -------------------------------------------------------------------------------
<PAGE>
Exhibit 99.2
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
LOUIS DREYFUS NATURAL GAS CORP.
14000 QUAIL SPRINGS PARKWAY
SUITE 600
OKLAHOMA CITY, OKLAHOMA 73134
The undersigned hereby appoints Kevin R. White and David B. Oshel as
proxies (the "Proxies"), each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated on the other
side, all of the shares of Common Stock of Louis Dreyfus Natural Gas Corp. held
of record by the undersigned on the record date at the Special Meeting of
Stockholders to be held on , 1997 or any reconvention thereof.
(CONTINUED, AND TO BE MARKED, DATED, AND SIGNED, ON THE OTHER SIDE)
Please mark
your votes as
indicated in
this example.
/X/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
Item 1 - PROPOSAL TO APPROVE AND ADOPT AN AGREEMENT AND PLAN OF
REORGANIZATION, DATED AS OF JUNE 24, 1997, AS AMENDED, BETWEEN LOUIS
DREYFUS NATURAL GAS CORP. ("LDNG") AND AMERICAN EXPLORATION COMPANY
("AMERICAN") PROVIDING FOR THE MERGER OF AMERICAN WITH AND INTO LDNG,
AS MORE FULLY DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
FOR AGAINST ABSTAIN
/ / / / / /
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the Special Meeting. If any other business is
presented at the Special Meeting, this Proxy shall be voted in accordance with
the recommendations of the Board. As to Item 1, this Proxy will be voted as
directed, but if no directions are indicated, it will be voted for proposal
described in Item 1.
Signature(s) Date
----------------------------------------- -----------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, administrator, trustee or guardian, please give full title
as such.
<PAGE>
Exhibit 99.5
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
I hereby consent to being named as a person about to become a director of
Louis Dreyfus Natural Gas Corp. in its Registration Statement on Form S-4, and
any amendments thereto, filed with the Securities and Exchange Commission.
/s/ Mark Andrews
--------------------------------------
Mark Andrews
Dated: September 2, 1997
