e424b3
Filed
pursuant to Rule 424(b)(3)
Registration No. 333-173415
Magnum Hunter Resources
Corporation
OFFER TO EXCHANGE
Up to
4,280,000 Shares of Magnum Hunter Resources Corporation
Common Stock
for all issued and outstanding exchangeable shares of MHR
Exchangeco Corporation Common Stock
on a
one-for-one
basis
We are offering to exchange, upon the terms and subject to the
conditions set forth in this prospectus, shares of Magnum Hunter
Resources Corporation common stock for the outstanding
exchangeable shares (which we refer to as the “exchangeable
shares”) of MHR Exchangeco Corporation, an indirect
wholly-owned Canadian subsidiary of Magnum Hunter that we refer
to in this prospectus as Exchangeco. Each exchangeable share is
exchangeable for one share of our common stock at any time after
issuance at the option of the holder and will be redeemable at
the option of Exchangeco after one year or upon the earlier to
occur of certain specified events, as described in this
prospectus. See the section entitled “The Exchange
Offer” beginning on page 11 of this prospectus for
more information regarding the exchange.
Because the shares of our common stock offered by this
prospectus will be issued only in exchange for or redemption of
the exchangeable shares, we will not receive any cash proceeds
from this offering. We are paying all expenses of registration
incurred in connection with this offering.
Our common stock is listed on the New York Stock Exchange
(“NYSE”) under the trading symbol “MHR”. On
May 23, 2011, the closing price of our common stock on the
NYSE was $6.37.
The exchange offer will terminate at such time as all of the
exchangeable shares are exchanged. Magnum Hunter, through a
subsidiary, has the right to redeem any outstanding exchangeable
shares at any time beginning one year following the closing date
of the arrangement. Magnum Hunter currently intends to exercise
this right of redemption promptly after it becomes available.
See the section entitled “The Exchange Offer—Other
Circumstances Under Which Exchangeable Shares Are Subject
to Redemption or Exchange” beginning on page 13 of
this prospectus for more information about this right.
There will be no record date for determining holders of
Exchangeco exchangeable shares entitled to participate in the
exchange.
Investing in our securities involves various risks. In our
filings with the Securities and Exchange Commission, which are
incorporated by reference in this prospectus, we identify and
discuss risk factors that you should consider before investing
in our securities. See the section entitled “Risk
Factors” beginning on page 8 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is May 24, 2011.
TABLE OF
CONTENTS
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ii
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1
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8
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9
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10
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10
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11
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15
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20
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26
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35
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45
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46
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50
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50
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50
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51
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No person has been authorized to give any information or make
any representations in connection with this offering other than
those contained or incorporated by reference in this prospectus
in connection with the offering described in this prospectus,
and, if given or made, such information or representations must
not be relied upon as having been authorized by us. This
prospectus shall not constitute an offer to sell or a
solicitation of an offer to buy offered securities in any
jurisdiction in which it is unlawful for such person to make
such an offering or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall under any
circumstances imply that the information contained or
incorporated by reference in this prospectus is correct as of
any date subsequent to the date of this prospectus.
This prospectus incorporates important business and financial
information about Magnum Hunter Resources Corporation and MHR
Exchangeco Corporation that is not included in or delivered with
this document and is included as an exhibit to the registration
statement of which this prospectus is a part. You may obtain
copies of these documents, without charge, upon written or oral
request to Investor Relations, Magnum Hunter Resources
Corporation, 777 Post Oak Boulevard, Suite 650, Houston,
Texas 77056, telephone:
(832) 369-6986.
ABOUT
THIS PROSPECTUS
This document is called a “prospectus”, and it
provides you with a general description of our common stock. We
have filed a registration statement (of which this prospectus
forms a part) with the Securities and Exchange Commission, or
the SEC, under the Securities Act of 1933, as amended, or the
Securities Act, using a shelf registration process. You should
read both this prospectus and any prospectus supplement together
with additional information described under the heading
“Where You Can Find More Information” on page 51.
Our SEC registration statement containing this prospectus,
including exhibits, provides additional information about us and
our common stock offered under this prospectus. The registration
statement can be read at the SEC’s web site or at the
SEC’s offices. The SEC’s web site and street address
are provided under the heading “Where You Can Find More
Information” on page 51.
When acquiring our common stock, you should rely only on the
information provided in this prospectus, including any
information incorporated by reference. No one is authorized to
provide you with information different from that which is
contained, or deemed to be contained, in this prospectus. We are
not offering our common stock in any state where the offer is
prohibited. You should not assume that the information in this
prospectus or any document incorporated by reference is truthful
or complete as of any date other than the date indicated on the
cover page of these documents.
This prospectus contains and incorporates by reference
forward-looking statements. Any “free writing
prospectus” we authorize may also contain forward-looking
statements. Such forward-looking statements should be considered
together with the cautionary statements and important factors
included or referred to in this prospectus and the documents
incorporated herein by reference. See “Special Note
Regarding Forward-Looking Statements” in this prospectus
for more information. You should also carefully consider the
various risk factors incorporated by reference into this
prospectus from our SEC filings, which risk factors may cause
our actual results to differ materially from those indicated.
You should not place undue reliance on our forward-looking
statements.
In this prospectus, references to the terms “Magnum
Hunter”, “the Company”, “we”,
“us”, “our” and similar terms, refer to
Magnum Hunter Resources Corporation and its wholly-owned
subsidiaries on a consolidated basis, unless we state or the
context implies otherwise. We entered into an arrangement
agreement dated as of January 19, 2011 with Exchangeco and
NuLoch pursuant to which we indirectly acquired all of
NuLoch’s outstanding shares, options and compensation
options, with NuLoch thereby becoming an indirect wholly-owned
subsidiary of the Company. The transaction was carried out
pursuant to the arrangement agreement and the plan of
arrangement under subsection 193(9)(a) of the Business
Corporations Act (Alberta), or the ABCA, referred to in the
arrangement agreement. Under the plan of arrangement, Exchangeco
acquired all of the outstanding NuLoch common shares, options
and compensation options for the purchase of NuLoch common
shares in exchange for an aggregate of approximately
42,872,980 shares of Magnum Hunter common stock (including
shares upon exchange of exchangeable shares described below).
Exchangeco is an indirect subsidiary of Magnum Hunter, and has
outstanding a class of non-voting exchangeable shares which we
refer to as the “exchangeable shares” in this
registration statement. In connection with the arrangement,
NuLoch securityholders had the option of receiving Magnum Hunter
common stock, exchangeable shares of Exchangeco, or a
combination of the two for their shares of NuLoch common stock
and their options or compensation options to acquire shares of
NuLoch common stock. Each exchangeable share is exchangeable or
redeemable, as the case may be, for one share of our common
stock in accordance with the terms of the provisions governing
the exchangeable shares. The registration statement of which
this prospectus forms a part relates to shares of our common
stock issuable upon exchange or redemption of exchangeable
shares of Exchangeco following the completion of our acquisition
of NuLoch.
ii
SUMMARY
The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed
information included elsewhere or incorporated by reference in
this prospectus. Because this is a summary, it may not contain
all the information you should consider before deciding whether
to participate in the exchange offer. Before making an
investment decision, you should read the entire prospectus
carefully, including the section entitled “Risk
Factors”, beginning on page 8, and the information
incorporated by reference in this prospectus.
About
Magnum Hunter Resources Corporation
We are an independent oil and gas company engaged in the
acquisition, development and production of oil and natural gas,
primarily in West Virginia, North Dakota, Texas and Louisiana.
We are presently active in three of the most prolific shale
resource plays in the United States, namely the Marcellus Shale,
Eagle Ford Shale and Williston Basin/Bakken Shale. We were
incorporated as a Delaware corporation in 1997. In 2005, we
began oil and gas operations under the name Petro Resources
Corporation. In May 2009, we restructured our management team
and refocused our business strategy, and in July 2009 changed
our name to Magnum Hunter Resources Corporation. Our
restructured management team includes Gary C. Evans, as Chairman
and Chief Executive Officer. Mr. Evans is the former
founder, chairman and chief executive officer of Magnum Hunter
Resources, Inc., a company of similar name that was sold to
Cimarex Energy Corporation for $2.2 billion in June 2005.
Our new management implemented a business strategy consisting of
exploiting our inventory of lower risk drilling locations and
acquiring undeveloped leases and long-lived proved reserves with
significant exploitation and development opportunities primarily
located in unconventional resource plays. As a result of this
strategy, we have substantially increased our assets and
production base through a combination of acquisitions and
ongoing development drilling efforts, our percentage of operated
properties has increased significantly, our inventory of acreage
and drilling locations in resource plays has grown and our
management team has been expanded. Recently, management has
focused on further developing and exploiting unconventional
resource plays, the acquisition of additional operated
properties and the development of associated midstream
opportunities in certain regions in which we operate.
Unless stated otherwise or unless the context otherwise
requires, all references in this report to Magnum Hunter, the
Company, we, our, ours and us are to Magnum Hunter Resources
Corporation and its consolidated subsidiaries.
Acquisition
of NuLoch Resources Inc.
On May 3, 2011, we completed our acquisition of NuLoch
pursuant to the terms of a court-approved plan of arrangement
under Alberta law. NuLoch was a Canadian public oil and natural
gas producer with headquarters in Calgary, Alberta. Pursuant to
the arrangement, at closing we exchanged shares of our common
stock or exchangeable shares of Exchangeco for NuLoch’s
common shares (and options and compensation options to acquire
NuLoch common shares). Pursuant to the plan of arrangement,
holders of NuLoch shares who were residents of Canada or
Canadian partnerships received, at the holder’s election,
(i) a number of exchangeable shares equal to the number of
NuLoch shares exchanged multiplied by the exchange ratio of
0.3304, (ii) a number of Magnum Hunter common shares equal
to the number of NuLoch shares exchanged multiplied by the
exchange ratio, or (iii) a combination of exchangeable
shares and Magnum Hunter common shares as described in
clauses (i) and (ii) above. Holders of NuLoch shares
who were non-Canadian residents received a number of Magnum
Hunter common shares equal to the number of NuLoch shares
exchanged multiplied by the exchange ratio. The exchangeable
shares were offered in connection with the acquisition in lieu
of Magnum Hunter common stock to provide, to the extent
permissible and applicable, the former securityholders of NuLoch
who were residents of Canada or Canadian partnerships with
deferred tax treatment upon the disposition of their NuLoch
shares to Exchangeco. The acquisition was completed pursuant to
the terms of an arrangement agreement dated January 19,
2011 among Magnum Hunter, Exchangeco and NuLoch.
For further information on this transaction, see Magnum
Hunter’s Current Reports on
Form 8-K
filed with the SEC.
1
About MHR
Exchangeco Corporation
Exchangeco is an indirect subsidiary of Magnum Hunter
incorporated under the Business Corporations Act (Alberta) on
January 13, 2011 for the sole purpose of facilitating the
acquisition of NuLoch as the issuer of the exchangeable shares.
The exchangeable shares were offered in the arrangement to
provide an opportunity for NuLoch securityholders who were
residents of Canada to make a tax election to defer certain
capital gain taxes, which would otherwise arise upon the
exchange of their NuLoch shares for shares of our common stock.
Exchangeco has not carried on any active business operations
since its incorporation other than in connection with its role
as a party to the arrangement agreement, pursuant to which it
acquired the issued and outstanding NuLoch shares and NuLoch
options and compensation options and issued the exchangeable
shares. Exchangeco’s registered office is located at 3500,
855 — 2 Street S.W., Calgary, Alberta T2P 4J8.
Principal
Executive Offices
The principal executive offices of Magnum Hunter and Exchangeco
are located at 777 Post Oak Boulevard, Suite 650, Houston,
Texas 77056, their telephone number is
(832) 369-6986
and their website is www.magnumhunterresources.com.
Summary
of Terms of the Exchange Offer
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Issuer |
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Magnum Hunter Resources Corporation |
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Listing |
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Our common stock is traded on the NYSE under the symbol
“MHR.” |
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Exchange Offer |
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We are offering to exchange up to 4,280,000 shares of our
common stock for exchangeable shares of Exchangeco on a
one-for-one
basis upon the exchange, retraction or redemption of such
exchangeable shares. |
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Conditions of the Exchange Offer |
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There are no conditions to the exchange offer other than the
effectiveness of the registration statement of which this
prospectus is a part, and compliance by Magnum Hunter with the
prospectus delivery requirements under U.S. securities laws. |
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Purpose of the Exchange Offer |
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The purpose of the exchange offer is to exchange any and all
outstanding exchangeable shares for shares of our common stock
such that upon completion of the exchange all of the former
securityholders of NuLoch will have received shares of Magnum
Hunter common stock in connection with the acquisition of NuLoch
by Magnum Hunter. The plan of arrangement provides that each
exchangeable share is exchangeable for one share of our common
stock at any time after issuance at the option of the holder,
and will be redeemable at the option of Exchangeco after one
year or upon the earliest to occur of certain specified events. |
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Declared But Unpaid Dividends |
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Upon exchange or redemption of the exchangeable shares, holders
of exchangeable shares will receive a check in an amount equal
to any declared and unpaid dividends payable in cash on their
exchangeable shares and the applicable non-cash item for any
declared and unpaid dividends not payable in cash on their
exchangeable shares (provided that such holder held the
exchangeable share on the applicable dividend record date(s)).
Holders of exchangeable shares will only receive dividends if we
declare dividends on our common stock. We do not have plans to
pay dividends on our common stock for the foreseeable future. |
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Procedures for Tendering Exchangeable Shares |
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Holders of exchangeable shares desiring to accept the exchange
offer must deliver to Exchangeco at its registered office or at
an office of Exchangeco’s transfer agent a written
retraction request and the certificates representing the
exchangeable shares to be redeemed. A holder must state in its
request the business day on which such holder desires Exchangeco
to redeem its exchangeable shares, which business day must be 10
to 15 business days after Exchangeco receives the retraction
request. If such holder fails to specify a business day in its
request, the retraction date will be the 15th business day after
the request is received by Exchangeco. |
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Acceptance of Exchangeable Shares and Delivery of Offer
Consideration and Cash |
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Unless a holder revokes its retraction request, the shares
identified in the retraction request will be redeemed by
Exchangeco or purchased by another of our Canadian subsidiaries,
which we refer to in this prospectus as “Callco,” as
the case may be, and Exchangeco or Callco, as the case may be,
will send the holder (i) a certificate representing the
aggregate number of shares of our common stock and
(ii) provided the holder held the exchangeable shares on
the applicable dividend record date(s), on the payment date
therefor a check in an amount equal to the amount of the
declared and unpaid dividends, if any, payable in cash and/or
the applicable non-cash item for the declared and unpaid
dividends not payable in cash on the retracted or purchased
exchangeable shares, less any amounts withheld on account of tax
required to be deducted and withheld therefrom. To the extent
that the amount required to be deducted or withheld from any
payment to a holder exceeds the cash portion of the dividend or
other consideration otherwise payable to the holder, we have the
ability to sell or otherwise dispose of the portion of the
consideration necessary to provide sufficient funds to enable us
to comply with the deduction or withholding requirement and we
will notify the holder and remit to the holder any unapplied
balance of the net proceeds of such sale For more information on
our withholding rights, see the Section titled “The
Exchange Offer—Withholding Rights” on page 14. |
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Withdrawal Rights |
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A holder of exchangeable shares that makes a retraction request
may revoke such request, in writing, at any time prior to the
close of business on the business day immediately before the
contemplated date of retraction, in which case the exchangeable
shares identified in the retraction request will not be redeemed
by Exchangeco or purchased by Callco. |
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Use of Proceeds |
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We will not receive any cash proceeds from this offering. |
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Fees and Expenses |
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We will pay all expenses incurred in connection with the
exchange offer described in this prospectus. We estimate that
the total expenses of this offering will be approximately
$100,000. |
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Income Tax Considerations |
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See “Income Tax Considerations” beginning on page 35
of this prospectus for a summary of certain material Canadian
and U.S. federal income tax consequences relating to the
exchangeable shares. You should consult your own tax advisor for
a full understanding of the tax considerations of participating
in the exchange offer. |
3
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Market Price and Trading |
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On May 23, 2011, the closing price for Magnum Hunter common
stock on the NYSE was $6.37 per share. The exchangeable shares
are not listed for trading on any exchange. The shares of Magnum
Hunter common stock offered by this prospectus have been
approved for listing on the NYSE, subject to official notice of
issuance. |
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No Appraisal Rights |
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There are no dissenter’s rights or appraisal rights with
respect to the exchange offer. |
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Regulatory Approvals |
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We are not aware of any material regulatory approvals necessary
to complete this offer, except that this exchange offer may not
be commenced until the registration statement, of which this
prospectus is a part, is declared effective by the SEC. |
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Accounting Treatment |
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Exchangeable shares are currently accounted for as outstanding
capital stock of Exchangeco. The value of the Magnum Hunter
shares to be issued upon exchange are accounted for prior to the
exchange as non-controlling interest. Upon the issuance of
shares of Magnum Hunter and the cancellation of the exchangeable
stock, the amounts in non-controlling interest will be
transferred to shareholders’s equity. However, each issued
and outstanding exchangeable share is treated as an issued and
outstanding Magnum Hunter common share for purposes of
calculating earnings per common share for Magnum Hunter. |
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Risk Factors |
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See “Risk Factors” and other information in this
prospectus for a discussion of the factors you should carefully
consider before deciding to invest in the shares of our common
stock being offered by us in this prospectus. |
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Questions |
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If you have any questions regarding the terms of the exchange
offer or the procedures for tendering exchangeable shares in the
exchange offer, please contact Investor Relations, Magnum Hunter
Resources Corporation, 777 Post Oak Boulevard, Suite 650,
Houston, Texas 77056, telephone:
(832) 369-6986. |
4
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF MAGNUM
HUNTER
The following table presents our selected historical
consolidated financial data. The data as of, and for the years
ended, December 31, 2010, 2009, 2008, 2007 and 2006 are
derived from our audited consolidated financial statements for
those periods. The information in the following table is only a
summary and is not indicative of the results of our future
operations. You should read the following information together
with our Annual Report on
Form 10-K
for the year ended December 31, 2010, as amended, and the
other information that we have filed with the SEC and
incorporated by reference herein. See “Where You Can Find
More Information” on page 51 of this prospectus.
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Year Ended December 31,
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2010
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2009
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2008
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2007
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2006
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(In thousands, except per share data and operating data)
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Income Statement Data
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Revenues
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$
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32,724
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$
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6,844
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$
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11,590
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$
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6,638
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$
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1,516
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Net income (loss)
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(13,800
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(15,124
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(6,886
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(5,539
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(3,899
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Earnings (loss) per share: basic and diluted
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(0.25
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(0.39
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(0.21
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(0.28
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(0.20
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Cash dividends declared per common share
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—
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—
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—
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—
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—
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Statement of Cash Flows Data
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Net cash provided by (used in)
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Operating activities
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$
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(1,167
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$
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3,372
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$
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3,437
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$
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854
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$
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(755
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Investing activities
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(118,281
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(16,624
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(10,379
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(29,964
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(6,590
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Financing activities
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117,720
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9,413
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(2,338
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40,225
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8,212
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Balance Sheet Data
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Property, equipment, net, successful efforts method
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$
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232,601
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$
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46,410
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$
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39,134
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$
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42,482
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$
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3,974
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Total assets
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248,967
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66,584
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61,665
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66,363
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10,948
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Total debt
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33,151
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13,044
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21,500
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11,344
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—
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Redeemable preferred stock
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70,236
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5,374
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—
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7,232
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—
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Stockholders’ equity
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103,322
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39,318
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35,078
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42,750
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10,699
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Operating Data
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Production Data
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Crude oil (MBbls)
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|
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316
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|
|
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115
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|
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111
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|
|
97
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|
|
|
—
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Natural gas (MMcfs)
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952
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191
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130
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138
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19
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Total production in barrels of oil equivalent (MBoe)
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475
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|
|
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146
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|
|
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132
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|
|
|
120
|
|
|
|
3
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Average realized sales prices
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Crude oil (per Bbl)
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$
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72.41
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$
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53.56
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|
$
|
86.92
|
|
|
$
|
62.88
|
|
|
$
|
51.62
|
|
|
Natural gas (per Mcf)
|
|
$
|
5.07
|
|
|
$
|
2.46
|
|
|
$
|
4.36
|
|
|
$
|
3.27
|
|
|
$
|
5.95
|
|
|
Total average price (per Boe)
|
|
$
|
58.37
|
|
|
$
|
45.11
|
|
|
$
|
76.96
|
|
|
$
|
54.59
|
|
|
$
|
38.46
|
|
|
Lifting costs (per Boe)
|
|
$
|
26.75
|
|
|
$
|
29.89
|
|
|
$
|
35.78
|
|
|
$
|
29.07
|
|
|
$
|
14.89
|
|
|
Proved oil and natural gas reserves(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (MBbls)
|
|
|
6,824
|
|
|
|
3,822
|
|
|
|
1,862
|
|
|
|
2,370
|
|
|
|
8
|
|
|
Natural gas (MMcf)
|
|
|
39,452
|
|
|
|
9,364
|
|
|
|
4,253
|
|
|
|
2,082
|
|
|
|
116
|
|
|
Natural gas liquids (MBbl)
|
|
|
—
|
|
|
|
787
|
|
|
|
547
|
|
|
|
—
|
|
|
|
—
|
|
|
Total per barrel of oil equivalent (MBoe)
|
|
|
13,400
|
|
|
|
6,169
|
|
|
|
3,118
|
|
|
|
2,717
|
|
|
|
27
|
|
|
|
|
|
(1) |
|
Proved oil and natural gas reserves have not been adjusted for
the effect of discontinued operations. |
5
SELECTED
HISTORICAL FINANCIAL DATA OF EXCHANGECO
The following table presents selected historical financial data
of Exchangeco from its formation on January 13, 2011 to
March 31, 2011. Exchangeco was formed for the sole purpose
of facilitating our acquisition of NuLoch as the issuer of the
exchangeable shares. Exchangeco has not carried on any active
business operations since its incorporation other than in
connection with its role as a party to the arrangement
agreement, pursuant to which it acquired the issued and
outstanding NuLoch shares and NuLoch options and compensation
options and issued the exchangeable shares. Exchangeco did not
generate any revenues and incurred only nominal expenses during
the period from the date of its incorporation through
March 31, 2011. Exchangeco has only nominal assets and
incurred only nominal liabilities prior to the completion of the
acquisition of NuLoch.
| |
|
|
|
|
|
|
|
Period Beginning
|
|
|
|
January 13, 2011 and Ended
|
|
|
|
March 31, 2011
|
|
|
|
(In thousands, except per share data
|
|
|
|
and operating data)
|
|
|
|
Income Statement Data
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
Net income (loss)
|
|
|
—
|
|
|
Earnings (loss) per share: basic and diluted
|
|
|
—
|
|
|
Cash dividends declared per common share
|
|
|
—
|
|
|
Statement of Cash Flows Data
|
|
|
|
|
|
Net cash provided by (used in)
|
|
|
|
|
|
Operating activities
|
|
$
|
—
|
|
|
Investing activities
|
|
|
—
|
|
|
Financing activities
|
|
|
—
|
|
|
Balance Sheet Data
|
|
|
|
|
|
Property, equipment, net, successful efforts method
|
|
$
|
—
|
|
|
Total assets
|
|
|
—
|
|
|
Total debt
|
|
|
—
|
|
|
Redeemable preferred stock
|
|
|
—
|
|
|
Stockholders’ equity
|
|
|
—
|
|
6
Comparative
Per Share Data
The following table sets forth selected historical per share
information of Magnum Hunter and Exchangeco. The historical per
share information of Magnum Hunter below is derived from the
audited financial statements of Magnum Hunter as of, and for the
year ended, December 31, 2010. The unaudited pro forma
combined per share information of Magnum Hunter below gives
effect to the acquisitions of the PostRock assets, NGAS, and
NuLoch and all necessary ancillary transactions and the exchange
offer and assumes that one share of Magnum Hunter common stock
had been issued in exchange for each outstanding exchangeable
share. See the section titled “Unaudited Pro Forma
Financial Information” beginning on page 46 for more
information on the PostRock and NGAS acquisitions. The unaudited
pro forma combined per share information of Magnum Hunter is
derived from the unaudited pro forma combined income statement
for the year ended December 31, 2010 and the unaudited pro
forma combined balance sheet as of December 31, 2010. The
unaudited pro forma combined per share information of Magnum
Hunter does not purport to represent the actual results of
operations that Magnum Hunter would have achieved had the
exchange offer been completed during these periods or to project
the future results of operations that Magnum Hunter may achieve
after the exchange offer.
You should read the following information in conjunction with
the selected historical financial information of Magnum Hunter
included elsewhere in this prospectus and the historical
financial statements of Magnum Hunter incorporated into this
prospectus by reference. See “Selected Historical
Consolidated Financial Data of Magnum Hunter” and
“Where You Can Find More Information” beginning on
pages 5 and 51, respectively, of this prospectus.
| |
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2010
|
|
|
|
Magnum Hunter
|
|
|
|
|
|
Per common share data
|
|
|
|
|
|
Earnings (loss)
|
|
|
|
|
|
Historical
|
|
$
|
(0.25
|
)
|
|
Combined pro forma
|
|
$
|
(0.27
|
)
|
|
Book value
|
|
|
|
|
|
Historical
|
|
$
|
1.38
|
|
|
Combined pro forma
|
|
$
|
3.81
|
|
|
Exchangeco(1)
|
|
|
|
|
|
Per common share data
|
|
|
|
|
|
Earnings (loss)
|
|
|
|
|
|
Historical
|
|
|
—
|
|
|
Combined pro forma
|
|
|
—
|
|
|
Book value
|
|
|
|
|
|
Historical
|
|
|
—
|
|
|
Combined pro forma
|
|
|
—
|
|
|
|
|
|
(1) |
|
Exchangeco was incorporated on January 13, 2011 for the
sole purpose of facilitating the arrangement as the issuer of
the exchangeable shares. Exchangeco has not carried on any
active business operations since its incorporation other than in
connection with its role as a party to the arrangement
agreement, pursuant to which it acquired the issued and
outstanding NuLoch shares and NuLoch options and compensation
options and issued the exchangeable shares. Exchangeco did not
generate any revenues and incurred only nominal expenses during
the period from the date of its incorporation through
March 31, 2011. |
7
RISK
FACTORS
Our business, financial condition, results of operations and
cash flows could be materially adversely affected by any of the
following risks as well as the risks that are incorporated
herein by reference to the risk factors set forth under the
heading “Risk Factors” in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, as amended.
The market or trading price of our securities could decline due
to any of these risks. In addition, please read “Special
Note Regarding Forward-Looking Statements” in this
prospectus, where we describe additional uncertainties
associated with our business and the forward-looking statements
included or incorporated by reference in this prospectus. Please
note that additional risks not presently known to us or that we
currently deem immaterial may also impair our business and
operations.
Risks
Relating to the Exchangeable Shares
Holders
of exchangeable shares will experience a delay in receiving
shares of Magnum Hunter common stock from the date they request
an exchange, which may affect the value of the shares the holder
receives in an exchange.
Holders of exchangeable shares who request to receive Magnum
Hunter common stock in exchange for their exchangeable shares
will not receive Magnum Hunter common stock until 10 to 15
business days after the applicable request is received. During
this period, the market price of Magnum Hunter common stock may
increase or decrease. Any such increase or decrease would affect
the value of the consideration to be received by such a holder
of exchangeable shares upon a subsequent sale of the Magnum
Hunter common stock received in the exchange.
The
exchange of your exchangeable shares is generally taxable in
Canada.
Based on the tax laws as of the date of this prospectus, the
exchange of exchangeable shares for shares of Magnum Hunter
common stock is generally a taxable event in Canada. A
holder’s tax consequences can vary depending on a number of
factors, including the residency of the holder, the method of
the exchange and the length of time that the exchangeable shares
were held prior to the exchange. Canadian income tax
consequences will vary depending on your particular
circumstances. We strongly urge you to consult your tax advisor
as to the tax consequences of exchanging your exchangeable
shares for Magnum Hunter common stock. See “Income Tax
Considerations” beginning on page 35 of this
prospectus.
The
exchange of your exchangeable shares may be taxable in the
U.S.
The U.S. federal income tax consequences of an exchange of
exchangeable shares for shares of Magnum Hunter depends on
whether the exchangeable shares are treated for
U.S. federal income tax purposes as shares of Exchangeco or
as shares of Magnum Hunter common stock. In particular, for
United States federal income tax purposes, a
U.S. Holder’s (and in certain circumstances a
Non-U.S. Holder’s)
exchange of exchangeable shares for shares of Magnum Hunter
common stock will be a taxable sale in which the Holder will
recognize gain or loss if the exchangeable shares are treated as
shares of Exchangeco and not as shares of Magnum Hunter common
stock. There is no direct authority under existing United States
federal income tax law concerning whether the exchangeable
shares should be treated as shares of Exchangeco or shares of
Magnum Hunter common stock. Neither NuLoch nor Magnum Hunter has
requested, or intends to request, a ruling from the Internal
Revenue Service or an opinion of counsel regarding the status of
the exchangeable shares or the tax consequences of the exchange
of exchangeable shares for shares of Magnum Hunter common stock
for United States federal income tax purposes. The discussion
under the heading “Income Tax Considerations —
Material United States Federal Income Tax Consequences”,
beginning on page 38 of this prospectus, includes a
discussion of the United States federal income tax consequences
of the exchange of exchangeable shares based on the treatment of
the exchangeable shares as either (i) shares of Magnum
Hunter common stock or (ii) shares of Exchangeco. Holders
should consider that the United States federal income tax
consequences of an exchange of exchangeable shares may be
adverse to the Holder based on the Holder’s particular
circumstances. Holders should assume that the Internal
Revenue Service may assert and prevail with a position on the
status of the exchangeable shares that is contrary to the
position taken by the Holder.
8
For a description of the material United States federal income
tax consequences of an exchange of exchangeable shares, see the
discussion under the heading “Income Tax
Considerations — Material United States Federal Income
Tax Consequences — Consequences of a Redemption,
Retraction or Exchange of Exchangeable Shares”
beginning on page 40 of this prospectus.
General.
In addition, we are subject to the risks described in
Part I, Item 1.A, “Risk Factors” of our
Annual Report on
Form 10-K
for the year ended December 31, 2010, as amended, as may be
updated by subsequent Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
all of which are on file with the SEC and are incorporated by
reference into this registration statement.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents we incorporate by reference
herein contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act of 1934, as amended, referred to
herein as the Exchange Act. These forward-looking statements
include, among others, statements, estimates and assumptions
relating to our business and growth strategies, our oil and gas
reserve estimates, our ability to successfully and economically
explore for and develop oil and gas resources, our exploration
and development prospects, future inventories, projects and
programs, expectations relating to availability and costs of
drilling rigs and field services, anticipated trends in our
business or industry, our future results of operations, our
liquidity and ability to finance our exploration and development
activities, market conditions in the oil and gas industry and
the impact of environmental and other governmental regulation.
Forward-looking statements generally can be identified by the
use of forward-looking terminology such as “may”,
“will”, “could”, “should”,
“expect”, “intend”, “estimate”,
“anticipate”, “believe”,
“project”, “pursue”, “plan” or
“continue” or the negative thereof or variations
thereon or similar terminology.
These forward-looking statements are subject to numerous
assumptions, risks and uncertainties. Factors that may cause our
actual results, performance or achievements to be materially
different from those anticipated in forward-looking statements
include, among others, the following:
|
|
|
| |
•
|
adverse economic conditions in the United States and globally;
|
| |
| |
•
|
difficult and adverse conditions in the domestic and global
capital and credit markets;
|
| |
| |
•
|
changes in domestic and global demand for oil and natural gas;
|
| |
| |
•
|
volatility in the prices we receive for our oil and natural gas;
|
| |
| |
•
|
the effects of government regulation, permitting and other legal
requirements;
|
| |
| |
•
|
future developments with respect to the quality of our
properties, including, among other things, the existence of
reserves in economic quantities;
|
| |
| |
•
|
uncertainties about the estimates of our oil and natural gas
reserves;
|
| |
| |
•
|
our ability to increase our production and oil and natural gas
income through exploration and development;
|
| |
| |
•
|
our ability to successfully apply horizontal drilling techniques
and tertiary recovery methods;
|
| |
| |
•
|
the number of well locations to be drilled, the cost to drill
and the time frame within which they will be drilled;
|
| |
| |
•
|
drilling and operating risks;
|
| |
| |
•
|
the availability of equipment, such as drilling rigs and
gathering and transportation pipelines;
|
| |
| |
•
|
changes in our drilling plans and related budgets;
|
9
|
|
|
| |
•
|
the adequacy of our capital resources and liquidity including,
but not limited to, access to additional borrowing
capacity; and
|
| |
| |
•
|
risks related to the tax treatment of the exchange of
exchangeable shares.
|
With respect to the Company’s recent acquisitions, factors,
risks and uncertainties that may cause actual results,
performance or achievements to vary materially from those
anticipated in forward-looking statements include, but are not
limited to, failure to realize the expected benefits of the
transactions; negative effects of announcement or consummation
of the transactions on the market price of our common stock;
significant transaction costs
and/or
unknown liabilities; general economic and business conditions
that affect the companies following the proposed transaction;
and other factors.
These factors are in addition to the risks referred to in the
section above entitled “Risk Factors”. Most of these
factors are difficult to anticipate and beyond our control.
Because forward-looking statements are subject to risks and
uncertainties, actual results may differ materially from those
expressed or implied by such statements. You are cautioned not
to place undue reliance on forward-looking statements contained
in this prospectus, any prospectus supplement, the documents
incorporated by reference herein or any “free writing
prospectus” we authorize to be delivered to you, which
speak only as of the their respective dates. Other unknown or
unpredictable factors may cause actual results to differ
materially from those projected by the forward-looking
statements. Unless otherwise required by law, we undertake no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future
events or otherwise. We urge you to review and consider
disclosures we make in this prospectus and other materials that
discuss factors germane to our business. See in particular our
reports on
Forms 10-K,
10-Q and
8-K
subsequently filed from time to time with the SEC.
All forward-looking statements attributable to us are expressly
qualified in their entirety by these cautionary statements.
COMPARATIVE
MARKET PRICE AND DIVIDEND INFORMATION
The table below sets forth the closing sale price of Magnum
Hunter common stock as reported on the NYSE on January 18,
2011, the last trading day prior to the public announcement of
the arrangement agreement, the terms of which included the
issuance of the exchangeable shares, and on May 23, 2011,
the most recent practicable trading day prior to the date of
this prospectus. The exchangeable shares are not listed for
trading on any exchange.
| |
|
|
|
|
|
|
|
|
|
|
|
Magnum Hunter
|
|
Exchangeable
|
|
|
|
Common Stock
|
|
Shares
|
|
|
|
January 18, 2011
|
|
$
|
7.92
|
|
|
|
(1
|
)
|
|
May 23, 2011
|
|
$
|
6.37
|
|
|
|
(1
|
)
|
|
|
|
|
(1) |
|
Exchangeco was formed on January 13, 2011 for the sole
purposes of facilitating the acquisition of NuLoch as the issuer
of the exchangeable shares. Exchangeco has not carried on any
active business operations since its incorporation other than in
connection with its role as a party to the arrangement
agreement, pursuant to which it acquired the issued and
outstanding NuLoch shares and NuLoch options and compensation
options and issued the exchangeable shares. Exchangeco did not
generate any revenues and incurred only nominal expenses during
the period from the date of its incorporation through
March 31, 2011. The exchangeable shares are exchangeable on
a one-for one basis for shares of Magnum Hunter common stock,
and the terms of the exchangeable shares have been established
with the intent of placing holders of the exchangeable shares in
the same functional and economic position as holders of Magnum
Hunter common stock, as nearly as possible. |
USE OF
PROCEEDS
We will not receive any cash proceeds from this offering because
the shares of our common stock will be issued in exchange for or
upon retraction or redemption of the exchangeable shares or upon
the liquidation, dissolution or winding up of Exchangeco or any
other distribution of Exchangeco’s assets for the purpose
of winding up its affairs.
10
THE
EXCHANGE OFFER
We will issue the shares of our common stock covered by this
prospectus only upon exchange or redemption of the exchangeable
shares. No broker, dealer or underwriter has been engaged in
connection with these matters. We have included as exhibits to
the registration statement of which this prospectus forms a
part, the arrangement agreement, the form of plan of
arrangement, exchangeable share provisions, voting and exchange
trust agreement and support agreement relating to the
exchangeable shares, and the following description is qualified
in its entirety by reference to those documents.
Purpose
of the Exchange Offer
The purpose of the exchange offer is to exchange any and all
outstanding exchangeable shares for shares of our common stock
so that following completion of the exchange offer all of the
former securityholders of NuLoch shall have received shares of
Magnum Hunter common stock in connection with the acquisition of
NuLoch by Magnum Hunter. The plan of arrangement provides that
each exchangeable share is exchangeable for one share of our
common stock at any time after issuance at the option of the
holder and will be redeemable at the option of Exchangeco after
one year or upon the earlier to occur of certain specified
events.
Terms of
the Exchange Offer
Magnum Hunter is offering, upon the terms and subject to the
conditions described in this prospectus, to exchange shares of
Magnum Hunter Resources Corporation common stock for the
outstanding exchangeable shares (which we refer to as the
“exchangeable shares”) of Exchangeco.
Retraction of Exchangeable Shares. If you are
a holder of exchangeable shares, you are entitled at any time to
require Exchangeco to redeem, subject to the overriding call
right of another of our Canadian subsidiaries (referred to in
this prospectus as “Callco”), any or all of your
exchangeable shares for a price per exchangeable share of
(i) one share of our common stock and (ii) on the
payment date for any declared and unpaid dividends, a check in
an amount equal to such declared and unpaid dividends payable in
cash on that exchangeable share, and the applicable non-cash
item for the declared and unpaid dividends not payable in cash
on that exchangeable share (provided that you hold the
exchangeable share on the applicable dividend record date).
In order to exercise this right, you must deliver to Exchangeco
at its registered office or at an office of Exchangeco’s
transfer agent, among other things, a written retraction request
and the certificates representing the exchangeable shares to be
redeemed. You must state in your request the business day on
which you desire Exchangeco to redeem your exchangeable shares,
which business day must be 10 to 15 business days after
Exchangeco receives your request. If you fail to specify a
business day in your request, the retraction date will be the
15th business day after your request is received by
Exchangeco.
If you exercise this retraction right to require that Exchangeco
redeem any of your exchangeable shares, Callco will have an
overriding retraction call right, which is Callco’s right
to purchase all but not less than all of those exchangeable
shares for a price per exchangeable share of one share of our
common stock and (provided that you hold the exchangeable share
on the applicable dividend record date), on the payment date for
any declared and unpaid dividends, a check in an amount equal to
such declared and unpaid dividends payable in cash on that
exchangeable share, and the applicable non-cash item for the
declared and unpaid dividends not payable in cash on that
exchangeable share. Upon receipt of your retraction request,
Exchangeco will immediately notify Callco, which must then
advise Exchangeco within five business days as to whether it
will exercise its retraction call right. If Callco does not so
notify Exchangeco, Exchangeco will notify you as soon as
possible thereafter that Callco will not exercise its retraction
call right. If Callco advises Exchangeco that Callco will
exercise its retraction call right within the five business day
period, then the retraction request will be considered only to
be an offer by you to sell the shares identified in your
retraction request to Callco in accordance with Callco’s
retraction call right.
You may revoke your retraction request, in writing, at any time
prior to the close of business on the business day immediately
before the contemplated date of retraction, in which case the
exchangeable shares identified in the retraction request will
not be purchased by Callco or redeemed by Exchangeco. Unless you
revoke your retraction request, the shares identified in the
retraction request will be redeemed by Exchangeco or purchased
by Callco, as
11
the case may be, and Exchangeco or Callco, as the case may be,
will send you (i) a certificate representing the aggregate
number of shares of our common stock and (ii) on the
payment date therefor, a check in an amount equal to the amount
of the declared and unpaid dividends, if any, payable in cash
and the applicable non-cash item for the declared and unpaid
dividends, if any, not payable in cash on the retracted or
purchased exchangeable shares, less any amounts withheld on
account of tax required to be deducted and withheld therefrom.
If, as a result of solvency requirements or other provisions of
applicable law, Exchangeco believes it is not permitted to
redeem all exchangeable shares identified in a retraction
request and Callco has not exercised its retraction call right,
Exchangeco will redeem only those exchangeable shares tendered
by you (rounded down to a whole number of shares) as would be
permissible. In addition, if you do not revoke your retraction
request, the retraction request will constitute notice from you
to the trustee to exercise your exchange right under the voting
and exchange trust agreement entered into by Magnum Hunter,
Exchangeco and the trustee (referred to in this document as the
“voting and exchange trust agreement”), and the
trustee, on your behalf, will require Magnum Hunter to purchase
any exchangeable shares on the retraction date set forth in the
retraction request.
Exchange Rights Upon Liquidation or Dissolution of
Exchangeco. In the event of the liquidation,
dissolution or winding up of Exchangeco or other distribution of
the assets of Exchangeco among its shareholders for the purpose
of winding up its affairs, you will have, subject to applicable
law and Callco’s overriding liquidation call right,
preferential rights to receive from Exchangeco for each
exchangeable share you hold a share of our common stock, plus,
provided that you hold the exchangeable share on the applicable
dividend record date, the amount of all declared and unpaid
dividends, if any, on that exchangeable share. Upon the
occurrence of a liquidation, dissolution or winding up of
Exchangeco, Callco will have an overriding liquidation call
right to purchase all of the outstanding exchangeable shares
(other than exchangeable shares held by Magnum Hunter and its
affiliates) from you on the liquidation date for the same
consideration per share.
Upon the occurrence and during the continuance of an
“insolvency event” (as defined in the following
paragraph), you will be entitled to instruct the trustee under
the voting and exchange trust agreement to exercise the exchange
right with respect to any or all of the exchangeable shares you
hold and require Magnum Hunter to purchase these shares. As soon
as practicable following the occurrence of an insolvency event
or any event which may, with the passage of time
and/or the
giving of notice, become an insolvency event, Exchangeco and
Magnum Hunter must, under the voting and exchange trust
agreement, give written notice to the trustee. As soon as
practicable after receiving notice, the trustee will notify you
of the insolvency event and will advise you of your rights with
respect to the exchange right. The purchase price payable by
Magnum Hunter for each exchangeable share purchased under the
exchange right will be equal to one share of our common stock
plus, provided you hold the exchangeable share on the applicable
dividend record date, a check in an amount in cash equal to any
declared and unpaid dividends, if any, payable in cash on that
exchangeable share and delivery of the applicable non-cash items
for the declared and unpaid dividends, if any, not payable in
cash on that exchangeable share, less any amount withheld on
account of tax.
An “insolvency event” means:
|
|
|
| |
•
|
the institution by Exchangeco of any proceeding to be
adjudicated a bankrupt or insolvent or to be wound up, or the
consent of Exchangeco to the institution of bankruptcy,
insolvency or winding up proceedings against it;
|
| |
| |
•
|
the filing of a petition, answer or consent seeking dissolution
or winding up under any bankruptcy, insolvency or analogous
laws, including the Companies’ Creditors Arrangement Act
(Canada) and the Bankruptcy and Insolvency Act (Canada), and
Exchangeco’s failure to contest in good faith the
proceedings commenced in respect of Exchangeco within
30 days of becoming aware of the proceedings, or the
consent by Exchangeco to the filing of the petition or to the
appointment of a receiver;
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the making by Exchangeco of a general assignment for the benefit
of creditors, or the admission in writing by Exchangeco of its
inability to pay its debts generally as they come due; or
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Exchangeco not being permitted, under solvency requirements or
other provisions of applicable law, to redeem any retracted
exchangeable shares under the exchangeable share provisions.
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In addition, if, as a result of solvency requirements or other
provisions of applicable law, Exchangeco is not permitted to
redeem all exchangeable shares identified in a retraction
request, and Callco has not exercised its retraction call right,
then the retraction request provided by you to the Company will
constitute notice from you to the trustee to exercise your
exchange right under the voting and exchange trust agreement and
the trustee, on your behalf, will require Magnum Hunter to
purchase any exchangeable shares on the retraction date set
forth in the retraction request.
Exchange Rights Upon Liquidation or Dissolution of Magnum
Hunter. In order for the holders of exchangeable
shares to participate on a pro rata basis with the holders of
shares of our common stock, immediately prior to the effective
time of a Magnum Hunter liquidation event (a specified event
relating to the voluntary or involuntary liquidation,
dissolution, winding up or other distribution of the assets of
Magnum Hunter among its shareholders for the purpose of winding
up its affairs), each exchangeable share (other than those held
by Magnum Hunter and its affiliates) will automatically be
exchanged for a share of our common stock plus, provided that
you hold the exchangeable share on the applicable dividend
record date, an amount in cash equal to any declared and unpaid
dividends, if any, payable in cash on that exchangeable share
and delivery of the applicable non-cash items for the declared
and unpaid dividends, if any, not payable in cash on that
exchangeable share, less any amount withheld on account of tax.
Upon your request and surrender of exchangeable share
certificates, duly endorsed in blank and accompanied by those
instruments of transfer that Magnum Hunter may reasonably
require, Magnum Hunter will deliver to you certificates
representing an equivalent number of shares of our common stock,
plus on the payment date therefor, a check for the amount of
those dividends, if any, payable in cash on the exchangeable
shares exchanged by you, and delivery of the applicable non-cash
items for the declared and unpaid dividends, if any, not payable
in cash on the exchangeable shares exchanged by you under the
automatic exchange right, less any amount withheld on account of
tax.
Other
Circumstances Under Which Exchangeable Shares Are Subject
to Redemption or Exchange
In addition to your right to cause the exchange of your
exchangeable shares for shares of our common stock and the
exchange or redemption of your exchangeable shares upon
liquidation or dissolution of Exchangeco or Magnum Hunter
described above, there are circumstances under which the
exchangeable shares are subject to redemption or exchange by
Exchangeco or Callco.
Redemption of Exchangeable Shares by
Exchangeco. On the redemption date (defined
below) for the exchangeable shares, Exchangeco will, subject to
Callco’s redemption call right and applicable law, redeem
all of the then outstanding exchangeable shares of the class for
a price per exchangeable share of one share of our common stock
and (provided that you hold the exchangeable share on the
applicable dividend record date) a check in an amount in cash
equal to the declared and unpaid dividends, if any, payable in
cash on that exchangeable share and delivery of the applicable
non-cash items for the declared and unpaid dividends, if any,
not payable in cash on that exchangeable share. Exchangeco will
provide the registered holders of its exchangeable shares with
at least 45 days prior written notice of the proposed
redemption of the exchangeable shares by Exchangeco or the
purchase of the exchangeable shares by Callco under the
redemption call right described below.
Callco has an overriding right to purchase on the redemption
date all of the outstanding exchangeable shares (other than
those held by Magnum Hunter and its affiliates) for a price per
exchangeable share of one share of our common stock and a check
in an amount equal to the declared and unpaid dividends, if any,
payable in cash on that exchangeable share and delivery of the
applicable non-cash items for the declared and unpaid dividends,
if any, not payable in cash on that exchangeable share held by a
holder on any dividend record date that occurred prior to the
date of purchase of the share by Callco.
To exercise this redemption call right, Callco must notify the
transfer agent and Exchangeco of Callco’s intention to
exercise this right at least 60 days before the redemption
date. The transfer agent will notify the holders of the
exchangeable shares as to whether or not Callco has exercised
its redemption call right after the expiry of the period during
which Callco can exercise its redemption call right. If Callco
exercises its redemption call right, it will purchase on the
redemption date all of the exchangeable shares then outstanding
(other than those held by Magnum Hunter and its affiliates).
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The “redemption date” means the date established by
the board of directors of Exchangeco to redeem all of the
exchangeable shares, which date cannot be prior to the one year
anniversary of the issuance of the exchangeable shares unless
(i) a change of control of Magnum Hunter occurs, in which
event the redemption date shall be as determined by the board of
directors of Exchangeco, (ii) the holders of exchangeable
shares are to vote on a change to the rights of the holders of
exchangeable shares other than a change necessary to maintain
the equivalence of the exchangeable shares to shares of common
stock of Magnum Hunter, and the board of directors of Exchangeco
determines that it is not practical to accomplish the purpose of
such vote, in which case the redemption date shall be the
business day prior to the record date for the meeting or vote of
the holders of exchangeable shares, and (iii) the holders
of exchangeable shares fail to approve or disapprove, as
applicable, a change in the rights of the holders of
exchangeable shares where such approval or disapproval is
necessary to maintain the equivalence of the exchangeable shares
to shares of common stock of Magnum Hunter, in which case the
redemption date shall be business day following the day the
holders of exchangeable shares failed to take such action. If at
any time there are outstanding fewer than 10% of the number of
exchangeable shares issued at the closing of the acquisition of
NuLoch (subject to adjustment for subdivisions or consolidations
or stock dividends and the like), then the board of directors of
Exchangeco may accelerate the redemption date and will provide
prior written notice to the registered holders of exchangeable
shares.
On or after the redemption date, upon your delivery of the
certificates representing the exchangeable shares and the other
documents as may be required to an office of the transfer agent
or the registered office of Magnum Hunter, Exchangeco or Callco
will deliver, for each exchangeable share, one share of our
common stock and, provided that you held the exchangeable shares
on the applicable dividend record date, a check in an amount
equal to the amount of declared and unpaid dividends, if any,
payable in cash on the redeemed exchangeable shares and of the
applicable non-cash items for the declared and unpaid dividends,
if any, not payable in cash on the redeemed exchangeable shares,
less any amounts withheld on account of tax required to be
deducted and withheld therefrom by Exchangeco.
On and after the redemption date, you shall cease to be a holder
of exchangeable shares and shall not be entitled to exercise any
of the rights of holders in respect thereof, other than the
right to receive your proportionate part of the total redemption
price, unless payment of the total redemption price shall not be
made upon delivery of the certificates representing your
exchangeable shares, in which case your rights shall remain
unaffected until the total redemption price has been paid as
described in the preceding paragraph.
Upon payment or deposit of the total redemption price, you shall
thereafter be considered and deemed for all purposes to be a
holder of the shares of our common stock delivered to you or
your custodian on your behalf.
Purchase of Exchangeable Shares by
Exchangeco. Subject to applicable law, Exchangeco
may at any time and from time to time purchase for cancellation
all or any part of the outstanding exchangeable shares on such
terms and conditions as may mutually be agreed by a holder of
exchangeable shares and Exchangeco.
Withholding
Rights
Each of Magnum Hunter, Callco, Exchangeco, Exchangeco’s
transfer agent and the trustee will be entitled to deduct and
withhold from any dividend or other consideration otherwise
payable to any holder of exchangeable shares or shares of Magnum
Hunter common stock such amounts as each of Magnum Hunter,
Callco, Exchangeco, Exchangeco’s transfer agent or the
trustee determines, acting reasonably, is required to deduct and
withhold with respect to such payment under the Income Tax Act
(Canada), the Code or any provision of federal, provincial,
state, local or foreign tax law.
To the extent that amounts are so withheld, such withheld
amounts will be treated for all purposes as having been paid to
the holder of the exchangeable shares or shares of Magnum Hunter
common stock, as the case may be, in respect of which the
deduction and withholding was made, provided, that the withheld
amounts are actually remitted to the appropriate taxing
authority. To the extent that the amount required to be deducted
or withheld from any payment to a holder exceeds the cash
portion of the dividend or other consideration otherwise payable
to the holder, Magnum Hunter, Callco, Exchangeco,
Exchangeco’s transfer agent and the trustee are authorized
to sell or otherwise dispose of the portion of the consideration
necessary to provide sufficient funds to Magnum Hunter, Callco,
Exchangeco, Exchangeco’s transfer agent or the trustee, as
the case may be, to enable it to comply with the
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deduction or withholding requirement and Magnum Hunter, Callco,
Exchangeco, Exchangeco’s transfer agent or the trustee, as
the case may be, will notify the holder and remit to the holder
any unapplied balance of the net proceeds of such sale.
The rights of the holders of exchangeable shares, including
exchange rights, are described in greater detail in the
Exchangeable Share Provisions, which is included as
Schedule A to the Plan of Arrangement which is included as
Exhibit 2.2 to the registration statement, of which this
prospectus is a part.
DESCRIPTION
OF MATERIAL CONTRACTS BETWEEN
MAGNUM HUNTER AND EXCHANGECO
At the closing of the plan of arrangement pursuant to which we
acquired NuLoch, Magnum Hunter and Exchangeco entered into the
voting and exchange trust agreement and the support agreement.
These two agreements, together with the plan or arrangement and
the exchangeable share provisions of Exchangeco included in the
articles of incorporation of Exchangeco, provide the holders of
exchangeable shares with the voting, economic and other rights
which are, as nearly as practicable, effectively equivalent to
those of the holders of Magnum Hunter’s common stock, and
provide the mechanisms pursuant to which each exchangeable share
may be exchanged or redeemed for a share of Magnum Hunter common
stock.
The descriptions of the voting and exchange trust agreement and
the support agreement given below are qualified by reference to
the form of agreements, which are included as Exhibit 9.1
and Exhibit 9.2, respectively, to the registration
statement of which this prospectus is a part.
Voting
and Exchange Trust Agreement
The voting and exchange trust agreement among Magnum Hunter,
Exchangeco and the trustee provides for the voting and certain
information rights of the exchangeable shares with respect to
Magnum Hunter, and provides for the exchange of the exchangeable
shares directly with Magnum Hunter upon the occurrence of an
insolvency event regarding Exchangeco or upon specified events
relating to the liquidation or dissolution of Magnum Hunter. For
a description of the exchange provisions contained in the voting
and exchange trust agreement, see “The Exchange
Offer — Other Circumstances Under Which Exchangeable
Shares Are Subject to Redemption or Exchange”
beginning on page 13 of this prospectus.
Voting Rights with Respect to Magnum
Hunter. Under the voting and exchange trust
agreement, Magnum Hunter has issued to the trustee one share of
special voting preferred stock having attached thereto rights to
that number of votes as is equal to the number of exchangeable
shares issued and outstanding from time to time (other than
exchangeable shares held by Magnum Hunter and its affiliates).
The special voting preferred stock will be held by the trustee
to enable the holders of exchangeable shares to have voting
rights that are effectively equivalent to those of Magnum Hunter
common stockholders.
Each holder of exchangeable shares on the record date for any
meeting at which Magnum Hunter common stockholders are entitled
to vote will be entitled to instruct the trustee to cast and
exercise one of the votes attaching to the special voting
preferred stock held by the trustee for each exchangeable share
held by the holder of exchangeable shares. The trustee will
exercise (either by proxy or in person) the voting rights only
as directed by the relevant holder of exchangeable shares and,
in the absence of voting instructions from a holder of
exchangeable shares, will not exercise such votes. A registered
holder other than Magnum Hunter and its affiliates from time to
time of exchangeable shares, which is referred to in this
section as an exchangeable shares beneficiary, may upon request
to the trustee, obtain a proxy from the trustee entitling the
holder of exchangeable shares to exercise directly at the
meeting that number of votes attaching to the special voting
preferred stock held by the trustee that corresponds to the
number of exchangeable shares held by such holder.
Either the trustee or Magnum Hunter will send to each holder of
exchangeable shares on the record date the notice of each
meeting at which Magnum Hunter common stockholders are entitled
to vote, together with the related meeting materials and a
statement as to the manner in which the exchangeable shares
beneficiary may instruct the trustee to exercise the voting
rights to which the exchangeable shares beneficiary is entitled.
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Such mailing by the trustee or Magnum Hunter will commence on
the same day as Magnum Hunter sends such notice and materials to
Magnum Hunter common stockholders. Either the trustee or Magnum
Hunter will also send to each exchangeable shares beneficiary
copies of all proxy materials, information statements, interim
and annual financial statements, reports and other materials
sent by Magnum Hunter to Magnum Hunter common stockholders at
the same time as these materials are sent to Magnum Hunter
common stockholders. To the extent that such materials are
provided to the trustee by Magnum Hunter, the trustee will also
send to each exchangeable shares beneficiary all materials sent
by third parties to Magnum Hunter common stockholders, including
dissident proxy circulars and tender and exchange offer
circulars, as soon as reasonably practicable after such
materials are delivered to the trustee. Magnum Hunter may
undertake to provide the materials to each exchangeable shares
beneficiary in lieu of the trustee distributing the materials.
All rights of a holder of exchangeable shares to instruct the
trustee to exercise voting rights will cease immediately before
the exchange (whether by redemption, retraction, or through the
exercise of the call rights) of all of such holder’s
exchangeable shares for shares of Magnum Hunter common stock and
upon the liquidation, dissolution or
winding-up
of Exchangeco or Magnum Hunter. Holders will be entitled to vote
the shares of Magnum Hunter common stock they receive in such
circumstances.
Compensation and Indemnification of
Trustee. Magnum Hunter and Exchangeco have
jointly and severally agreed to pay the trustee’s
compensation under the agreement and to reimburse the trustee
for all reasonable expenses (including taxes) and disbursements
incurred by the trustee in connection with its duties under the
agreement. In addition, Magnum Hunter and Exchangeco have
jointly and severally agreed to indemnify and hold harmless the
trustee and each of its directors, officers, employees and
agents appointed and acting in accordance with the agreement
against all claims and losses (including reasonable expenses)
incurred as a result of the performance of any such indemnified
party under the terms of the agreement, but excluding any claims
or losses arising from any fraud, gross negligence,
recklessness, willful misconduct or bad faith on the part of the
indemnified party.
Resignation, Removal of Trustee; Successor
Trustee. The trustee may resign at any time by
giving thirty (30) days advance written notice to Magnum
Hunter and Exchangeco. Upon receipt of notice of resignation,
Magnum Hunter and Exchangeco shall promptly appoint a successor
trustee, which shall be a corporation organized and existing
under the laws of Canada or any province of Canada. If Magnum
Hunter and Exchangeco fail to appoint a successor, a court of
competent jurisdiction may appoint a successor upon application
by either Magnum Hunter or Exchangeco. Magnum Hunter and
Exchangeco may at any time, upon thirty (30) days advance
written notice, remove a trustee and appoint a successor.
Successors to Magnum Hunter. Magnum Hunter
shall not consummate any transaction whereby all or
substantially all of its assets would become owned by another
person or entity (including by merger), unless the acquirer or
successor becomes bound by the terms of the voting and exchange
trust agreement either by operation of law or pursuant to a
written instrument satisfactory to the trustee, and such
transaction is on terms that substantially preserve and do not
impair in any material respect the rights, duties, powers and
authorities of the trustee of the holders of exchangeable
shares. The voting and exchange trust agreement also provides
that in the event of a Magnum Hunter control transaction:
(i) in which Magnum Hunter merges or amalgamates with, or
in which all or substantially all of the then outstanding shares
of Magnum Hunter common stock are acquired by one or more other
corporations to which Magnum Hunter is, immediately before such
merger, amalgamation or acquisition, “related” within
the meaning of the Income Tax Act (Canada) (otherwise than by
virtue of a right referred to in paragraph 251(5)(b)
thereof); (ii) which does not result in an acceleration of
the redemption date in connection with the failure to approve an
exempt exchangeable share voting event; and (iii) in which
all or substantially all of the then outstanding shares of
Magnum Hunter common stock are converted into or exchanged for
shares or rights to acquire shares (“Other Shares”) of
another corporation (the “Other Corporation”), that,
immediately after such Magnum Hunter control transaction, owns
or controls, directly or indirectly, Magnum Hunter; then all
references to Magnum Hunter shall be deemed to be references to
the Other Corporation, and all references in the exchange and
voting trust agreement to shares of Magnum Hunter common stock
will thereafter be and be deemed to be references to Other
Shares (with appropriate adjustments, if any) without any need
to amend the terms and conditions of the exchangeable shares and
without any further action required. In addition, Magnum Hunter
will cause the Other Corporation to deposit one or more voting
securities of such Other Corporation to allow the holders
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of exchangeable shares (other than Magnum Hunter and its
affiliates) to exercise voting rights in respect of the Other
Corporation substantially similar to those described under the
heading “Voting Rights with Respect to Magnum Hunter”
on page 15 of this prospectus.
Amendments. Except as otherwise specifically
provided, the voting and exchange trust agreement may not be
amended except by written instrument signed by Magnum Hunter,
Exchangeco and the trustee that has been approved by the holders
of exchangeable shares given in the manner described below under
the heading “Approval or Consent of Holders of Exchangeable
Shares”. At the request of Magnum Hunter, Exchangeco shall
call a meeting of the holders of the exchangeable shares to
consider any amendment requiring the approval of the holders of
exchangeable shares.
Notwithstanding the foregoing, Magnum Hunter, Exchangeco and the
trustee may amend the terms of the voting and exchange trust
agreement without the approval of the holders of exchangeable
shares for purposes of (i) adding covenants for the
protection of the holders of exchangeable shares (other than
exchangeable shares owned by Magnum Hunter or its affiliates),
provided that that boards of directors of each of Exchangeco and
Magnum Hunter shall be of the good faith opinion that such
changes will not be prejudicial to the rights or interests of
the holders of the exchangeable shares, (ii) making
amendments not inconsistent with the terms of the agreement as
may be necessary or desirable with respect to matters or
questions which, in the good faith opinion of the boards of
directors of each of Exchangeco and Magnum Hunter and in the
opinion of the trustee, it may expedient to make; provided, that
the boards of directors and the trustee, acting on the advice of
counsel, are of the opinion that such amendments will not be
prejudicial to the interests of the holders of the exchangeable
shares, or (iii) making such changes or corrections which
are required for the purpose of curing or correcting any
ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error, provided that the
trustee, acting on the advice of counsel, and the boards of
directors of each of Exchangeco and Magnum Hunter are of the
opinion that the changes will not be prejudicial to the rights
and interests of the holders of the exchangeable shares.
Termination. The trust created by the voting
and exchange trust agreement shall continue until the earliest
to occur of the following events (i) there are no
outstanding exchangeable shares held by any person or entity
other than Magnum Hunter and its affiliates, (ii) Magnum
Hunter and Exchangeco elect to terminate the trust and the
holders of the exchangeable shares approve the termination, and
(iii) 21 years after the death of that last survivor
of the descendents of His Majesty King George VI of Canada and
the United Kingdom of Great Britain and Northern Ireland living
on the date of the creation of the trust. The voting and
exchange trust agreement will survive the termination of the
trust until there are no holders of exchangeable shares (other
than Magnum Hunter and its affiliates).
Support
Agreement
Pursuant to the terms of the support agreement among Magnum
Hunter, Callco and Exchangeco, Magnum Hunter covenants to take
and to refrain from taking certain actions, in each case in
support of the rights of the exchangeable shares.
Magnum Hunter Support Obligations. Pursuant to
the terms of the support agreement, Magnum Hunter agreed that
for so long as any exchangeable shares (other than exchangeable
shares owned by Magnum Hunter or its affiliates) remain
outstanding:
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Magnum Hunter will not declare or pay dividends on shares of
Magnum Hunter common stock unless Exchangeco:
(i) simultaneously declares or pays, as the case may be, an
equivalent dividend on the exchangeable shares and has
sufficient money or other assets or authorized but unissued
securities available to enable the due declaration and the due
and punctual payment, in accordance with applicable law, of any
such equivalent dividend; or (ii) subdivides the
exchangeable shares in lieu of a stock dividend thereon (as
provided for in the exchangeable share provisions) and has
sufficient authorized but unissued securities available to
enable the subdivision;
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Magnum Hunter will advise Exchangeco sufficiently in advance of
the declaration of any dividend on shares of Magnum Hunter
common stock and take other reasonably necessary actions to
ensure that: (i) the declaration date, record date and
payment date for dividends on the exchangeable shares are the
same as
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those for the corresponding dividend on the shares of Magnum
Hunter common stock; or (ii) the record date and effective
date for a subdivision of the exchangeable shares in lieu of a
stock dividend (as provided for in the exchangeable share
provisions, attached to the plan of arrangement as
Schedule A) are the same as the record date and
payment date for the stock dividend on the shares of Magnum
Hunter common stock;
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Magnum Hunter will take all actions and do all things reasonably
necessary or desirable to enable and permit Exchangeco, in
accordance with applicable law, to pay to the holders of the
exchangeable shares the applicable liquidation amount,
redemption price or retraction price in the event of a
liquidation, dissolution or
winding-up
of Exchangeco, a retraction request by a holder of exchangeable
shares or a redemption of exchangeable shares by Exchangeco,
including delivering shares of Magnum Hunter common stock to
holders of exchangeable shares;
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Magnum Hunter will take all actions and do all things reasonably
necessary or desirable to enable and permit Callco, in
accordance with applicable law, to perform its obligations
arising upon the exercise by it of the call rights, including
delivering shares of Magnum Hunter common stock to holders of
exchangeable shares in accordance with the applicable call
right; and
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Magnum Hunter will not (and will ensure that Callco or any of
its affiliates does not) exercise its vote as a shareholder to
initiate the voluntary liquidation, dissolution or
winding-up
of Exchangeco or any other distribution of the assets of
Exchangeco among its shareholders for the purpose of winding up
its affairs nor take any action or omit to take any action (and
Magnum Hunter will not permit Callco or any of its affiliates to
take any action or omit to take any action) that is designed to
result in the liquidation, dissolution or winding up of
Exchangeco or any other distribution of the assets of Exchangeco
among its shareholders for the purpose of winding up its affairs.
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In addition, Magnum Hunter agreed that so long as any
exchangeable shares not owned by Magnum Hunter or its affiliates
are outstanding, Magnum Hunter will not, without the prior
approval of Exchangeco and the holders of the exchangeable
shares given in the manner described below under the heading
“Approval or Consent of Holders of Exchangeable
Shares,” and subject to specified exceptions:
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issue or distribute shares of Magnum Hunter common stock,
securities exchangeable for or convertible into or carrying
rights to acquire shares of Magnum Hunter common stock, rights,
options or warrants to subscribe for or to purchase shares of
Magnum Hunter common stock, evidences of indebtedness or other
assets of Magnum Hunter, to all or substantially all of the
then-outstanding holders of shares of Magnum Hunter common
stock; or
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subdivide, redivide, reduce, combine, consolidate, reclassify or
otherwise change the shares of Magnum Hunter common stock or
effect an amalgamation, merger, reorganization or other
transaction affecting the shares of Magnum Hunter common stock,
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unless the same or an economically equivalent distribution or
change is simultaneously made to the exchangeable shares (or in
the rights of the holders thereof). The board of directors of
Exchangeco is conclusively empowered to determine in good faith
and in its sole discretion whether any corresponding
distribution on or change to the exchangeable shares is the same
as, or economically equivalent to, any proposed distribution on
or change to the shares of Magnum Hunter common stock.
In the event of any proposed tender offer, share exchange offer,
issuer bid, take-over bid or similar transaction with respect to
the shares of Magnum Hunter common stock which is recommended or
otherwise approved or consented to by Magnum Hunter’s board
of directors and in connection with which the exchangeable
shares are not redeemed by Exchangeco or purchased by Callco
under the redemption call right, Magnum Hunter will use
reasonable best efforts to take all actions necessary or
desirable to enable holders of exchangeable shares to
participate in the transaction to the same extent and on an
economically equivalent basis as the holders of shares of Magnum
Hunter common stock.
Segregation of Funds. Magnum Hunter agreed to
cause Exchangeco to deposit a sufficient amount of funds in a
separate account and segregate a sufficient amount of assets and
property as is necessary to enable Exchangeco to pay any
dividends due on exchangeable shares and to otherwise satisfy
Exchangeco’s obligations under the
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exchangeable share provisions in the event of the liquidation or
dissolution of Exchangeco or the retraction or redemption of any
exchangeable shares, or if required, to pay the purchase price
for shares of Magnum Hunter common stock required to be
delivered to any holder of exchangeable shares.
Reservation and Issuance of Shares of Magnum Hunter Common
Stock. Magnum Hunter represented and warranted to
Exchangeco and Callco and agreed that it will at all times while
any exchangeable shares are outstanding and held by any person
or entity other than Magnum Hunter and its affiliates, keep
available and free from preemptive and other rights, out of its
authorized but unissued capital stock, such number of shares of
Magnum Hunter common stock (i) as is equal the sum of the
number of shares of exchangeable shares issued and outstanding
from time to time and the number of exchangeable shares issuable
upon exercise of any rights to acquire exchangeable shares and
(ii) as may be required at any time to permit Magnum Hunter
to meet its obligations under the terms of the arrangement to
issue shares of Magnum Hunter common stock to enable Exchangeco
and Callco to meet their respective obligations to deliver
shares of Magnum Hunter common stock, including upon the
retraction or redemption of the exchangeable shares. Magnum
Hunter further agreed, upon notice from Exchangeco or Callco of
any event that requires Exchangeco or Callco to cause to be
delivered shares of Magnum Hunter common stock, to issue and
deliver the requisite number of shares of Magnum Hunter common
stock.
Notice of Certain Events. In order to assist
Magnum Hunter in complying with its obligations under the
support agreement and to permit Callco to exercise the call
rights, Exchangeco is required to notify Magnum Hunter and
Callco if specified events occur, such as the liquidation,
dissolution or
winding-up
of Exchangeco, Exchangeco’s receipt of a retraction request
from a holder of exchangeable shares, the determination of a
redemption date, the issuance by Exchangeco of any exchangeable
shares or rights to acquire exchangeable shares, and upon
receiving notice of a change of law.
Qualification of Shares of Magnum Hunter Common
Stock. Under the support agreement, Magnum Hunter
will use its reasonable best efforts and in good faith take all
such actions and do all such things as are necessary or
desirable within its power to cause all shares of Magnum Hunter
common stock to be delivered by it under the support agreement
or on the exercise of the rights granted to the trustee under
the voting and exchange trust agreement to be duly registered,
qualified or approved under applicable Canadian and United
States securities laws, if required, so that such shares may be
freely traded by the holder thereof (other than any restriction
on transfer by reason of a holder being a “control
person” of Magnum Hunter for purposes of Canadian law, or
an “affiliate” of Magnum Hunter for the purposes of
U.S. law). In addition, Magnum Hunter will take all actions
necessary to cause all such shares of Magnum Hunter common stock
to be listed or quoted for trading on all stock exchanges or
quotation systems on which outstanding shares of Magnum Hunter
common stock are then listed or quoted for trading (currently
the NYSE). Notwithstanding the terms of the plan of arrangement,
the exchangeable share provisions, the voting and exchange trust
agreement or the support agreement, no shares of Magnum Hunter
common stock will be issued if the issuance would not be
permitted under applicable law.
No Exercise of Voting Rights. Magnum Hunter
and Callco have agreed not to exercise any voting rights
attached to the exchangeable shares owned by them or any of
their affiliates on any matter considered at meetings of holders
of exchangeable shares.
Ownership of Exchangeco and Callco. Magnum
Hunter agreed that without the prior approval of Exchangeco and
the holders of exchangeable shares, and except in connection
with a change of control or sale of all or substantially all of
the assets of Magnum Hunter, so long as any exchangeable shares
are owned by any person or entity other than Magnum Hunter and
its affiliates, Magnum Hunter will remain the direct or indirect
owner of all of the issued and outstanding voting shares of
Exchangeco and Callco.
Successors to Magnum Hunter. Neither Magnum
Hunter nor Callco shall consummate any transaction whereby all
or substantially all of its assets would become owned by another
person or entity (including by merger), unless the acquirer or
successor becomes bound by the terms of the support agreement
either by operation of law or pursuant to a written instrument,
and such transaction is on terms that substantially preserve and
do not impair in any material respect the rights, duties, powers
and authorities of the parties to the support agreement or the
holders of exchangeable shares. In any such transaction, if
shares of Magnum Hunter common stock are reclassified or
otherwise changed, the same or economically equivalent change
must be simultaneously made to, or in the rights of the holders
of, the exchangeable shares. The support agreement also provides
that in the event of a Magnum Hunter
19
control transaction: (i) in which Magnum Hunter merges or
amalgamates with, or in which all or substantially all of the
then outstanding shares of Magnum Hunter common stock are
acquired by one or more other corporations to which Magnum
Hunter is, immediately before such merger, amalgamation or
acquisition, “related” within the meaning of the
Income Tax Act (Canada) (otherwise than by virtue of a right
referred to in paragraph 251(5)(b) thereof);
(ii) which does not result in an acceleration of the
redemption date in connection with the failure to approve an
exempt exchangeable share voting event; and (iii) in which
all or substantially all of the then outstanding shares of
Magnum Hunter common stock are converted into or exchanged for
shares or rights to acquire shares (“Other Shares”) of
another corporation (the “Other Corporation”), that,
immediately after such Magnum Hunter control transaction, owns
or controls, directly or indirectly, Magnum Hunter; then all
references to Magnum Hunter shall be deemed to be references to
the Other Corporation, and all references in the support
agreement to shares of Magnum Hunter common stock will
thereafter be and be deemed to be references to Other Shares
(with appropriate adjustments, if any) without any need to amend
the terms and conditions of the exchangeable shares and without
any further action required.
Amendments. Except as otherwise specifically
provided, the support agreement may not be amended except by
written instrument signed by Magnum Hunter, Callco and
Exchangeco that has been approved by the holders of exchangeable
shares given in the manner described below under the heading
“Approval or Consent of Holders of Exchangeable
Shares”. Notwithstanding the foregoing, Magnum Hunter,
Callco and Exchangeco may amend the terms of the support
agreement without the approval of the holders of exchangeable
shares for purposes of (i) adding covenants of any or all
the parties to the agreement, provided that that boards of
directors of each of Exchangeco, Callco and Magnum Hunter shall
be of the good faith opinion that such changes will not be
prejudicial to the rights or interests of the holders of the
exchangeable shares, (ii) making amendments not
inconsistent with the terms of the agreement as may be necessary
or desirable with respect to matters or questions which, in the
good faith opinion of the boards of directors of each of
Exchangeco, Callco and Magnum Hunter, it may expedient to make;
provided, that the boards of directors are of the good faith
opinion that such amendments will not be prejudicial to the
rights or interests of the holders of the exchangeable shares,
or (iii) making such changes or corrections which are
required for the purpose of curing or correcting any ambiguity
or defect or inconsistent provision or clerical omission or
mistake or manifest error, provided that the boards of directors
of each of Exchangeco, Callco and Magnum Hunter are of the good
faith opinion that the changes will not be prejudicial to the
rights or interests of the holders of the exchangeable shares.
Approval
or Consent of Holders of Exchangeable Shares
References in the voting and exchange trust agreement and the
support agreement concerning the approval or consent of the
holders of exchangeable shares means approval or consent of the
holders of exchangeable shares evidenced by a resolution passed
by not less than
662/3%
of the votes cast on the resolution (other than by Magnum Hunter
and its affiliates) at a meeting of the holders of exchangeable
shares duly called and held at which holders of at least 10% of
the outstanding exchangeable shares (other than Magnum Hunter
and its affiliates) are present. In the event that no quorum is
present at such meeting within one-half hour after the time
appointed for the meeting, the meeting will be adjourned to a
place and time (not less than five days later) designated by the
chair of the meeting. At the adjourned meeting, the holders of
exchangeable shares present or represented by proxy may transact
the business for which the meeting was originally called and a
resolution passed at the adjourned meeting by the affirmative
vote of not less than
662/3%
of the votes cast on the resolution (other than by Magnum Hunter
and its affiliates) will constitute the approval or consent of
the holders of the exchangeable shares.
DESCRIPTION
OF OUR CAPITAL STOCK
The following description of the terms of Magnum Hunter’s
capital stock is a summary only and is qualified by reference to
the relevant provisions of Delaware law and Magnum Hunter’s
certificate of incorporation and bylaws, as amended. Copies of
Magnum Hunter’s certificate of incorporation and bylaws, as
amended, are incorporated by reference and will be sent to
holders of shares of Magnum Hunter stock free of charge upon
written or telephonic request. See “Where You Can Find More
Information” beginning on page 51 of this prospectus.
20
Authorized
Capital Stock
Under Magnum Hunter’s certificate of incorporation, Magnum
Hunter’s authorized capital stock consists of
250,000,000 shares of common stock, par value $0.01 per
share, and 10,000,000 shares of preferred stock, par value
$0.01 per share.
Description
of Common Stock
Common Stock Outstanding. As of May 23,
2011 there were 124,471,476 shares of Magnum Hunter common
stock issued and outstanding. The outstanding shares of Magnum
Hunter common stock are, and the shares of Magnum Hunter common
stock issuable upon exchange of the exchangeable shares of
Exchangeco will be, duly authorized, validly issued, fully paid
and non-assessable.
Voting Rights. Each holder of Magnum Hunter
common stock is entitled to one vote for each share of Magnum
Hunter common stock held of record on the applicable record date
on all matters submitted to a vote of stockholders. Except for
the election of directors, which is determined by a plurality
vote, or as otherwise may be provided by applicable law or the
rules of the NYSE, all matters to be voted on by Magnum Hunter
stockholders must be approved by a majority in voting interest
of the Magnum Hunter stockholders present in person or
represented by proxy and entitled to vote. Holders of Magnum
Hunter common stock are not entitled to cumulate their votes in
the election of directors. Each of the directors will be elected
annually by Magnum Hunter stockholders voting as a single class.
Dividend Rights. Holders of Magnum Hunter
common stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by Magnum
Hunter’s board of directors out of funds legally available
for that purpose, subject to any preferential dividend rights or
other preferences granted to the holders of any outstanding
Magnum Hunter preferred stock. Pursuant to the arrangement
agreement, except with respect to shares of its preferred stock,
Magnum Hunter agreed not to declare or pay any dividends on or
make other distributions in respect of any of its capital stock
(other than dividends or other distributions by subsidiaries)
pending the completion of the arrangement.
Rights upon Liquidation. In the event of any
liquidation, dissolution or winding up of Magnum Hunter, whether
voluntary or involuntary, the holders of Magnum Hunter common
stock are entitled to share ratably, in all remaining assets
available for distribution to stockholders after payment of or
provision for Magnum Hunter’s liabilities, subject to prior
distribution rights of Magnum Hunter preferred stock, if any,
then outstanding.
Preemptive Rights. Holders of Magnum Hunter
common stock have no preemptive rights to purchase, subscribe
for or otherwise acquire any unissued or treasury shares or
other securities.
Description
of Preferred Stock
As of May 23, 2011, there were
(i) 4,000,000 shares of authorized preferred stock
designated as 10.25% Series C Cumulative Perpetual
Preferred Stock, of which 4,000,000 shares were issued and
outstanding and (ii) 5,750,000 shares of authorized
preferred stock designated as 8.0% Series D Cumulative
Preferred Stock, of which 913,898 shares were issued and
outstanding.
Description
of 10.25% Series C Cumulative Perpetual Preferred
Stock
The rights, preferences, privileges and restrictions of shares
of the Magnum Hunter 10.25% Series C Cumulative Perpetual
Preferred Stock, or Series C Preferred Stock, have been
fixed in the Series C certificate of designation and the
material provisions are described below. The following
description of the Series C Preferred Stock is intended as
a summary only and is qualified in its entirety by reference to
the Series C certificate of designation, our certificate of
incorporation and our bylaws, and to the applicable provisions
of Delaware law.
21
Voting Rights. Holders of the Series C
Preferred Stock generally have no voting rights. However, if any
four consecutive or non-consecutive “Quarterly Dividend
Defaults” (as described below) occur or if we fail to
maintain the listing of the Series C Preferred Stock on a
national securities exchange for 180 consecutive days, the
holders of the Series C Preferred Stock, voting separately
as a class with holders of all other series of parity shares
upon which like voting rights have been conferred and are
exercisable, will have the right to elect two directors to serve
on our board of directors, in addition to those directors then
serving on our board of directors until such time as the
dividend arrearage is eliminated or the Series C Preferred
Stock becomes listed on a national securities exchange. In
addition, certain changes that would be materially adverse to
the rights of holders of the Series C Preferred Stock
cannot be made without the affirmative vote of holders of at
least two-thirds of the outstanding shares of Series C
Preferred Stock and all other shares of preferred stock
similarly affected and entitled to vote, voting as a single
class.
Dividend Rights. Holders of the Series C
Preferred Stock are entitled to receive, when and as declared by
our board of directors, out of funds legally available for the
payment of dividends, cumulative cash dividends on the
Series C Preferred Stock at a rate of 10.25% per annum of
the $25.00 liquidation preference per share (equivalent to
$2.5625 per annum per share). However, if any four consecutive
or non-consecutive “Quarterly Dividend Defaults” (as
described below) occur or if we fail to maintain the listing of
the Series C Preferred Stock on a national securities
exchange for 180 consecutive days, the dividend rate on the
Series C Preferred Stock will increase to 12.50% per annum
until such time as the dividend arrearage is eliminated or the
Series C Preferred Stock becomes listed on a national
securities exchange. Effective as of October 1, 2010,
dividends became payable monthly in arrears on the last day of
each month; provided, that if such day falls on a national
holiday or a weekend, such dividends will be due and payable on
the next business day following such weekend or national
holiday. A “Quarterly Dividend Default” occurs if we
fail to pay cash dividends on the Series C Preferred Stock
in full for any monthly dividend period within a calendar
quarter, provided, that only one Quarterly Dividend Default may
occur during each calendar quarter and only four Quarterly
Dividend Defaults may occur within a calendar year.
Rights upon Liquidation. In the event of any
liquidation, dissolution or winding up, whether voluntary or
involuntary, the holders of the Series C Preferred Stock
are entitled to receive, from the assets remaining after payment
of liabilities, subject to the distribution rights of any parity
shares or senior shares (as described below), but before any
distribution of assets to the holders of Magnum Hunter common
stock or other junior shares (as described below), cash in an
amount equal to $25.00 per share, plus accrued and unpaid
dividends (whether or not earned or declared) up to the
distribution date.
Redemption Rights. The Series C
Preferred Stock does not have any stated maturity date and is
not subject to any sinking fund or mandatory redemption
provisions, except under some circumstances upon a “Change
of Ownership or Control” (as described below). Accordingly,
the shares of Series C Preferred Stock will remain
outstanding indefinitely unless we redeem, purchase or otherwise
acquire all or a portion of such shares in the open market or
otherwise. We are not required to set aside funds to redeem the
Series C Preferred Stock. Magnum Hunter may not redeem the
Series C Preferred Stock prior to December 14, 2011,
except pursuant to the special redemption upon a Change of
Ownership or Control discussed below. On and after
December 14, 2011, we may redeem the Series C
Preferred Stock for cash at our option, from time to time, in
whole or in part, at a redemption price of $25.00 per share,
plus accrued and unpaid dividends (whether or not earned or
declared) up to the redemption date. Following a “Change of
Ownership or Control” (as such term is defined in the
Series C Certificate of Designation) of Magnum Hunter by a
person, entity or group other than a “Qualifying Public
Company” (as such term is defined in the Series C
Certificate of Designation), we (or the acquiring entity) will
be required to redeem the Series C Preferred Stock, in
whole but not in part, within 90 days after the date on
which the Change of Ownership or Control has occurred, for cash
at the following price per share, plus accrued and unpaid
dividends (whether or not earned or declared) up to the
redemption date:
| |
|
|
|
|
|
Redemption Date
|
|
Redemption Price
|
|
|
|
On or before December 14, 2011
|
|
$
|
25.50
|
|
|
After December 14, 2011
|
|
$
|
25.00
|
|
A Change of Ownership or Control of Magnum Hunter by a
Qualifying Public Company will not require a mandatory
redemption of the Series C Preferred Stock, but such
Qualifying Public Company will have the right for
22
a period of 90 days after a Change of Ownership or Control
to redeem the Series C Preferred Stock, in whole but not in
part, pursuant to the special redemption provisions described
above.
Conversion Rights. The Series C Preferred
Stock is not convertible into or exchangeable for any stock or
other securities or property of Magnum Hunter.
Series C Ranking. The Series C
Preferred Stock ranks (i) senior to Magnum Hunter common
stock and any other equity securities that Magnum Hunter may
issue in the future, the terms of which specifically provide
that such equity securities rank junior to the Series C
Preferred Stock, in each case with respect to payment of
dividends and amounts upon liquidation, dissolution or winding
up, referred to as “junior shares”; (ii) equal to
any shares of equity securities that we may issue in the future,
the terms of which specifically provide that such equity
securities rank on par with the Series C Preferred Stock,
in each case with respect to payment of dividends and amounts
upon liquidation, dissolution or winding up, referred to as
“parity shares” (any such issuance would require the
affirmative vote of the holders of at least a majority of the
outstanding shares of Series C Preferred Stock);
(iii) junior to all other equity securities issued by us,
the terms of which specifically provide that such equity
securities rank senior to the Series C Preferred Stock, in
each case with respect to payment of dividends and amounts upon
liquidation, dissolution or winding up, referred to as
“senior shares” (any such issuance would require the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series C Preferred Stock); and
(iv) junior to all existing and future indebtedness.
Description
of 8.0% Series D Cumulative Preferred Stock
The rights, preferences, privileges and restrictions of shares
of the Magnum Hunter 8.0% Series D Cumulative Preferred
Stock, or Series D Preferred Stock, have been fixed in the
Series D certificate of designation and the material
provisions are described below. The following description of the
Series D Preferred Stock is intended as a summary only and
is qualified in its entirety by reference to the Series D
certificate of designation, our certificate of incorporation and
our bylaws, and to the applicable provisions of Delaware law.
Dividend Rights. Holders of the Series D
Preferred Stock will be entitled to receive, when and as
declared by the board of directors, out of funds legally
available for the payment of dividends, cumulative cash
dividends on the Series D Preferred Stock at a rate of 8.0%
per annum of the $50.00 liquidation preference per share
(equivalent to $4.00 per annum per share). However, under
certain conditions relating to our non-payment of dividends on
the Series D Preferred Stock or if the Series D
Preferred Stock is no longer listed on a national exchange, the
dividend rate on the Series D Preferred Stock may increase
to 10.0% per annum, which we refer to as the “Penalty
Rate.” Dividends will generally be payable monthly in
arrears on the last day of each calendar month.
Dividends on the Series D Preferred Stock will accrue
regardless of whether (i) the terms of our senior shares
(as defined below) or our agreements, including our credit
facilities, at any time prohibit the current payment of
dividends; (ii) we have earnings; (iii) there are
funds legally available for the payment of such dividends; or
(iv) such dividends are declared by our board of directors.
All payments of dividends made to the holders of Series D
Preferred Stock will be credited against the previously accrued
dividends on such shares of Series D Preferred Stock. We
will credit any dividends paid on the Series D Preferred
Stock first to the earliest accrued and unpaid dividend due. As
described more fully under “Series D Ranking”
below, the payment of dividends with respect to the
Series D Preferred Stock is subordinate to any dividends to
which holders of our Series C Preferred Stock are entitled.
Penalties as a Result of our Failure to Maintain a Listing on
a National Exchange. Once the Series D
Preferred Stock is eligible for listing, if we fail to maintain
a listing of the Series D Preferred Stock on the NYSE, the
NYSE Amex or The NASDAQ Global, Global Select or Capital Market,
or a comparable national exchange (each a “national
exchange”), for 180 consecutive days, then (i) the
annual dividend rate on the Series D Preferred Stock will
be increased to the Penalty Rate on the 181st day, and
(ii) the holders of Series D Preferred Stock, voting
separately as a class with holders of all other series of parity
preferred shares upon which like voting rights have been
conferred and are exercisable, will have the right to elect two
directors to serve on our board of directors in addition to
those directors then serving on the board of directors. Such
increased dividend rate and director service will continue for
so long the Series D Preferred Stock is not listed on a
national exchange.
23
Penalties as a Result of Failure to pay
Dividends. If, at any time, there is a dividend
default because cash dividends on the outstanding Series D
Preferred Stock are accrued but not paid in full for any monthly
dividend period within a quarterly period for a total of four
consecutive or non-consecutive quarterly periods, then, until we
have paid all accumulated and unpaid dividends on the shares of
our Series D Preferred Stock in full: (i) the annual
dividend rate on the Series D Preferred Stock will be
increased to the Penalty Rate commencing on the first day after
the fourth quarterly period in which a monthly payment is
missed, (ii) if we do not pay dividends in cash, dividends
on the Series D Preferred Stock, including all accrued but
unpaid dividends, will be paid either (a) if our common
stock is then listed on a national exchange, in the form of
fully-tradable registered common stock of our Company (based on
the weighted average daily trading price for the 10 business day
period ending on the business day immediately preceding the
payment) and cash in lieu of any fractional share, or
(b) if our common stock is not then listed on a national
exchange, in the form of additional shares of Series D
Preferred Stock with a liquidation value equal to the amount of
the dividend and cash in lieu of any fractional share, and
(iii) the holders of Series D Preferred Stock, voting
separately as a class with holders of all other series of parity
preferred shares upon which like voting rights have been
conferred and are exercisable, will have the right to elect two
directors to serve on our board of directors, in addition to
those directors then serving on our board of directors, until we
have paid all dividends on the shares of our Series D
Preferred Stock for all dividend periods up to and including the
dividend payment date on which the accumulated and unpaid
dividends are paid in full. Once we have paid all accumulated
and unpaid dividends in full and have paid cash dividends at the
Penalty Rate in full for an additional two consecutive quarters
the dividend rate will be restored to the stated rate and the
foregoing provisions will not be applicable unless we again fail
to pay a monthly dividend during any future quarter.
Optional Redemption. We may not redeem the
Series D Preferred Stock prior to March 21, 2014,
except pursuant to the special redemption upon a Change of
Ownership or Control discussed below. On and after
March 21, 2014, we may redeem the Series D Preferred
Stock for cash at our option, from time to time, in whole or in
part, at a redemption price of $50.00 per share, plus accrued
and unpaid dividends (whether or not earned or declared) to the
redemption date.
Special Redemption upon Change of Ownership or
Control. Following a “Change of Ownership or
Control” of us by a person, entity or group, we (or the
acquiring entity) will have the option to redeem the
Series D Preferred Stock, in whole but not in part, within
90 days after the date on which the Change of Ownership or
Control has occurred, for cash at the following price per share,
plus accrued and unpaid dividends (whether or not declared), up
to the redemption date:
| |
|
|
|
|
|
Redemption Date
|
|
Redemption Price
|
|
|
|
Prior to March 20, 2012
|
|
$
|
51.50
|
|
|
On or after March 20, 2012 and prior to March 20, 2013
|
|
$
|
51.00
|
|
|
On or after March 20, 2013 and prior to March 20, 2014
|
|
$
|
50.50
|
|
|
After March 20, 2014
|
|
$
|
50.00
|
|
Series D Ranking. The Series D
Preferred Stock will rank: (i) senior to our common stock
and any other equity securities that we may issue in the future,
the terms of which specifically provide that such equity
securities rank junior to such Series D Preferred Stock, in
each case with respect to payment of dividends and amounts upon
liquidation, dissolution or winding up, referred to as
“junior shares”, (ii) equal to any shares of
equity securities that we may issue in the future, the terms of
which specifically provide that such equity securities rank on
par with such Series D Preferred Stock, in each case with
respect to payment of dividends and amounts upon liquidation,
dissolution or winding up (any such creation would require the
affirmative vote of the holders of at least a majority of the
outstanding shares of Series D Preferred Stock), referred
to as “parity shares”, (iii) junior to our
existing Series C Preferred Stock, which has been fully
issued, (iv) junior to all other equity securities issued
by us, the terms of which specifically provide that such equity
securities rank senior to such Series D Preferred Stock, in
each case with respect to payment of dividends and amounts upon
liquidation, dissolution or winding up (any such creation would
require the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series D Preferred
Stock), referred to, together with the Series C Preferred
Stock, as “senior shares”, and (v) junior to all
our existing and future indebtedness.
24
Liquidation Preference. If we liquidate,
dissolve or wind up our operations, the holders of our
Series D Preferred Stock will have the right to receive
$50.00 per share, plus all accrued and unpaid dividends (whether
or not earned or declared) to and including the date of payment,
before any payments are made to the holders of our common stock
and any other of our junior shares. The rights of the holders of
the Series D Preferred Stock to receive the liquidation
preference will be subject to the proportionate rights of
holders of each other future series or class of parity shares
and subordinate to the rights of senior shares, including the
Series C Preferred Stock.
No maturity or mandatory redemption. The
Series D Preferred Stock does not have any stated maturity
date and will not be subject to any sinking fund or mandatory
redemption provisions except for redemption at our option (or
the option of the acquiring entity) under some circumstances
upon a Change of Ownership or Control as described above or on
or after March 21, 2014.
Voting Rights. Holders of the Series D
Preferred Stock will generally only be entitled to vote on the
authorization or creation of shares on parity with or ranking
senior to the Series D Preferred Stock, certain
acquisitions and share exchange transactions and changes that
would be materially adverse to the rights of holders of
Series D Preferred Stock. However, if cash dividends on any
outstanding Series D Preferred Stock have not been paid in
full for any monthly dividend period for any four consecutive or
non-consecutive quarterly periods, or if we fail to maintain the
listing of the Series D Preferred Stock on a national
exchange for at least 180 consecutive days after the
Series D Preferred Stock becomes eligible for listing on a
national exchange, the holders of the Series D Preferred
Stock, voting separately as a class with holders of all other
series of parity shares upon which like voting rights have been
conferred and are exercisable, will have the right to elect two
directors to serve on our board of directors in addition to
those directors then serving on our board of directors until
such time as the Series D Preferred Stock becomes listed on
a national exchange or the dividend arrearage is eliminated.
No conversion rights. The Series D
Preferred Stock is not convertible into, or exchangeable for,
any of our other property or securities.
Description
of Special Voting Preferred Stock
One share of Magnum Hunter special voting preferred stock has
been issued pursuant to the arrangement agreement and, pursuant
to the arrangement, the share of special voting preferred stock
has been issued to the trustee appointed under the voting and
exchange trust agreement, which is attached as Exhibit D to
the arrangement agreement. The share of special voting preferred
stock has a par value of $0.01 per share. Except as otherwise
required by applicable law, the share of special voting
preferred stock is entitled to a number of votes equal to the
number of outstanding exchangeable shares as of the record date
for determining the common stockholders of Magnum Hunter
entitled to vote at such meeting or in connection with any
applicable consent that are not owned by Magnum Hunter or its
affiliates, and as to which the holder of the share of special
voting preferred stock has received voting instructions from the
holders of such exchangeable shares in accordance with the
voting and exchange trust agreement on all matters submitted to
a vote of Magnum Hunter’s common stockholders, including
the election of directors. The holder of the share of special
voting preferred stock and the holders of Magnum Hunter common
stock vote together as a single class on all matters, except to
the extent voting as a separate class is required by applicable
law. The trustee shall exercise the voting rights attached to
the special voting preferred stock in accordance with the voting
and exchange trust agreement. The holder of the share of special
voting preferred stock will not be entitled to receive dividends
from Magnum Hunter and, in the event of liquidation, dissolution
or winding up of Magnum Hunter, is not entitled to receive any
assets of the Company available for distribution to the
Company’s common stockholders. At such time as the special
voting preferred stock has no votes attached to it, the special
voting preferred stock shall be cancelled and retired without
further action of Magnum Hunter, its board of directors or its
shareholders and without the payment of any consideration in
exchange for such cancellation. The holder of the share of
special voting preferred stock shall not have any rights to
convert such share into, or exchange such share for, shares of
any other series or class of capital stock or other securities
or property of the Company.
Description
of Other Series of Preferred Stock
Pursuant to our certificate of incorporation, as amended, our
board of directors has the authority without further action by
Magnum Hunter’s common stockholders to issue one or more
additional series of preferred stock.
25
The board of directors has the authority to fix the number of
shares of any series of preferred stock and to determine the
designation of any such series. The board of directors is also
authorized to determine and alter the rights, preferences,
privileges and restrictions granted to or imposed upon any
wholly unissued series of preferred stock. In addition, within
the limitations or restrictions stated in any resolution or
resolutions of the board of directors originally fixing the
number of shares constituting any series, the board of directors
has the authority to increase or decrease, but not below the
number of shares of such series then outstanding, the number of
shares of any series subsequent to the issue of shares of that
series. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control without further
action by Magnum Hunter common stockholders and may adversely
affect the market price of, and the voting and other rights of
the holders of, Magnum Hunter common stock. These effects might
include, among other things, restricting dividends on Magnum
Hunter common stock, diluting the voting power of Magnum Hunter
common stock or impairing the liquidation rights of Magnum
Hunter common stock.
Transfer
Agent and Registrar
American Stock Transfer & Trust Company, LLC is
the transfer agent and registrar for our common stock and our
preferred stock.
Listing
Our common stock is listed on the NYSE under the trading symbol
“MHR”. Our Series C Preferred Stock is listed on
the NYSE Amex under the trading symbol “MHR.PrC”. Our
Series D Preferred Stock is listed on the NYSE Amex under
the trading symbol “MHR.PrD”.
COMPARISON
OF RIGHTS OF HOLDERS OF OUR COMMON STOCK AND
EXCHANGECO EXCHANGEABLE SHARES
The exchangeable shares were offered in the arrangement for the
sole purpose of providing an opportunity for NuLoch
securityholders who were residents of Canada to make a tax
election to defer certain capital gain taxes, which would
otherwise arise upon the exchange of their NuLoch shares for
shares of our common stock. Because of the limited purpose for
their issuance, the terms of the exchangeable shares have been
established with the intent of placing the holders of the
exchangeable shares in the same functional and economic position
as holders of Magnum Hunter common shares as nearly as possible.
As a result, pursuant to the exchangeable share provisions in
the articles of incorporation of Exchangeco, the plan of
arrangement and the terms of the voting and exchange trust
agreement and the support agreement, the exchangeable shares
carry voting and dividend/distribution rights substantially
equivalent to those of shares of Magnum Hunter common stock.
However, a holder of exchangeable shares is a shareholder of
Exchangeco, and will not become a stockholder of Magnum Hunter
until that holder receives a share of Magnum Hunter common stock
upon exchange of an exchangeable share (unless such holder owns
other shares of capital stock of Magnum Hunter). Each
exchangeable share is exchangeable for one share of Magnum
Hunter common stock at any time after issuance at the option of
the holder and will be redeemable at the option of Exchangeco
after one year or upon the earliest to occur of certain
specified events, as described in this prospectus.
The following discussion summarizes the material differences
between the rights the holders of exchangeable shares will have
immediately following the completion of the arrangement and the
current rights of Magnum Hunter stockholders. These differences
arise in part from the differences between Alberta law and
Delaware law. Additional differences arise from the governing
instruments of the two companies.
Although it is impracticable to compare all of the aspects in
which Alberta law and Delaware law and Exchangeco’s and
Magnum Hunter’s governing instruments differ with respect
to stockholder rights, the following discussion summarizes
certain material differences between them. This summary is not
intended to be complete, and it is qualified in its entirety by
reference to Alberta law, Delaware law, Exchangeco’s
articles of incorporation and bylaws, the Form of Articles of
Amendment of Exchangeco, and to Magnum Hunter’s amended
certificate of incorporation and amended and restated bylaws. In
addition, the identification of some of the differences in these
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rights as material is not intended to indicate that other
differences that are equally important do not exist. We urge you
to carefully read this entire prospectus, the relevant
provisions of Alberta law and Delaware law and the other
documents referred to in this prospectus for a more complete
understanding of the differences between the rights of a holder
of exchangeable shares and the rights of a Magnum Hunter
stockholder. See “Where You Can Find More Information”
beginning on page 51 of this prospectus.
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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Capitalization
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The authorized capital stock of Exchangeco consists of an
unlimited number of common shares and an unlimited number of
preferred shares and an unlimited number of exchangeable shares.
Under the Exchangeco articles of incorporation, the Exchangeco
board of directors has the authority to issue from time to time
one or more series of preferred shares with such rights,
restrictions, privileges, conditions and designations as fixed
from time to time before issuance by resolution of the
Exchangeco board of directors and confirmed and declared by
articles of amendment.
As of May 23, 2011, (i) there was one common share of
Exchangeco issued and outstanding, (ii) there were no preferred
shares of Exchangeco issued and outstanding, and (iii) these
were approximately 4,275,988 exchangeable shares issued and
outstanding.
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The authorized capital stock of Magnum Hunter consists of (i)
250,000,000 shares of common stock, $0.01 par value,
and (ii) 10,000,000 shares of preferred stock,
$0.01 par value.
Under Magnum Hunter’s certificate of incorporation, Magnum
Hunter’s board of directors has the authority to issue one
or more series of preferred stock and to determine the rights,
preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of preferred stock.
As of May 23, 2011, there were (i) 124,471,476 shares
of Magnum Hunter common stock outstanding, (ii)
4,000,000 shares of Series C Preferred Stock outstanding,
and (iii) 913,898 shares of Series D Preferred Stock
outstanding.
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Voting Rights
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Holders of common shares of Exchangeco are entitled to vote at
all meetings of shareholders of Exchangeco, except meetings at
which only holders of a specified class are entitled to vote.
Each holder of Exchangeco common stock is entitled to one vote
for each share of Exchangeco common stock held of record on the
applicable record date on all matters submitted to a vote of
shareholders.
Except as required by law or under the support agreement, the
exchangeable share provisions included in the articles of
incorporation of Exchangeco or the voting and exchange trust
agreement, the holders of exchangeable shares are not entitled
to vote at any meeting of common shareholders of Exchangeco.
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Each holder of Magnum Hunter common stock is entitled to one
vote for each share of Magnum Hunter common stock held of record
on the applicable record date on all matters submitted to a vote
of stockholders.
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Holders of exchangeable shares are entitled to vote on proposed
amendments to the exchangeable share provisions included in the
articles of incorporation of Exchangeco and are entitled to
consent to certain actions by Magnum Hunter, or amendments to
the voting and exchange trust agreement and the support
agreement that affect the exchangeable shares. Each holder of
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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exchangeable shares is entitled to one vote for each
exchangeable share held of record on the applicable record date
on all matters submitted to a vote of holders of exchangeable
shares.
Under the voting and exchange trust agreement, Magnum Hunter
issued to the trustee one share of special voting preferred
stock having attached thereto rights to that number of votes as
is equal to the number of exchangeable shares issued and
outstanding from time to time (other than exchangeable shares
held by Magnum Hunter and its affiliates). The special voting
preferred stock will be held by such trustee to enable the
holders of exchangeable shares to have voting rights that are
effectively equivalent to those of Magnum Hunter common
stockholders.
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Size of Board of Directors
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The Exchangeco board of directors currently has
4 directors. The articles of incorporation of Exchangeco
provide that the Exchangeco board of directors must consist of
not less than 1 and not more than 15 directors.
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Magnum Hunter’s board of directors currently has nine
members. Magnum Hunter’s bylaws provide that Magnum
Hunter’s board of directors must consist of not less than
one nor more than nine members, as may be fixed from time to
time by a resolution adopted by the majority of the entire board
of directors.
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Election and Removal of Directors
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The Exchangeco bylaws provide that the election of directors of
Exchangeco shall occur at each annual meeting of shareholders of
Exchangeco and the election of directors shall be determined by
a majority of votes cast. The articles of incorporation of
Exchangeco also provide that the directors of Exchangeco may,
between annual meetings of shareholders, appoint one or more
additional directors of the Exchangeco to serve until the next
annual meeting of shareholders, but the number of additional
directors cannot exceed one- third of the number of directors
who held office at the expiration of the last annual meeting of
shareholders of Exchangeco.
The
holders of exchangeable shares are not entitled to vote on the
election of directors of Exchangeco nor are entitled to remove
any director of Exchangeco from office.
See “Voting Rights” above for a general description
of the voting rights of the holders of exchangeable shares with
respect to Magnum Hunter.
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The Magnum Hunter bylaws provide that each director will be
elected by a plurality of votes cast by Magnum Hunter’s
common stockholders.
Delaware law provides that unless the corporation’s
certificate of incorporation provides otherwise, any director or
the entire board of directors may be removed, with or without
cause, by the holders of a majority of the votes then entitled
to vote on the election of directors. Magnum Hunter’s
bylaws provide that any director or the entire board of
directors may be removed, with or without cause, by the holders
of a majority of the votes then entitled to vote on the election
of directors.
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Filling of Vacancies on the Board of Directors
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Pursuant to the ABCA, a quorum of directors may generally fill a
vacancy
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Magnum Hunter’s bylaws provide that newly created
directorships resulting
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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among the directors, except a vacancy resulting from an
increase in the number or minimum number of directors or from a
failure to elect the number or minimum number of directors
required by the articles. If there is not a quorum of
directors, or if there has been a failure to elect the number or
minimum number of directors required by the articles, the
directors then in office shall call a special meeting of common
shareholders to fill the vacancy and, if they fail to call a
meeting or if there are no directors then in office, the meeting
may be called by any common shareholder.
The holders of exchangeable shares are not entitled to fill any
vacancy on the Exchangeco board of directors.
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from any increase in the authorized number of directors and any
vacancies occurring on the Magnum Hunter board of directors,
however caused, may be filled by the affirmative vote of a
majority of the remaining directors even though less than a
quorum, or by a sole remaining director.
Under Delaware law, if there are no directors in office, then
any officer or any stockholder or executor, administrator,
trustee or guardian of a stockholder, or other fiduciary
entrusted with like responsibility for the person or estate of a
stockholder, may call a special meeting of stockholders in
accordance with Magnum Hunter’s certificate of
incorporation or bylaws or may apply to the Delaware Court of
Chancery for a decree summarily ordering an election.
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Meetings of Shareholders or Stockholders
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Under the ABCA the registered holders or beneficial owners of
not less than 5% of the issued shares of a corporation that
carry the right to vote at a meeting sought to be held by such
shareholders may requisition the directors to call a meeting of
shareholders. Upon meeting the technical requirements set out in
the ABCA for making such requisition, the directors of the
corporation must call a meeting of such shareholders. If the
directors fail to call the meeting, the shareholders who made
the requisition may call the meeting.
Exchangeco’s bylaws provide that the board of directors,
the chairman of the board, the managing director or the
president of Exchangeco may call a special meeting of
shareholders at any time.
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Under Delaware law, an annual meeting of stockholders is
required to be held for the election of directors on a date and
at a time designated by or in the manner provided in bylaws. If
there is a failure to hold the annual meeting or to take action
by written consent to elect directors in lieu of an annual
meeting for a period of 30 days after the date designated
for the annual meeting, or if no date has been designated, for a
period of 13 months after the latest to occur of the
organization of the corporation, its last annual meeting or the
last action by written consent to elect directors in lieu of an
annual meeting, the Delaware Court of Chancery may summarily
order a meeting to be held upon the application of any
stockholder or director of the corporation.
Under Delaware law, a special meeting of stockholders may be
called by the board of directors or by any other person
authorized to do so in the corporation’s certificate of
incorporation or bylaws. Magnum Hunter’s bylaws provide
that special meetings may be called by the chairman of the board
of directors, the president or any two or more directors.
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Notice of Meetings
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Pursuant to the ABCA, notice of any meeting of shareholders must
be sent not less than 21 days and not more than
50 days before the meeting. Pursuant to the ABCA, notice of
a meeting of shareholders at which special business is to be
transacted shall state the nature of that business in sufficient
detail to
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Magnum Hunter’s bylaws provide that, except as otherwise
provided by law, written notice of every meeting of stockholders
must be given not less than 10 nor more than 60 days before
the date of the meeting. Under Delaware law, the written notice
of the special meeting must set forth the purpose or
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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permit the shareholder to form a reasoned judgment on that
business, and the text of any special resolution to be submitted
to the meeting.
Except as required by law, the holders of exchangeable shares
are not entitled to receive notice of any meeting of common
shareholders of Exchangeco.
With respect to meetings of Magnum Hunter stockholders, either
the trustee under the voting and exchange trust agreement or
Magnum Hunter will send to each holder of exchangeable shares on
the record date the notice of each meeting at which Magnum
Hunter common stockholders are entitled to vote, together with
the related meeting materials and a statement as to the manner
in which the exchangeable shares beneficiary may instruct the
trustee to exercise the voting rights to which the exchangeable
shares beneficiary is entitled. Such mailing by the trustee or
Magnum Hunter will commence on the same day as Magnum Hunter
sends such notice and materials to Magnum Hunter common
stockholders.
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purposes for which the meeting is called. Under Magnum
Hunter’s bylaws, the business to be transacted at a Magnum
Hunter special meeting of stockholders is limited to the
purposes stated in the notice of meeting.
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Quorum
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The bylaws of Exchangeco provide that a quorum for the
transaction of business at any meeting of shareholders shall be
2 persons, present in person, each being a shareholder
entitled to vote thereat or a duly appointed proxyholder or
representative for a shareholder so entitled.
The articles of incorporation of Exchangeco provide that the
presence in person of by proxy at a meeting of holders of 10% or
the outstanding exchangeable shares at the meeting is a quorum.
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The Magnum Hunter bylaws provide that the presence in person or
by proxy at a meeting of the holders of a majority in voting
power of the Magnum Hunter capital stock entitled to vote at the
meeting is a quorum.
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Amendments to Governing Documents
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Under the ABCA, the approval of at least two-thirds of the votes
cast at a meeting is required to amend the articles of the
corporation. The ABCA may also require the separate approval by
the holders of a class or series of shares for certain
amendments to governing documents. The ABCA also requires the
creation, amendment or repeal of bylaws to be approved by a
majority of the votes of the shareholders of the corporation at
the next shareholder meeting.
The rights, privileges, restrictions and conditions attaching
to the exchangeable
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Delaware law generally provides that amendments to the
certificate of incorporation must be approved by the board of
directors and then adopted by the vote of a majority of the
outstanding voting power entitled to vote thereon, unless the
certificate of incorporation requires a greater vote. Under
Magnum Hunter’s certificate of incorporation, amendments to
the Magnum Hunter certificate of incorporation generally may be
made in accordance with the default positions of Delaware law.
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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shares may be added to, changed or removed only with the
approval of the holders of the exchangeable shares, which will
be deemed to have been sufficiently given if given in accordance
with applicable law subject to a minimum requirement that
approval or consent be evidenced by a resolution passed by not
less than
662/3%
of the votes cast on the resolution (other than by Magnum Hunter
and its affiliates) at a meeting of the holders of exchangeable
shares duly called and held at which holders of at least 10% of
the outstanding exchangeable shares (other than Magnum Hunter
and its affiliates) are present.
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Shareholder or Stockholder Vote on
Extraordinary Corporate Transactions
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Under the ABCA, the approval of at least two-thirds of the votes
cast by common shareholders at a meeting, which we refer to as a
special resolution, is required for extraordinary corporate
actions, including:
• amalgamations (other than an
amalgamation involving a wholly-owned subsidiary of the
corporation);
• the continuance of the corporation into
another jurisdiction;
• the sale, lease or exchange of all or
substantially all of the property of a corporation;
• liquidations and dissolutions; and
• arrangements (if ordered by a
court).
The ABCA may also require the separate approval by the holders
of a class or series of shares for certain extraordinary
corporate actions.
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Under Delaware law, a sale or other disposition of all or
substantially all of a corporation’s assets, a merger or
consolidation of a corporation with another corporation or a
dissolution of a corporation generally requires the affirmative
vote of the corporation’s board of directors and, with
limited exceptions, the affirmative vote of a majority of the
aggregate voting power of the outstanding stock entitled to vote
on the transaction. Because the Magnum Hunter certificate of
incorporation and bylaws include no additional provisions in
this regard, Delaware law applies without modification.
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Anti-Takeover Provisions
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Alberta law does not contain specific anti-takeover provisions
with respect to business transactions. However, the policies of
Canadian securities regulatory authorities contain certain
requirements relating to takeover bids, mergers and interested
shareholder transactions. In particular, Multilateral Instrument
61-101 of the Canadian securities regulators (“MI 61-
101”) imposes certain requirements on, among other things
“business combinations”, “going private
transactions” and “related party transactions”.
MI 61- 101 requires more detailed disclosure in the proxy
material sent to security holders in
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Delaware law provides that, if a person acquires 15% or more of
the stock of a Delaware corporation without the approval of the
board of directors of that corporation, thereby becoming an
“interested stockholder”, that person may not engage
in certain transactions, including mergers, with the corporation
for a period of three years unless one of the following
exceptions applies: (i) the board of directors approved the
acquisition of stock or the transaction prior to the time that
the person became an interested stockholder; (ii) the person
became an interested stockholder and 85% owner of the voting
stock of the corporation in the transaction, excluding
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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connection with a transaction to which they relate, including,
subject to certain exceptions, the inclusion of a formal
valuation of the subject matter of the transaction and any
non-cash consideration offered therefor. MI 61-101 also
requires, subject to certain- exceptions, that the minority
shareholders of the issuer separately approve the transaction by
a simple majority.
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voting stock owned by directors who are also officers and
certain employee stock plans; or (iii) the transaction is
approved by the board of directors and by the affirmative vote
of two-thirds of the outstanding voting stock which is not owned
by the interested stockholder.
A Delaware corporation may elect not to be governed by this
provision of Delaware law. Magnum Hunter has not elected out of
this provision.
There is no super-majority voting, fair price or similar
provision in the Magnum Hunter certificate of incorporation.
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Directors’ and Officers’ Liability and Indemnification
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Under the ABCA, except in respect of an action by or on behalf
of a corporation to procure a judgment in its favor, a
corporation may indemnify present and former directors and
officers and their heirs and legal representatives against all
costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, provided that:
• they acted honestly and in good faith
with a view to the best interests of the corporation; and
• in the case of a criminal or
administrative action or proceeding that is enforced by a
monetary penalty, they had reasonable grounds for believing that
their conduct was lawful.
The ABCA also permits a corporation to advance funds to a
person to defray the costs, charges and expenses of a proceeding
to which indemnification may relate, provided that any such
advances arc repaid if the director or officer is not successful
on the merits in their defence of the action or proceeding.
The bylaws of Exchangeco provide for indemnification of
directors and officers to the fullest extent authorized by the
ABCA and Exchangeco has entered into an indemnity agreement with
its independent director.
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The Magnum Hunter bylaws provide for (i) the indemnification of
its current or former directors, officers, employees or agents
(or any other person who is or was serving at the request of
Magnum Hunter in the capacity of director, officer, employee or
agent for another entity) to the fullest extent permitted by
law, and (ii) the advancement of expenses (including
attorneys’ fees) to the fullest extent not prohibited by
law upon receipt, to the extent required by law, of an
undertaking to repay such amounts if it is ultimately determined
that the indemnified person is not entitled to indemnification.
Delaware law provides that, subject to certain limitations in
the case of derivative suits brought by a corporation’s
stockholders in its name, a corporation may indemnify any person
who is made a party to any third-party action, suit or
proceeding (other than an action by or in the right of the
corporation) on account of being a current or former director,
officer, employee or agent of the corporation (or is or was
serving at the request of the corporation in such capacity for
another corporation, partnership, joint venture, trust or other
enterprise) against expenses, including attorneys’ fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action,
suit or proceeding if the person (i) acted in good faith and in
a manner reasonably believed to be in the best interests of the
corporation (or in some circumstances, at least not opposed to
its best interests), and (ii) in a criminal action or
proceeding, had no reasonable cause
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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to believe his or her conduct was unlawful.
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Delaware law also permits a corporation to indemnify any person
who is made a party to any third-party action, suit or
proceeding on account of being a current or former director,
officer, employee or agent of the corporation (or is or was
serving at the request of the corporation in such capacity for
another corporation, partnership, joint venture, trust or other
enterprise) against expenses (including attorneys’ fees)
actually and reasonably incurred by such persons in connection
with the defence or settlement of a derivative action or suit,
except that no indemnification may be made in respect of any
claim, issue or matter as to which the person is adjudged to be
liable to the corporation unless the Delaware Court of Chancery
or the court in which the action or suit was brought determines
upon application that the person is fairly and reasonably
entitled to indemnity for the expenses which the court deems to
be proper.
To the extent that a current or former director or officer is
successful on the merits or otherwise in the defence of such an
action, suit or proceeding, the corporation is required by
Delaware law to indemnify such person for expenses actually and
reasonably incurred thereby. The indemnification and advancement
of expenses provided by Delaware law do not exclude any other
rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. Expenses
(including attorneys’ fees) incurred by such persons in
defending any action, suit or proceeding may be paid in advance
of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of that person to
repay the amount if it is ultimately determined that person is
not entitled to be so indemnified. The Magnum Hunter certificate
of incorporation limits the liability of Magnum Hunter
directors, to the fullest extent permitted by Delaware law.
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Dividends and Other Distributions
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Holders of common stock of Exchangeco are entitled to receive
any dividend declared by Exchangeco on common shares, subject to
the rights, privileges, restrictions and conditions
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Holders of Magnum Hunter common stock are entitled to receive
ratably such dividends, if any, as may be declared from time to
time by Magnum Hunter’s board of directors
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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attaching to any other class or series.
Subject to applicable law, holders of exchangeable shares will
be entitled to receive dividends from Exchangeco:
(i) in the case of a cash dividend declared on the shares of
Magnum Hunter common stock, in an amount of cash for each
exchangeable share corresponding to the cash dividend declared
on each share of Magnum Hunter common stock;
(ii) in the case of a stock dividend declared on the shares of
Magnum Hunter common stock to be paid in shares of Magnum Hunter
common stock, in the number of exchangeable shares for each
exchangeable share as is equal to the number of shares of Magnum
Hunter common stock to be paid on each share of Magnum Hunter
common stock; or
(iii) in the case of a dividend declared on the shares of
Magnum Hunter common stock in property other than cash or shares
of Magnum Hunter common stock, in the type and amount of
property as is the same as, or economically equivalent to (as
determined by the board of directors of Exchangeco in good faith
and in its sole discretion), the type and amount of property
declared as a dividend on each share of Magnum Hunter common
stock. The declaration date, record date and payment date for
dividends on the exchangeable shares will be the same as the
relevant date for the corresponding dividends on the shares of
Magnum Hunter common stock.
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out of funds legally available for that purpose, subject to any
preferential dividend rights or other preferences granted to the
holders of any outstanding Magnum Hunter preferred stock.
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Ranking
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The exchangeable shares will have a preference over the common
shares and the preferred shares of Exchangeco and any other
shares ranking junior to the exchangeable shares with respect to
the payment of dividends and the distribution of assets in the
event of a liquidation, dissolution or winding-up of Exchangeco,
whether voluntary or involuntary, or any other distribution of
the assets of Exchangeco among its shareholders for the purpose
of winding-up its affairs; provided, that, for greater
certainty, (a) in the case of the payment of dividends, such
preference shall only apply to an entitlement to dividends
required to be paid, and which have not been paid, on the
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In the event of any liquidation, dissolution or winding up of
Magnum Hunter, whether voluntary or involuntary, the holders of
Magnum Hunter common stock are entitled to share ratably, in all
remaining assets available for distribution to stockholders
after payment of or provision for Magnum Hunter’s
liabilities, subject to prior distribution rights of Magnum
Hunter preferred stock, if any, then outstanding.
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Rights of Holders of Exchangeable Shares
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Rights of Magnum Hunter Stockholders
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exchangeable shares pursuant to the exchangeable share
provisions, and (b) in the case of any other distribution of
assets of Exchangeco in the event of the liquidation,
dissolution or winding-up of Exchangeco, whether voluntary or
involuntary, or any other distribution of the assets of
Exchangeco, among its shareholders for the purpose of winding up
its affairs, such preference shall only apply to the entitlement
of the liquidation amount.
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INCOME
TAX CONSIDERATIONS
Material Canadian Federal Income Tax Consequences
In the opinion of Blake, Cassels & Graydon LLP,
Canadian counsel to Magnum Hunter, the following is a
description of the principal Canadian federal income tax
consequences pursuant to the Income Tax Act (Canada) (the
“Tax Act”) generally applicable to holders of
exchangeable shares who exchange their exchangeable shares for
shares of Magnum Hunter common stock in a retraction (a
voluntary exchange initiated by a holder of exchangeable
shares), redemption (an exchange initiated by Exchangeco to
redeem the exchangeable shares) or purchase (a purchase of
exchangeable shares by Exchangeco for cancellation) pursuant to
the terms set forth in the exchangeable share provisions
attaching to the exchangeable shares (Schedule A in the
Plan of Arrangement, and also included in the articles of
incorporation of Exchangeco), and who, at all relevant times for
the purposes of the Tax Act, are, for the purposes of the Tax
Act and any applicable income tax treaty or convention, resident
or deemed to be resident in Canada, hold such shares as capital
property and deal at arm’s length with each of Exchangeco
and Magnum Hunter (“Resident Shareholders” or
“Canadian Holders”). Generally, such shares will
constitute capital property to a holder provided such holder
does not hold such property in the course of carrying on a
business and has not acquired such property in one or more
transactions considered to be an adventure or concern in the
nature of trade. Shareholders who do not hold their exchangeable
shares or shares of Magnum Hunter common stock as capital
property, as the case may be, should consult their own tax
advisors with respect to their particular circumstances.
This opinion is not applicable to a holder that is a
“financial institution” for purposes of the
mark-to-market
rules contained in the Tax Act, a holder that is a
“specified financial institution”, a holder of an
interest which is a “tax shelter” or a “tax
shelter investment”, or a holder with respect to whom
Magnum Hunter is a “foreign affiliate”, each as
defined in the Tax Act, a holder who is exempt from paying tax
under Part I of the Tax Act, or a holder whose functional
currency for purposes of the Tax Act is the currency of a
country other than Canada. Any such holders should consult their
own tax advisors. In addition, this opinion does not address the
deductibility of interest by holders who borrowed money or
otherwise incurred debt in connection with their acquisition of
NuLoch common shares.
This opinion is based upon the provisions of the Tax Act in
force as of the date hereof, all specific proposals to amend the
Tax Act that have been publicly announced by or on behalf of the
Minister of Finance (Canada) prior to
35
the date hereof (the “Proposed Amendments”), and
counsel’s understanding, based on publicly available
published materials, of the current administrative policies and
assessing practices of the Canada Revenue Agency
(“CRA”).
This opinion does not cover all possible Canadian federal income
tax consequences and, except for the Proposed Amendments, does
not take into account any changes in the law, whether by
legislative, regulatory or judicial action, or any changes in
the administrative policies and assessing practices of the CRA,
nor does it take into account provincial, territorial or foreign
tax legislation or considerations, which may differ
significantly from those discussed herein.
This opinion does not address any tax consequences to holders
that are not resident (or deemed resident) in Canada, such as
U.S. residents.
All holders of exchangeable shares should consult their own
tax advisors having regard to their particular circumstances.
For purposes of the Tax Act, all amounts relating to the
acquisition, holding or disposition of shares of Magnum Hunter
common stock, including the receipt of dividends and the
calculation of any adjusted cost base amounts and proceeds of
disposition, must be converted into Canadian dollars based on
the prevailing United States dollar exchange rate at the time
such amounts arise.
Redemption,
Retraction or Purchase of Exchangeable Shares
On the redemption, retraction or purchase of an exchangeable
share by Exchangeco, Resident Shareholders will be deemed to
have received a dividend equal to the amount, if any, by which
the redemption, retraction or purchase proceeds exceed the
paid-up
capital at the time of the exchangeable share so redeemed. For
these purposes, the redemption, retraction or purchase proceeds
will be the fair market value of the shares of Magnum Hunter
common stock (or other consideration) received from Exchangeco
at the time of the redemption, retraction or purchase plus the
amount, if any, of all then accrued but unpaid dividends on the
exchangeable shares paid on the redemption, retraction or
purchase. Such deemed dividend will be included in computing the
shareholder’s income, and will be generally be subject to
the gross-up
and dividend tax credit rules normally applicable to taxable
dividends received from taxable Canadian corporations under the
Tax Act. In the case of a Resident Shareholder that is a
corporation, such deemed dividend normally would be included in
the corporation’s income and would be deductible in
computing its taxable income. A Resident Shareholder that is a
“private corporation”, as defined in the Tax Act, or
any other corporation resident in Canada and controlled or
deemed to be controlled by or for the benefit of an individual
or a related group of individuals may be liable under
Part IV of the Tax Act to pay a refundable tax of
331/3%
of such deemed dividend to the extent that such dividend is
deductible in computing the shareholder’s taxable income. A
Resident Shareholder that is throughout the relevant taxation
year a “Canadian-controlled private corporation”, as
defined in the Tax Act, may be liable to pay an additional
refundable tax of
62/3%
on its “aggregate investment income” for the year
which will include deemed dividends that are not deductible in
computing taxable income.
On a redemption, retraction or purchase, the holder of an
exchangeable share will also be considered to have disposed of
the exchangeable share, but the amount of the deemed dividend
will be excluded in computing the holder’s proceeds of
disposition for purposes of computing any capital gain or
capital loss arising on the disposition. In the case of a
Resident Shareholder that is a corporation, in some
circumstances, the amount of any such deemed dividend may be
treated as proceeds of disposition and not as a dividend. The
taxation of capital gains and capital losses is described below.
Exchange
of Exchangeable Shares
On the exchange by a Resident Shareholder of an exchangeable
share with Magnum Hunter or Callco for a share of Magnum Hunter
common stock, the shareholder will generally realize a capital
gain (or a capital loss) equal to the amount by which the
proceeds of disposition of the exchangeable share, net of any
reasonable costs of disposition, exceed (or are less than) the
adjusted cost base to the holder of the exchangeable share
immediately before the exchange. For these purposes, the
proceeds of disposition will be the fair market value at the
time of exchange of the share of Magnum Hunter common stock plus
any other amount received by the holder from
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Magnum Hunter or a subsidiary of Magnum Hunter as part of the
exchange consideration other than amounts required to be
included in income as a dividend. The taxation of capital gains
and capital losses is described below.
Dividends
on Magnum Hunter Common Stock
Dividends on shares of Magnum Hunter common stock will be
included in a Resident Shareholder’s income for the
purposes of the Tax Act. Such dividends received by an
individual shareholder will not be subject to the
gross-up and
dividend tax credit rules in the Tax Act. A Resident Shareholder
that is a corporation will include such dividends in computing
its income and generally will not be entitled to deduct the
amount of such dividends in computing its taxable income. A
shareholder that is throughout the relevant taxation year a
“Canadian-controlled private corporation”, as defined
in the Tax Act, may be liable to pay an additional refundable
tax of
62/3%
on its “aggregate investment income” for the year
which will include such dividends. United States non-resident
withholding tax on such dividends received by Canadian residents
will be generally eligible for foreign tax credit or deduction
treatment, where applicable, under the Tax Act.
Disposition
of Magnum Hunter Shares
The cost of shares of Magnum Hunter common stock received on a
retraction, redemption or exchange of exchangeable shares will
be equal to the fair market value of such shares at the time of
such event. At any particular time, the adjusted cost base to a
Resident Shareholder of shares of Magnum Hunter common stock
acquired on a retraction, redemption, or exchange of
exchangeable shares will be determined by averaging the cost of
such shares with the adjusted cost base of all other shares of
Magnum Hunter common stock held by such holder as capital
property at such time. A disposition or deemed disposition of
shares of Magnum Hunter common stock by a holder will generally
result in a capital gain (or a capital loss) equal to the amount
by which the proceeds of disposition, net of any reasonable
costs of disposition, exceed (or are less than) the adjusted
cost base to the holder of such shares immediately before the
disposition. The taxation of capital gains and capital losses is
described below.
Taxation
of Capital Gains and Capital Losses
One-half of any capital gain (a taxable capital gain) realized
on a disposition of shares must be included in a Resident
Shareholder’s income for the year of disposition. One-half
of any capital loss (an allowable capital loss) generally may be
deducted by the Resident Shareholder against taxable capital
gains for the year of disposition. Any allowable capital losses
in excess of taxable capital gains for the year of disposition
generally may be carried back up to three taxation years or
carried forward indefinitely and deducted against taxable
capital gains in such other years to the extent and under the
circumstances described in the Tax Act.
Capital gains realized by an individual or trust, other than
certain specified trusts, may give rise to alternative minimum
tax under the Tax Act.
A Resident Shareholder that is throughout the relevant taxation
year a “Canadian-controlled private corporation”, as
defined in the Tax Act, may be liable to pay an additional
refundable tax of
62/3%
on its “aggregate investment income” for the year
which will include an amount in respect of taxable capital gains.
If a Resident Shareholder is a corporation, the amount of any
capital loss arising from a disposition or deemed disposition of
shares may be reduced by the amount of dividends received or
deemed to have been received by it on such shares to the extent
and under circumstances prescribed by the Tax Act. Similar rules
may apply where a corporation is a member of a partnership or a
beneficiary of a trust that owns shares or where a trust or
partnership of which a corporation is a beneficiary or a member
is a member of a partnership or a beneficiary of a trust that
owns shares. Resident Shareholders to whom these rules may be
relevant should consult their own tax advisors.
Foreign
Property Information Reporting
In general, a “specified Canadian entity”, as defined
in the Tax Act, for a taxation year or fiscal period whose total
cost amount of “specified foreign property”, as
defined in the Tax Act, at any time in the taxation year or
fiscal period exceeds Cdn$100,000, is required to file
T1135 — “Foreign Income Verification
Statement” for the taxation year or fiscal period
disclosing prescribed information. On March 4, 2010, the
Minister of Finance (Canada)
37
announced proposals to expand existing reporting requirements
with respect to specified foreign property to require more
detailed information. As of the date hereof, no detailed
legislative proposals or revised administrative policies with
respect to such amended reporting requirements have been made
public.
With some exceptions, a taxpayer resident in Canada, other than
a person exempt from tax under Part I of the Tax Act, in
the year will be a “specified Canadian entity”. The
shares of Magnum Hunter common stock will be “specified
foreign property” to a holder. The reporting rules in the
Tax Act are complex and this summary does not purport to explain
all circumstances in which reporting may be required by an
investor. Accordingly, holders should consult their own tax
advisors regarding compliance with these rules.
Offshore
Investment Fund Property
The Tax Act contains rules which, in certain circumstances, may
require a Canadian Holder to include in income in each taxation
year an amount in respect of the acquisition and holding of
interests in “offshore investment fund property”. Both
of the following conditions must be satisfied in order for these
rules to apply in respect of a share of Magnum Hunter common
stock held by a Canadian Holder:
(1) the share of Magnum Hunter common stock may reasonably
be considered to derive its value, directly or indirectly,
primarily from portfolio investments in: (i) shares of the
capital stock of one or more corporations,
(ii) indebtedness or annuities, (iii) interests in one
or more corporations, trusts, partnerships, organizations, funds
or entities, (iv) commodities, (v) real estate,
(vi) Canadian or foreign resource properties,
(vii) currency of a country other than Canada,
(viii) rights or options to acquire or dispose of any of
the foregoing, or (ix) any combination of the foregoing
(collectively, “Investment Assets”); and
(2) it must be reasonable to conclude, having regard to all
the circumstances, that one of the main reasons for the holder
acquiring or holding the share of Magnum Hunter common stock was
to derive a benefit from portfolio investments in Investment
Assets in such a manner that the taxes, if any, on the income,
profits and gains from such assets for any particular year are
significantly less than the tax that would have been applicable
under Part I of the Tax Act had the income, profits and
gains been earned directly by such Canadian Holder.
If applicable, these rules would generally require a Canadian
Holder to include in income for each taxation year in which such
holder holds the share of Magnum Hunter common stock the amount,
if any, by which (i) an imputed return for the taxation
year computed on a monthly basis and calculated as the product
obtained when the holder’s “designated cost” (as
defined in the Tax Act) of the share of Magnum Hunter common
stock at the end of the month is multiplied by
1/12th of
the applicable prescribed rate for the period that includes such
month; exceeds (ii) the holder’s income, including
dividends received, from the share of Magnum Hunter common stock
for the year (other than capital gains) determined without
reference to these rules. On August 27, 2010, the Minister
of Finance (Canada) released proposals to the rules governing
the taxation of investments in “offshore investment fund
property”, which included a proposed increase in the
applicable prescribed rate.
Any amount required to be included in computing a Canadian
Holder’s income in respect of a share of Magnum Hunter
common stock under these rules would be added to the adjusted
cost base to the holder of such share.
These rules are complex and their application depends, to a
large extent, on the reasons for a Canadian Holder acquiring or
holding shares of Magnum Hunter common stock. Canadian Holders
are urged to consult their own tax advisors regarding the
application and consequences of these rules.
Material
United States Federal Income Tax Consequences
Subject to the assumptions, qualifications and limitations set
forth below, the following is the opinion of
Fulbright & Jaworski L.L.P., U.S. counsel to
Magnum Hunter, with respect to the material United States
federal income tax consequences to U.S. Holders (as defined
below) and
Non-U.S. Holders
(as defined below, and together with U.S. Holders,
“Holders”) of the redemption, retraction or exchange
of exchangeable shares for Magnum Hunter common stock and the
ownership and disposition of Magnum Hunter common stock received
in the
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redemption, retraction or exchange. Counsel’s opinions are
limited to statements of United States federal tax law and
regulations and legal conclusions with respect thereto.
This discussion is based upon provisions of the Internal Revenue
Code of 1986, as amended (the “Code”), Treasury
Regulations, judicial decisions, and administrative
determinations as of the date of this document. Those
authorities may be changed, perhaps retroactively, so that the
United States federal income tax consequences may be different
from those discussed below. This discussion does not address all
aspects of United States federal income taxes (such as the
alternative minimum tax) and does not describe any foreign,
state, local, provincial or other tax considerations that may be
relevant to a Holder in light of its particular circumstances.
The discussion is an expression of professional judgment, is not
a guarantee of a result and is not binding on the Internal
Revenue Service or the courts. Accordingly, no assurance can be
given that the discussion of tax consequences set forth herein
will be sustained if challenged by the Internal Revenue Service.
Except where noted, this discussion deals only with Holders who
hold their exchangeable shares and Magnum Hunter common stock as
capital assets, and does not represent a detailed description of
the United States federal income tax consequences applicable to
you if you are subject to special treatment under the United
States federal income tax laws, including if you are:
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a broker or dealer in securities or currencies;
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a financial institution;
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a regulated investment company;
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a real estate investment trust;
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a tax-exempt organization;
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an insurance company;
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a person holding exchangeable shares, or shares of Magnum Hunter
common stock, as part of a hedging, integrated, conversion, wash
or constructive sale transaction or a straddle or synthetic
security;
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a trader in securities that has elected the
mark-to-market
method of accounting for your securities;
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a person liable for alternative minimum tax;
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a person who acquired exchangeable shares, or shares of Magnum
Hunter common stock, in exchange for NuLoch stock that was
acquired in a compensatory transaction;
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a
Non-U.S. Holder
who is or has previously been engaged in the conduct of a trade
or business in the United States;
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a person who is an investor in a pass-through entity;
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a person owning 10% or more of the voting stock of Exchangeco;
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a U.S. Holder whose “functional currency” is not
the U.S. dollar;
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a “controlled foreign corporation;”
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a “foreign personal holding company;”
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a “passive foreign investment company;”
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a U.S. expatriate;
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a
Non-U.S. Holder
owning more than 5% of the Magnum Hunter common stock; or
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an S corporation, an entity taxable as a partnership for
U.S. federal income tax purposes or other pass-through
entity.
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If a partnership holds exchangeable shares that are exchanged
for shares of Magnum Hunter common stock, the tax treatment of a
partner will generally depend upon the status of the partner and
the activities of the
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partnership. If you are a partner of a partnership holding
exchangeable shares that are exchanged for shares of Magnum
Hunter common stock, you are urged to consult your tax advisor.
You are strongly urged to consult your own tax advisor
regarding the United States federal tax consequences applicable
to the redemption, retraction or exchange of exchangeable shares
and your ownership and disposition of Magnum Hunter common stock
in light of your particular circumstances. In addition, you
should also consult your tax advisor regarding any foreign,
state, local, provincial, or other taxes that may be applicable
to you.
For purposes of this discussion, a “U.S. Holder”
means a beneficial owner of exchangeable shares that is for
U.S. federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state of the
United States or the District of Columbia;
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (2) has a valid election in
effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
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For purposes of this disclosure, you are a
“Non-U.S. Holder”
if you are not a U.S. Holder.
Consequences
of a Redemption, Retraction or Exchange of Exchangeable
Shares
The United States federal income tax consequences of a
redemption, retraction or exchange of exchangeable shares
depend, in part, on whether the exchangeable shares are treated
for United States federal income tax purposes as shares of
Exchangeco or as shares of Magnum Hunter common stock. There is,
however, no direct authority under current United States federal
income tax law concerning whether the exchangeable shares should
be treated as shares of Magnum Hunter common stock or shares of
Exchangeco. Due to the lack of authority, Fulbright &
Jaworski L.L.P. is unable to render an opinion regarding
whether, for United States federal income tax purposes, the
exchangeable shares should be treated as shares of Magnum Hunter
common stock or shares of Exchangeco. Accordingly, the opinion
of Fulbright & Jaworski L.L.P. discusses the United States
federal income tax consequences of a redemption, retraction or
exchange of exchangeable shares under each of two alternative
characterizations of the exchangeable shares: (1) based on
the treatment of the exchangeable shares as shares of Magnum
Hunter common stock, and (2) based on the treatment of the
exchangeable shares as shares of Exchangeco. There can be no
assurance that the Internal Revenue Service will not assert and
prevail with respect to a position that is adverse or contrary
to a position taken by a U.S. Holder on such U.S. Holder’s
tax returns. Accordingly, it may be prudent for a
U.S. Holder to assume the least favorable United States
federal income consequences. Moreover, Magnum Hunter, NuLoch, or
Exchangeco have not requested, and do not intend to request, a
ruling from the Internal Revenue Service or an opinion of
counsel with respect to whether the exchangeable shares should
be treated as shares of Magnum Hunter common stock or shares of
Exchangeco. In addition, no ruling has been or will be sought
from the Internal Revenue Service as to the United States
federal income tax consequences of a retraction, redemption, or
exchange of exchangeable shares for shares of Magnum Hunter
common stock.
The following discussion is not binding on the Internal Revenue
Service or the courts. In addition, the discussion does not
address the United States federal income tax consequences of:
(i) any payments for accrued and unpaid dividends on the
exchangeable shares or (ii) a purchase transaction in which
Exchangeco and the U.S. Holder negotiate for a purchase of the
exchangeable shares on terms mutually agreeable to the U.S.
Holder and Exchangeco. Because Magnum Hunter’s senior
credit agreement prohibits Magnum Hunter from making any
distribution on its common stock without a waiver from the
lender, it is unlikely any such distributions will be made
during the period that the exchangeable shares are outstanding.
If you negotiate with Exchangeco for a purchase of your
exchangeable shares, you are urged to consult your own tax
advisor regarding the United States federal income tax
consequences of such purchase.
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Only a holder of NuLoch shares who is resident in Canada for
purposes of the Tax Act, or a partnership that (i) is a
Canadian partnership for the purposes of the Tax Act, and
(ii) is not exempt from tax under Part I of the Tax
Act, may receive exchangeable shares. Accordingly, instances may
be limited in which a U.S. Holder will receive exchangeable
shares. If you are a U.S. Holder and are nevertheless
entitled to receive exchangeable shares, you are urged to
consult with your own tax advisor.
Consequences
if the Exchangeable Shares are Treated as Shares of Magnum
Hunter Common Stock
U.S.
Holders and
Non-U.S.
Holders
If the exchangeable shares are treated as shares of Magnum
Hunter common stock, the redemption, retraction or exchange of
exchangeable shares for shares of Magnum Hunter common stock
should not be a taxable event to a U.S. Holder or a
Non-U.S. Holder
that beneficially owns 5% or less of Magnum Hunter’s
outstanding common stock. If you are a
Non-U.S. Holder
beneficially owning more than 5% of Magnum Hunter’
outstanding common stock, special provisions of the United
States federal income tax laws may apply to you, and you are
urged to consult with your tax advisor regarding the United
States federal income tax consequences of such a redemption,
retraction or exchange.
Consequences
if the Exchangeable Shares are not Treated as Shares of Magnum
Hunter Common Stock
U.S.
Holders
Subject to the discussion below entitled “Passive Foreign
Investment Companies,” if the exchangeable shares are not
treated as shares of Magnum Hunter for United States federal
income tax purposes the redemption, retraction or exchange of
exchangeable shares for shares of Magnum Hunter common stock
should be treated as a fully taxable exchange for United States
federal income tax purposes. Consequently, upon the exchange of
all but not less than all of a U.S. Holder’s
exchangeable shares, a U.S. Holder will recognize gain or
loss, if any, equal to the difference between (i) the sum
of the fair market value, as of the exchange date, of the shares
of Magnum Hunter common stock received in the exchange and
(ii) the U.S. Holder’s tax basis in the
exchangeable shares surrendered. Any such gain or loss on the
exchange will generally be capital gain or loss. Capital gains
of individuals derived with respect to capital assets held for
more than one year are eligible for reduced rates of taxation,
currently at 15% for dispositions on or prior to
December 31, 2012, and 20% thereafter. The deductibility of
capital losses is subject to limitations. A
U.S. Holder’s tax basis in shares of Magnum Hunter
common stock received in the exchange will equal the fair market
value of those shares as of the exchange date. A
U.S. Holder’s holding period for the common stock
received will begin on the day after the exchange. A
U.S. Holder who exchanges less than all of such
holder’s exchangeable shares should consult with his tax
advisor regarding the taxation of such exchange.
In determining whether the exchangeable shares are shares of
Exchangeco or shares of Magnum Hunter common stock,
U.S. Holders of exchangeable shares should consider that
the Internal Revenue Service may assert and prevail with respect
to a position that is adverse to the position taken by a
U.S. Holder. It may be prudent for a U.S. Holder with
gain inherent in the exchangeable shares to assume that the
redemption, retraction or exchange will be a taxable event.
Conversely, it may be prudent for a U.S. Holder with loss
inherent in the exchangeable shares to assume that the
redemption, retraction or exchange will be treated as a
non-taxable event so that no loss will be recognized. In either
event, such a U.S. Holder should consult its own tax
advisor regarding the filing of a refund claim.
Non-U.S.
Holders
If the exchangeable shares are not treated as shares of Magnum
Hunter for U.S. federal income tax purposes, a
Non-U.S. Holder
generally will not be subject to United States federal income
tax on any gain realized on the exchange of exchangeable shares
for shares of our common stock unless:
(i) the gain is effectively connected with the conduct by
the
Non-U.S. Holder
of a trade or business in the United States or, if a tax treaty
applies, the gain is attributable to a permanent establishment
of the
Non-U.S. Holder
in the United States; or
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(ii) the
Non-U.S. Holder
is an individual who is present in the United States for
183 days or more during the taxable year of disposition and
certain other conditions set forth in the Code are met, unless
an applicable income tax treaty provides otherwise.
If a
Non-U.S. Holder
is described in clause (i) above, the
Non-U.S. Holder
generally will be subject to the rules discussed above under the
heading “Consequences of Redemption, Retraction or
Exchange of Exchangeable Shares —
“Consequences if the Exchangeable Shares are not Treated
as Shares of Magnum Hunter Common Stock —
U.S. Holders.” In addition, if a corporate
Non-U.S. Holder
is described under clause (i) above, it may be subject to
an additional branch profits tax on effectively connected income
at a 30% rate (or lower applicable treaty rate). If an
individual
Non-U.S. Holder
is described in clause (ii) above, the individual generally
will be subject to a flat 30% tax (or lower applicable treaty
rate) on the gain derived from a sale, which may be offset by
certain United States capital losses.
Passive
Foreign Investment Companies
In general, if exchangeable shares held by a U.S. Holder
are treated as shares of Exchangeco and Exchangeco is treated
for United States federal income tax purposes as a “passive
foreign investment company,” gain recognized on the
retraction, redemption or exchange of exchangeable shares will
be taxed under the passive foreign investment company
“excess distribution regime,” unless the
U.S. Holder has made a timely “qualified electing
fund” election or
“mark-to-market”
election. The passive foreign investment company rules are
extremely complex and could, if they apply to exchangeable
shares owned by a U.S. Holder, have a significant adverse
effect on the taxation of gain recognized by a U.S. Holder.
As noted above, however, the instances in which a
U.S. Holder will be permitted to hold shares of Exchangeco
are limited, and accordingly, the United States income tax
consequences of the ownership of shares in a passive foreign
investment company are not addressed in detail in this
discussion. U.S. Holders are urged to consult their own tax
advisor to determine the potential applicability of these rules
to their particular circumstance and any available elections.
Consequences
of Ownership and Disposition of Shares of Magnum Hunter Common
Stock
Receipt
of Distributions on Magnum Hunter Common Stock
U.S.
Holders
Distributions, if any, received with respect to shares of Magnum
Hunter common stock out of Magnum Hunter’s current or
accumulated earnings and profits, as determined for United
States federal income tax purposes, will be taxable as dividend
income to U.S. Holders. In the case of non-corporate
U.S. Holders, dividend income currently is subject to tax
at the same preferential rates as net capital gains if certain
requirements are satisfied. To the extent that the amount of any
distribution exceeds Magnum Hunter’s current and
accumulated earnings and profits for a taxable year, the
distribution will first be treated as a tax-free return of
capital to the extent of the U.S. Holder’s tax basis,
and any excess will be treated as gain from the disposition of
the common stock (discussed below under the heading
“Gain or Loss on Disposition of Magnum Hunter Common
Stock — U.S. Holders”). Magnum Hunter
does not have accumulated earnings and profits. Additionally,
Magnum Hunter may not have sufficient current earnings and
profits during future fiscal years for distributions on Magnum
Hunter’s common stock to qualify as dividends for
U.S. federal income tax purposes.
Non-U.S.
Holders
Distributions, if any, received with respect to shares of Magnum
Hunter common stock out of Magnum Hunter’s current or
accumulated earnings and profits, as determined for United
States federal income tax purposes, will be subject to a
withholding tax as discussed below. Any portion of a
distribution that exceeds Magnum Hunter’s current and
accumulated earnings and profits will first be applied to reduce
the
Non-U.S. Holder’s
basis in the common stock, and, to the extent such portion
exceeds the
Non-U.S. Holder’s
basis, the excess will be treated as gain from the disposition
of the common stock, the treatment of which is discussed below
under “Gain or Loss on Disposition of Magnum Hunter
Common Stock —
Non-U.S. Holders.”
In addition, if Magnum Hunter is a USRPHC, as defined below,
which Magnum Hunter believes that it is, and if any distribution
exceeds its current and accumulated earnings profits, Magnum
Hunter will need to choose to satisfy its withholding tax
requirement
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either by treating the entire distribution as a dividend,
subject to the withholding tax under the following paragraph
(and withhold at a minimum rate of 10% or such lower rate as may
be specified by an applicable income tax treaty for
distributions from an USRPHC), or by treating only the amount of
the distribution equal to its reasonable estimate or its current
and accumulated earnings and profits as a dividend, subject to
the withholding tax rules in the following paragraph, with the
excess portion of the distribution subject to withholding at a
rate of 10% or such lower rate as may be specified by an
applicable income tax treaty as if such excess were the result
of a sale of shares in a USRPHC (discussed below under the
heading “Gain or Loss on Disposition of Magnum Hunter
Common Stock —
Non-U.S. Holders”)
with a credit generally allowed against the
Non-U.S. Holder’s
United States federal income tax liability in an amount equal to
the amount withheld from such excess.
Dividends paid to a
Non-U.S. Holder
of Magnum Hunter common stock will generally be subject to
withholding of United States federal income tax at a 30% rate or
such lower rate as may be specified by an applicable income tax
treaty. In addition, a
Non-U.S. Holder
will be taxed in the same manner as a U.S. Holder on
dividends received that are effectively connected with the
conduct by the
Non-U.S. Holder
of a trade or business in the United States or, if a tax treaty
applies, are attributable to a permanent establishment of the
Non-U.S. Holder
in the United States. In addition, a corporate
Non-U.S. Holder
may also be subject to an additional branch profits tax at a 30%
rate (or lower applicable treaty rate) on dividend income that
is effectively connected with a U.S. trade or business. A
Non-U.S. Holder
will be required to satisfy certification and disclosure
requirements (including completing Internal Revenue Service
Form W-8BEN,
W-8ECI, or
other applicable form) to claim treaty benefits or otherwise
claim a reduction of, or exemption from, the
U.S. withholding tax described above.
Gain
or Loss on Disposition of Magnum Hunter Common
Stock
U.S.
Holders
A U.S. Holder will generally recognize gain or loss on any
sale, exchange or other disposition of Magnum Hunter common
stock equal to the difference between the
U.S. Holder’s adjusted tax basis in the Magnum Hunter
common stock and the amount realized from the sale, exchange or
other disposition. Gain or loss will be long-term capital gain
or loss if the U.S. Holder’s holding period is more
than one year. In the case of non-corporate U.S. Holders,
any long-term capital gain will generally be taxed at
preferential United States federal income tax rates, currently
at 15% for dispositions on or prior to December 31, 2012,
and 20% thereafter. The deductibility of losses may be subject
to limitations.
Non-U.S.
Holders
Any gain realized by a
Non-U.S. Holder
on the sale, exchange, or other disposition of Magnum Hunter
common stock will generally not be subject to United States
federal income tax unless:
(i) the gain is effectively connected with the conduct by
the
Non-U.S. Holder
of a trade or business in the United States or, if a tax treaty
applies, the gain is attributable to a permanent establishment
of the
Non-U.S. Holder
in the United States;
(ii) the
Non-U.S. Holder
is an individual who is present in the United States for
183 days or more during the taxable year of disposition and
certain other conditions set forth in the Code are met, unless
an applicable income tax treaty provides otherwise; or
(iii) Magnum Hunter is or has been a “United States
real property holding corporation,” or “USRPHC,”
as defined for United States federal income tax purposes
and the
Non-U.S. Holder
owns more than 5% of Magnum Hunter’s outstanding common
stock.
With respect to a
Non-U.S. Holder’s
disposition of Magnum Hunter common stock, Magnum Hunter will be
treated as a USRPHC if at any time during the shorter of
(x) the five-year period ending on the date of disposition
of shares of Magnum Hunter common stock or (y) the period
during which a
Non-U.S. Holder
held shares of Magnum Hunter common stock, the fair market value
of Magnum Hunter’s “U.S. real property
interests” equals or exceeds 50% of the sum of the fair
market values of all of its interests in real property and all
of its other assets used or held for use in a trade or business
(as defined in applicable Treasury Regulations). Because Magnum
Hunter owns substantial oil and gas interests in the United
States, Magnum Hunter believes that it is a USRPHC.
Notwithstanding
43
the foregoing, so long as the common stock of Magnum Hunter is
regularly traded on an established securities market, as defined
under applicable Treasury Regulations,
Non-U.S. Holders
who have never beneficially owned more than 5% of the common
stock of Magnum Hunter will generally not be subject to United
States federal income tax on any gain realized on the sale,
exchange or redemption of common stock solely because Magnum
Hunter is or has been a USRPHC. Magnum Hunter believes that its
common stock is currently treated as regularly traded on an
established securities market.
If a
Non-U.S. Holder
falls under clause (i) or (iii) above, the
Non-U.S. Holder
will generally be subject to the rules discussed above in the
discussion titled “Gain or Loss on Disposition of Magnum
Hunter Common Stock — U.S. Holders”,
and, in the case of clause (iii) above, will generally be
subject to a 10% withholding tax applied to the gross proceeds
received. Any amount so withheld may be applied as a credit
against the
Non-U.S. Holder’s
United States federal income tax liability. If an individual
Non-U.S. Holder
falls under clause (ii) above, such individual generally
will be subject to a flat 30% (or lower applicable treaty rate)
tax on the gain derived from a sale, which may be offset by
certain United States capital losses. In addition, if a
corporate
Non-U.S. Holder
falls under clause (i) above, it may be subject to an
additional branch profits tax on effectively connected income at
a 30% rate (or lower applicable treaty rate).
Information
Reporting and Backup Withholding
U.S.
Holders
Information reporting and backup withholding may apply with
respect to payments of dividends on Magnum Hunter common stock
and to certain payments of proceeds on the sale or other
disposition of our common stock. Certain non-corporate
U.S. Holders may be subject to U.S. backup withholding
(currently at a rate of 28%) on payments of dividends on our
common stock and certain payments of proceeds on the sale or
other disposition of our common stock unless the beneficial
owner of such common stock furnishes Magnum Hunter or its agent
with a taxpayer identification number, certified under penalties
of perjury, and certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from
backup withholding.
U.S. backup withholding tax is not an additional tax. Any
amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
U.S. Holder’s U.S. federal income tax liability,
which may entitle the U.S. Holder to a refund, provided the
U.S. Holder timely furnishes the required information to
the Internal Revenue Service.
Non-U.S.
Holders
Magnum Hunter must report annually to the Internal Revenue
Service and to each
Non-U.S. Holder
the amount of dividends paid to such
Non-U.S. Holder
and the tax withheld with respect to such dividends, regardless
of whether withholding was required. Copies of the information
returns reporting such dividends and withholding may also be
made available to the tax authorities in the country in which
the
Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
A
Non-U.S. Holder
will not be subject to backup withholding on dividends paid to
such
Non-U.S. Holder,
or on the proceeds received by a
Non-U.S. Holder
from a sale or other disposition of Magnum Hunter common stock,
as long as such
Non-U.S. Holder
certifies under penalty of perjury that it is a
Non-U.S. Holder
(and the payor does not have actual knowledge or reason to know
that such
Non-U.S. Holder
is a United States person as defined under the Code), or such
Non-U.S. Holder
otherwise establishes an exemption.
U.S. backup withholding tax is not an additional tax. Any
amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
Non-U.S. Holder’s
United States federal income tax liability provided the required
information is timely furnished to the Internal Revenue Service.
Recently
Enacted Legislation Relating to Foreign Owners
Beginning with payments made after December 31, 2012,
recently enacted legislation will impose a 30% withholding tax
on dividends on Magnum Hunter common stock and the gross
proceeds of a disposition of Magnum Hunter common stock paid to:
(i) a foreign financial institution (as that term is
defined in Section 1471(d)(4) of the Code) unless that
foreign financial institution enters into an agreement with the
U.S. Treasury Department to collect and disclose
information regarding U.S. account holders of that foreign
financial institution (including certain
44
account holders that are foreign entities that have
U.S. owners) and satisfies other requirements; and
(ii) a foreign entity that is not a financial institution
unless such entity certifies that it does not have any
substantial U.S. owners or provides the name, address and
taxpayer identification number of each substantial
U.S. owner and such entity satisfies other specified
requirements.
Non-U.S. Holders
should consult their own tax advisors regarding the application
of this legislation to them.
EACH U.S. HOLDER IS ENCOURAGED TO CONSULT HIS OWN TAX
ADVISOR AS TO HIS PARTICULAR TAX CONSEQUENCES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND
NON-U.S. TAX
LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
INFORMATION
ABOUT EXCHANGECO
Exchangeco is an indirect subsidiary of Magnum Hunter
incorporated under the Business Corporations Act (Alberta) on
January 13, 2011 for the sole purpose facilitating the
acquisition of NuLoch as the issuer of the exchangeable shares.
The exchangeable shares were offered in the arrangement for the
sole purpose of providing an opportunity for NuLoch
securityholders who were residents of Canada to make a tax
election to defer certain capital gain taxes, which would
otherwise arise upon the exchange of their NuLoch shares for
shares of our common stock.
Business Operations and Financial
Information. Exchangeco has no active business
operations and is not expected to undertake any active business
operations in the future. The only activities Exchangeco has
engaged in since its incorporation have been in connection with
its role as a party to the arrangement agreement, pursuant to
which it acquired the issued and outstanding NuLoch shares and
NuLoch options and compensation options and issued the
exchangeable shares. We anticipate that the only activities that
Exchangeco will undertake will be in connection with its role as
a holding company for NuLoch and the issuer of the exchangeable
shares. Upon the closing of the arrangement, Exchangeco became a
subsidiary guarantor under our senior credit facility and
pledged all of its assets as security under that facility.
Market Price of and Dividends on Exchangeco
Stock. As of the date of this prospectus, there
is one common share of Exchangeco issued and outstanding, which
is held by Callco, no preferred shares of Exchangeco issued and
outstanding, and approximately 4,275,998 exchangeable
shares issued and outstanding, none of which are owned by Magnum
Hunter or any affiliate of Magnum Hunter.
Neither the Exchangeco common shares nor the exchangeable shares
are listed for trading on any exchange. There is no public
market for the trading of Exchangeco common shares or
exchangeable shares and it is not expected that any such markets
will develop. Exchangeco has not paid any dividends on its
common shares or exchangeable shares and does not expect to pay
any in the future, except as may be required with respect to the
exchangeable shares due to a dividend by Magnum Hunter on shares
of Magnum Hunter common stock.
Changes in or Disagreements with
Accountants. There have been no changes in or
disagreement with Exchangeco’s accountants concerning
accounting and financial disclosure since Exchangeco’s
incorporation.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following management’s discussion and analysis is for
the period beginning January 13, 2011 and ended
March 31, 2011.
Results of Operations. Exchangeco was
incorporated on January 13, 2011 for the sole purpose of
facilitating the arrangement as the issuer of the exchangeable
shares. Exchangeco has not carried on any active business
operations since its incorporation other than its connection
with its role as a party to the arrangement agreement.
Exchangeco did not generate any revenues and incurred only
nominal expenses during the period from the date of its
incorporation through March 31, 2011.
Liquidity and Capital Resources. Exchangeco is
a holding company that does not engage in any active business
operations. Exchangeco’s only activities are in connection
with its role as the holder of all of the issued and outstanding
NuLoch shares and its role as an issuer of the exchangeable
shares. As a result, Exchangeco’s liquidity needs are not
material. Exchangeco has no off-balance sheet arrangements. Upon
the closing of the arrangement, Exchangeco became a subsidiary
guarantor under our senior credit facility and pledged all of
its assets as security under that facility.
45
UNAUDITED
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma selected financial data should
be read in conjunction with (i) the “Unaudited Pro
Forma Financial Information” hereby incorporated herein by
reference from our definitive proxy statement filed by the us on
Schedule 14A with the SEC on April 1, 2011, together
with all of the financial statements and notes thereto,
(ii) “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” hereby
incorporated herein by reference from our annual report on
Form 10-K
for the fiscal year ended December 31, 2010, as amended and
(iii) our consolidated financial statements and the notes
thereto hereby incorporated herein by reference from our annual
report on
Form 10-K
for the fiscal year ended December 31, 2010, as amended.
The following unaudited pro forma combined financial data are
derived from our consolidated financial statements and certain
historical financial data in respect of various assets acquired
by us. The unaudited pro forma combined balance sheet as of
December 31, 2010 has been prepared assuming the
acquisitions of the PostRock assets, NGAS, and NuLoch (as
described below), collectively referred to as the
“acquisitions”, and all necessary ancillary
transactions and the exchange offer had been consummated on
December 31, 2010. The unaudited pro forma combined income
statement for the year ended December 31, 2010 has been
prepared assuming the acquisitions and all necessary ancillary
transactions and the exchange offer had been consummated as of
January 1, 2010. The pro forma combined financial data set
forth on the attached unaudited pro forma combined balance sheet
and unaudited pro forma combined income statement reflect the
following as if they occurred on the dates hereinabove set forth:
(1) The second completed phase of the acquisition of
certain West Virginia properties from Quest Eastern Resource LLC
and PostRock MidContinent Production, LLC, affiliates of
PostRock Energy Corporation, or PostRock, as described in the
purchase and sale agreement dated December 24, 2010 between
the Company and PostRock. We closed the first phase of the
PostRock acquisition on December 30, 2010 for a cash
purchase price, subject to adjustments, of approximately
$28 million. We completed the second phase of the PostRock
acquisition on January 14, 2011 for a purchase price of
approximately $11.7 million, subject to adjustments, which
was paid one-half with the issuance of 946,314 shares of
our common stock and one-half in a cash payment of
$5.9 million.
(2) The acquisition of NGAS Resources, Inc., referred to
herein as NGAS, an Appalachian Basin-focused British Columbia
exploration and production company traded on the NASDAQ Capital
Market, as described in the arrangement agreement dated
December 23, 2010 between Magnum Hunter and NGAS. We
completed our acquisition of NGAS on April 13, 2011, for a
purchase price of approximately $117 million. The
transaction was structured as a
stock-for-stock
exchange pursuant to which 0.0846 shares of Magnum Hunter
common stock were exchanged for each share of NGAS stock, as set
forth in the arrangement agreement.
(3) The NuLoch arrangement as described in the arrangement
agreement dated January 19, 2011.
(4) Incurrence of indebtedness under the proposed new
revolving credit facility to be entered into pursuant to the
commitment letter from BMO Capital Markets Corp. dated
January 13, 2011.
(5) Issuance of our common stock upon the closing of the
acquisitions of the PostRock assets and NGAS, and the issuance
of exchangeable shares of Exchangeco upon the closing of the
acquisition of NuLoch. For purposes of preparing the unaudited
combined pro forma financial information, we have assumed that
all NuLoch securityholders elected to receive exchangeable
shares.
(6) Payment of change of control compensation in the NGAS
and NuLoch acquisitions.
(7) Issuance of our common stock in exchange for the
exchangeable shares upon completion of the exchange offer.
Transaction costs related to these acquisitions will be recorded
as expenses in the periods in which these costs are incurred.
These expenses are not included in the unaudited pro forma
combined income statement.
46
The unaudited pro forma combined financial data is not
indicative of our financial position or our results of
operations which would actually have occurred if the
transactions described above had occurred at the dates presented
or which may be obtained in the future. In addition, future
results may vary significantly from the results reflected in
such statements due to normal oil and natural gas production
declines, changes in prices paid for oil and natural gas, future
acquisitions, drilling activity and other factors.
The unaudited pro forma combined financial data include
financial information received from PostRock, NGAS and NuLoch
and such financial information has been accepted and
incorporated as presented without independent verification of
such financial information.
UNAUDITED
PRO FORMA COMBINED BALANCE SHEET
As of
December 31, 2010
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Combined
|
|
|
|
|
|
|
|
Adjustments for
|
|
|
Pro Forma
|
|
|
|
|
Combined
|
|
|
Consummation of
|
|
|
for the
|
|
|
|
|
Pro Forma for
|
|
|
Exchange
|
|
|
Acquisitions and
|
|
|
|
|
the Acquisitions
|
|
|
Offer(2)
|
|
|
the Exchange Offer
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,086,171
|
|
|
$
|
—
|
|
|
$
|
17,086,171
|
|
|
Accounts receivable
|
|
|
22,226,247
|
|
|
|
—
|
|
|
|
22,226,247
|
|
|
Notes receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Prepaids and other current assets
|
|
|
1,930,173
|
|
|
|
—
|
|
|
|
1,930,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
41,242,591
|
|
|
|
—
|
|
|
|
41,242,591
|
|
|
PROPERTY AND EQUIPMENT (Net of Accumulated Depletion and
Depreciation):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas properties, successful efforts accounting
|
|
|
758,783,350
|
|
|
|
—
|
|
|
|
758,783,350
|
|
|
Equipment and other fixed assets
|
|
|
53,778,199
|
|
|
|
—
|
|
|
|
53,778,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property and Equipment, Net
|
|
|
812,561,549
|
|
|
|
—
|
|
|
|
812,561,549
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
820,656
|
|
|
|
—
|
|
|
|
820,656
|
|
|
Deferred financing costs, net of amortization
|
|
|
2,491,250
|
|
|
|
—
|
|
|
|
2,491,250
|
|
|
Deferred tax asset
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
857,116,046
|
|
|
$
|
—
|
|
|
$
|
857,116,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
39,461,473
|
|
|
$
|
—
|
|
|
$
|
39,461,473
|
|
|
Accrued liabilities
|
|
|
39,551,778
|
|
|
|
—
|
|
|
|
39,551,778
|
|
|
Revenue payable
|
|
|
2,629,999
|
|
|
|
—
|
|
|
|
2,629,999
|
|
|
Current portion of notes payable
|
|
|
7,132,455
|
|
|
|
—
|
|
|
|
7,132,455
|
|
|
Warrant liability
|
|
|
1,279,834
|
|
|
|
—
|
|
|
|
1,279,834
|
|
|
Derivative liability
|
|
|
718,771
|
|
|
|
—
|
|
|
|
718,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
90,774,310
|
|
|
|
—
|
|
|
|
90,774,310
|
|
|
Deferred compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Deferred income tax
|
|
|
117,756,387
|
|
|
|
—
|
|
|
|
117,756,387
|
|
|
Payable on sale of partnership
|
|
|
640,695
|
|
|
|
—
|
|
|
|
640,695
|
|
|
Notes payable, less current portion
|
|
|
85,461,542
|
|
|
|
—
|
|
|
|
85,461,542
|
|
|
Asset retirement obligation
|
|
|
8,083,805
|
|
|
|
—
|
|
|
|
8,083,805
|
|
|
Derivative liability
|
|
|
59,181
|
|
|
|
—
|
|
|
|
59,181
|
|
|
Other long-term liabilities
|
|
|
1,895,000
|
|
|
|
—
|
|
|
|
1,895,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
304,670,920
|
|
|
$
|
—
|
|
|
$
|
304,670,920
|
|
|
COMMITMENTS AND CONTINGENCIES REDEEMABLE PREFERRED D
STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C Cumulative Perpetual Preferred Stock
|
|
|
70,236,400
|
|
|
|
—
|
|
|
|
70,236,400
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
166,572,072
|
|
|
|
314,186,315
|
|
|
|
480,758,387
|
|
|
Non-controlling interest
|
|
|
315,636,654
|
(1)
|
|
|
(314,186,315
|
)
|
|
|
1,450,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
482,208,726
|
|
|
|
—
|
|
|
|
482,208,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
857,116,046
|
|
|
$
|
—
|
|
|
$
|
857,116,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
(1) |
|
Assumes all securityholders of NuLoch elect to receive
exchangeable shares. |
| |
|
(2) |
|
At the closing of the arrangement, Exchangeco issued
exchangeable shares to electing securityholders of NuLoch.
Exchangeco is an indirect subsidiary of Magnum Hunter. Although
Magnum Hunter does not own any exchangeable shares, it is the
indirect owner of all of the issued and outstanding common
shares of Exchangeco, which shares vote in the election of the
directors of Exchangeco. The voting rights of the exchangeable
shares are limited to voting on amendments affecting the terms
of the exchangeable shares. Exchangeco is therefore consolidated
with Magnum Hunter for reporting purposes. However, because the
shares of NuLoch will be held by Exchangeco and Magnum Hunter
does not own any exchangeable shares, the value of the Magnum
Hunter shares to be issued upon exchange are accounted for prior
to the exchange as non-controlling interest. Upon exchange of
each share of exchangeable stock, Magnum Hunter will on a
consolidated basis record the issuance of a share of Magnum
Hunter common stock and the cancellation of an exchangeable
share, as a transfer to shareholders’ equity from
non-controlling interest. |
48
UNAUDITED
PRO FORMA COMBINED INCOME STATEMENT
As of
December 31, 2010
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Combined
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Combined
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Pro Forma
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Pro Forma
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Pro Forma
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Adjustments for
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for the
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for the
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Consummation of
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Acquisitions and
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Acquisitions
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Exchange Offer
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the Exchange Offer
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REVENUE:
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Oil and gas sales
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$
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66,645,032
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$
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—
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$
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66,645,032
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Field operations and other
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32,818,469
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—
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32,818,469
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Total Revenue
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99,463,501
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—
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99,463,501
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EXPENSES:
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Lease operating expenses
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29,240,984
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—
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29,240,984
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Severance taxes and marketing
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3,576,423
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—
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3,576,423
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Exploration
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8,715,730
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—
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8,715,730
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Field operations
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22,867,230
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—
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22,867,230
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Impairment of oil and gas properties
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305,786
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—
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305,786
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Impairment of goodwill
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313,177
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—
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313,177
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Depreciation, depletion and accretion
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20,879,636
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—
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20,879,636
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General and administrative
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43,354,155
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—
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43,354,155
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Total Expenses
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129,253,121
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—
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129,253,121
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LOSS FROM OPERATIONS:
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(29,789,620
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—
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(29,789,620
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OTHER INCOME AND (EXPENSE):
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Interest income
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94,497
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—
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94,497
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Interest expense
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(5,613,234
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—
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(5,613,234
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Gain on derivative contracts
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814,037
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—
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814,037
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Other, net
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(2,276,948
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—
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(2,276,948
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)
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Net loss from continuing operations before non-controlling
interest
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(36,771,268
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—
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(36,771,268
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Net (income) loss attributable to non-controlling interest
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(128,586
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—
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(128,586
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Net loss attributable to Magnum Hunter from continuing operations
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(36,899,854
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—
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(36,899,854
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Income from discontinued operations
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8,456,811
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8,456,811
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Net loss
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(28,443,043
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—
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(28,443,043
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Dividends on preferred stock
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(2,466,679
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—
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(2,466,679
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Net loss attributable to common shareholders
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$
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(30,909,722
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$
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—
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$
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(30,909,722
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Loss per common share basic and diluted
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$
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(0.27
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$
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—
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$
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(0.27
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Weighted average number of common shares outstanding basic and
diluted
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115,706,403
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—
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115,706,403
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49
LEGAL
MATTERS
The validity of the securities being offered by this
Registration Statement is being passed upon for us by
Fulbright & Jaworski L.L.P., Dallas, Texas. Certain
Canadian federal tax matters and United States federal tax
matters are being passed upon by Blake, Cassels &
Graydon LLP and Fulbright & Jaworski L.L.P.,
respectively, as set forth under “Income Tax
Considerations.”
EXPERTS
The financial statements of Magnum Hunter Resources Corporation
as of and for the years ended December 31, 2009 and
December 31, 2010, incorporated into this prospectus by
reference from our Annual Report on
Form 10-K
for the year ended December 31, 2010, have been audited by
Hein & Associates LLP, an independent registered
public accounting firm, as stated in its report, which is
incorporated by reference herein and has been incorporated in
reliance upon its authority as experts in accounting and
auditing.
The financial statements of Magnum Hunter Resources Corporation
as of and for the year ended December 31, 2008,
incorporated into this prospectus by reference from our Annual
Report on
Form 10-K
for the year ended December 31, 2010, have been audited by
Malone Bailey, LLP, an independent registered public accounting
firm, as stated in its report, which is incorporated by
reference herein and has been incorporated in reliance upon its
authority as experts in accounting and auditing.
The statement of revenues and direct operating expenses of the
properties acquired from Quest Eastern Resources LLC and Post
Rock Midcontinent Production, LLC as of and for the year ended
December 31, 2009, incorporated into this prospectus by
reference from our Current Report on
Form 8-K
filed with the SEC on March 9, 2011, have been audited by
UHY LLP, an independent registered public accounting firm, as
stated in its report, which is incorporated by reference herein
and has been incorporated in reliance upon its authority as an
expert in accounting and auditing.
The financial statements of NGAS Resources, Inc. as of and for
the years ended December 31, 2009 and December 31,
2010, incorporated into this prospectus by reference from our
Current Report on
Form 8-K
filed with the SEC on March 9, 2011, have been audited by
Hall, Kastler & Company LLP, an independent registered
public accounting firm, as stated in its report, which is
incorporated by reference herein and has been incorporated in
reliance upon its authority as an expert in accounting and
auditing.
The financial statements of NuLoch Resources Inc. as of and for
the years ended December 31, 2009 and December 31,
2010, incorporated into this prospectus by reference from our
Current Report on
Form 8-K
filed with the SEC on March 9, 2011, have been audited by
KPMG LLP, independent auditors, as stated in its report, which
is incorporated by reference herein and has been incorporated in
reliance upon its authority as an expert in accounting and
auditing.
Certain estimates of our proved oil and gas reserves
incorporated by reference herein were based upon engineering
reports prepared by Cowley, Gillespie & Associates,
Inc., independent petroleum consultants. Certain estimates of
NGAS Resources, Inc.’s proved oil and gas reserves
incorporated by reference herein were based upon engineering
reports prepared by Wright & Company, Inc., an
independent petroleum consultant. Certain estimates of NuLoch
Resources Inc.’s proved oil and gas reserves incorporated
by reference herein were based upon engineering reports prepared
by AJM Petroleum Consultants, an independent petroleum
consultant. These estimates are incorporated by reference herein
in reliance on the authority of such firms as experts in such
matters.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus “incorporates by reference” certain
information we file with the SEC. The information incorporated
by reference is an important part of this prospectus. The
incorporated documents contain significant information about us,
our business and our finances. Any statement contained in a
document which is incorporated by reference into this prospectus
is automatically updated and superseded if information contained
in this prospectus, or information that we later file with the
SEC, modifies or replaces this information. We incorporate
50
by reference the following documents filed with the SEC, except
as to any portion of any such document that is furnished to the
SEC under
Form 8-K
and which is not deemed “filed” with the SEC under the
Exchange Act:
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Annual Report on
Form 10-K,
as amended, for the year ended December 31, 2010;
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Quarterly Report on Form 10-Q for the period ended
March 31, 2011, filed with the SEC on May 9, 2011;
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Definitive Proxy Statement on Schedule 14A, filed with the
SEC on April 1, 2011;
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•
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Current Reports on
Form 8-K
filed with the SEC on January 5, 2011, as amended,
January 11, 2011, January 18, 2011, January 19,
2011, January 25, 2011, January 31, 2011,
February 1, 2011, February 18, 2011, March 2,
2011, March 9, 2011, March 16, 2011, March 17,
2011, March 21, 2011, March 28, 2011, April 12,
2011, April 13, 2011, April 14, 2011, as amended,
May 3, 2011, May 5, 2011, as amended, May 10,
2011 and May 13, 2011;
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The description of our common stock included in the
Form 8-A
filed on August 25, 2006 and December 29, 2010, and
any amendment or report filed with the SEC for the purpose of
updating such description; and
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All documents that we file with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act,
after the date of this prospectus and prior to the termination
of the offering, except as to any portion of any future report
or document that is furnished to the SEC and which is not deemed
“filed” with the SEC under such provisions.
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We will provide without charge to each person to whom a
prospectus is delivered, on written or oral request of that
person, a copy of any or all of the documents we are
incorporating by reference into this prospectus, other than
exhibits to those documents unless those exhibits are
specifically incorporated by reference into those documents. A
written request should be addressed to
Magnum
Hunter Resources Corporation
777 Post Oak Boulevard, Suite 650
Houston, Texas 77056
Attention: Corporate Secretary
This prospectus is part of a registration statement we filed
with the SEC. We have incorporated exhibits into the
registration statement. You should read the exhibits carefully
for provisions that may be important to you.
You should rely only on the information incorporated by
reference or provided in this prospectus or any prospectus
supplement. We have not authorized anyone to provide you with
different or additional information. We are not making an offer
of these securities in any state where the offer is not
permitted. You should not assume that the information in this
prospectus or in any prospectus supplement or in the documents
incorporated by reference is accurate as of any date other than
the date on the front of this prospectus or the date of the
applicable prospectus supplement or other documents.
WHERE YOU
CAN FIND MORE INFORMATION
Magnum Hunter is subject to the information requirements of the
Exchange Act and, in accordance with the Exchange Act, we file
annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any
document we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington, D.C.
20549. You may call the SEC at
1-800-SEC-0330
for further information on the operation of the Public Reference
Room. Our SEC filings are also available to the public from the
SEC’s website at
http://www.sec.gov.
In addition, you may read our SEC filings at the offices of the
NYSE, which is located at 20 Broad Street, New York, New
York 10005.
We have a website located at
http://www.magnumhunterresources.com.
The information on this website is not incorporated by reference
into this prospectus or any prospectus supplement and you should
not consider it part of this prospectus or any prospectus
supplement.
51