-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XijgULh293MoX4wVCL4lcH2004yjBSkiMK+L5F1ksYkmPAoLaWjvh+lLH+TygS5I 4j1yxnUWGYiLvsqD3S6fOg== 0000950129-94-000507.txt : 19940624 0000950129-94-000507.hdr.sgml : 19940624 ACCESSION NUMBER: 0000950129-94-000507 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19940623 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DIAMOND SHAMROCK OFFSHORE PARTNERS LTD PARTNERSHIP CENTRAL INDEX KEY: 0000773350 STANDARD INDUSTRIAL CLASSIFICATION: 1311 IRS NUMBER: 752058990 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-36518 FILM NUMBER: 94535360 BUSINESS ADDRESS: STREET 1: 717 NORTH HARWOOD STREET CITY: DALLAS STATE: TX ZIP: 75201-6594 BUSINESS PHONE: 2149532000 MAIL ADDRESS: STREET 2: 717 NORTH HARWOOD STREET CITY: DALLAS STATE: TX ZIP: 75201-6594 FORMER COMPANY: FORMER CONFORMED NAME: DIAMOND SHAMROCK OFFSHORE PARTNERS LTD DATE OF NAME CHANGE: 19850826 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BURLINGTON RESOURCES INC CENTRAL INDEX KEY: 0000833320 STANDARD INDUSTRIAL CLASSIFICATION: 1311 IRS NUMBER: 911413284 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 5051 WESTHEIMER STREET 2: SUITE 1400 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: (713) 831-1600 MAIL ADDRESS: STREET 1: 999 THIRD AVENUE CITY: SEATTLE STATE: WA ZIP: 98104-4097 SC 13E3/A 1 AMDT #1 SC 13E3/A -- BURLINGTON RESOURCES 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (Pursuant to Section 13(e) of the Securities Exchange Act of 1934) and AMENDMENT NO. 2 TO SCHEDULE 13D Under the Securities Exchange Act of 1934 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP (Name of the Issuer) BURLINGTON RESOURCES INC. MERIDIAN OFFSHORE COMPANY DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP (Name of Person(s) Filing Statement) DEPOSITARY UNITS (Title of Class of Securities) 25274410 (CUSIP Number of Class of Securities) GERALD J. SCHISSLER SENIOR VICE PRESIDENT, LAW BURLINGTON RESOURCES INC. 5051 WESTHEIMER, SUITE 1400 HOUSTON, TEXAS 77056 (713) 624-9500 With a copy to: GARY P. COOPERSTEIN, ESQ. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON ONE NEW YORK PLAZA NEW YORK, NEW YORK 10004 (212) 820-8000 (Names, Addresses and Telephone Numbers of Persons Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) This statement is filed in connection with (check the appropriate box): /X/ a. The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. / / b. The filing of a registration statement under the Securities Act of 1933. / / c. A tender offer. / / d. None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: /X/
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 This Amendment No. 1 to Rule 13e-3 Transaction Statement on Schedule 13E-3 and Amendment No. 2 to Statement on Schedule 13D (the "Schedule 13E-3/13D") relates to the merger (the "Merger") of Diamond Shamrock Offshore Partners Limited Partnership (the "Partnership"), a Delaware limited partnership, with and into Meridian Offshore Company, a Delaware corporation (the "Company") and an indirect wholly owned subsidiary of Burlington Resources Inc., a Delaware corporation ("BR"). On April 26, 1994, the Company acquired the .99% managing general partnership interest of Maxus Offshore Exploration Company in the Partnership and 64,163,885 units (the "Units") of limited partnership interest (representing approximately 87% of the outstanding Units) in the Partnership held by Maxus Exploration Company, and Meridian Offshore Acquisition Company ("Acquisition"), an affiliate of the Company, acquired the .01% special general partnership interest of Maxus Energy Corporation in the Partnership, for an aggregate purchase price of $291,088,000 (approximately $4.485 per Unit). On April 28, 1994, the Partnership and the Company entered into an Agreement and Plan of Merger, pursuant to which the Partnership will be merged with and into the Company and holders of Units (other than the Company and its affiliates) will receive $4.485 per Unit in cash, without interest. A copy of the Agreement and Plan of Merger is attached as Appendix A to the Information Statement (the "Information Statement") filed by the Partnership with the Securities and Exchange Commission on the date hereof pursuant to Regulation 14C under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). A copy of the Information Statement is attached hereto as Exhibit (d)(1). The filing of this Schedule 13E-3/13D shall not be deemed an admission that Rule 13e-3 under the Exchange Act is applicable to the Merger. Each of BR, the Partnership and the Company disclaims that the Merger constitutes a "Rule 13e-3 Transaction" within the meaning of Rule 13e-3 under the Exchange Act. The information set forth in the Information Statement is incorporated in its entirety by reference. The following is a summary cross-reference sheet pursuant to General Instruction F of Schedule 13E-3, showing the location in the Information Statement of the information required by Schedule 13E-3 and Schedule 13D.
SCHEDULE 13D SCHEDULE 13E-3 ITEM ITEM NUMBER CAPTION IN INFORMATION STATEMENT ---------------------------- ---------------------- -------------------------------- Item 1. Issuer and Class of Security Item 1 Subject to the Transaction (a), (b) Cover Page; "INTRODUCTION" (c), (d) "PRICE RANGE OF UNITS; CASH DISTRIBUTIONS" (e) Not applicable (f) "INTRODUCTION" and "SPECIAL FACTORS -- Background"
Item 2. Identity and Background Item 2 (a)-(d); (g) (a)-(c) and (f) Cover Page; "INTRODUCTION"; "INFORMATION CONCERNING THE COMPANY, ACQUISITION, MERIDIAN AND BR -- Business of BR and its Subsidiaries"; "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES"; Schedule 1 (e), (f) Item 2(d), (e) Not Applicable
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SCHEDULE 13D SCHEDULE 13E-3 ITEM ITEM NUMBER CAPTION IN INFORMATION STATEMENT ---------------------------- ---------------------- -------------------------------- Item 3. Past Contacts, Transactions or Negotiations (a), (b) "SPECIAL FACTORS -- Background"; "SPECIAL FACTORS -- Purpose and Structure of the Merger"; and "CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS" Item 4. Terms of the Transaction (a) Cover Page; "INTRODUCTION"; and "THE MERGER" (b) Not Applicable Item 5. Plans or Proposals of the Item 4 Issuer or Affiliate (a)-(g) "SPECIAL FACTORS -- Purpose and Structure of the Merger" and "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES" Item 6. Source and Amounts of Funds or Item 3 Other Considerations (a) "SPECIAL FACTORS -- Financing of the Merger" (b) "FEES AND EXPENSES" (c),(d) Not Applicable Item 7. Purpose(s), Alternatives, Reasons and Effects (a)-(d) "INTRODUCTION"; "SPECIAL FACTORS -- Background"; "SPECIAL FACTORS -- Purpose and Structure of the Merger"; "SPECIAL FACTORS -- Fairness of the Merger"; "SPECIAL FACTORS -- Certain Federal Income Tax Consequences"; "SPECIAL FACTORS -- Effect of the Merger on the Market for Units; NYSE and PSE Listing and Exchange Act Registration" and "THE MERGER -- Effects of the Merger" Item 8. Fairness of the Transaction (a)-(f) "INTRODUCTION"; "SPECIAL FACTORS -- Background of the Merger"; "SPECIAL FACTORS -- Purpose and Structure of the Merger"; and "SPECIAL FACTORS -- Fairness of the Merger"
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SCHEDULE 13D SCHEDULE 13E-3 ITEM ITEM NUMBER CAPTION IN INFORMATION STATEMENT ------------------------------- ------------ -------------------------------- Item 9. Reports, Opinions, Appraisals and Certain Negotiations (a) "SPECIAL FACTORS -- Fairness of the Merger" (b), (c) Not applicable Item 10. Interest in Securities of the Item 5 Issuer (a), (b) "INTRODUCTION" and "SPECIAL FACTORS -- Background" Item 11. Contracts, Arrangements or Item 6 Understandings with Respect to the Issuer's Securities "CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS" and "THE MERGER" Item 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction (a),(b) "SPECIAL FACTORS -- Purpose and Structure of the Merger" Item 13. Other Provisions of the Transaction (a) "SPECIAL FACTORS -- Appraisal Rights" (b),(c) Not Applicable Item 14. Financial Information (a) "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES -- Selected Financial Data and "INDEX TO FINANCIAL INFORMATION" (b) Not Applicable Item 15. Persons and Assets Employed, Retained or Utilized (a) Not Applicable (b) "FEES AND EXPENSES" Item 16. Additional Information Information Statement in its entirety Item 17. Material to be filed as Item 7 Exhibits *
- --------------- *See Item 17 below. -4- 5 ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION (a) The name of the subject company is Diamond Shamrock Offshore Partners Limited Partnership, a Delaware limited partnership (the "Partnership"). The principal executive offices of the Partnership are located at 5051 Westheimer, Suite 1400, Houston, Texas 77056. (b) The class of securities to which this Statement relates is the Depositary Units of the Partnership. The information set forth on the cover page and under "INTRODUCTION" in the Information Statement is incorporated herein by reference. (c), (d) The information set forth under "PRICE RANGE OF UNITS; CASH DISTRIBUTIONS" in the Information Statement is incorporated herein by reference. (e) Not applicable. (f) The information set forth under "INTRODUCTION" and "SPECIAL FACTORS -- Background" in the Information Statement is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND (a)-(d); (g) The Partnership is a Delaware limited partnership. As a limited partnership, the actions and determinations of the Partnership are made on behalf of the Partnership by the managing general partner, in such capacity. The managing general partner of the Partnership is the Company, which also currently holds approximately 87% of the Partnership's outstanding Units, and the special general partner of the Partnership is Acquisition. The information set forth under "Item 1. Issuer and Class of Security Subject to the Transaction" herein and under "INTRODUCTION," "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES" and "INFORMATION CONCERNING THE COMPANY, ACQUISITION, MERIDIAN AND BR -- Business of BR and its Subsidiaries" in the Information Statement is incorporated herein by reference. Each of the Company and Acquisition is a wholly owned subsidiary of Meridian Oil Inc., a Delaware corporation ("Meridian"), which in turn is a wholly owned subsidiary of Meridian Oil Holding Inc., a Delaware corporation ("MOHI"), which is a wholly owned subsidiary of BR. The information set forth under "INTRODUCTION," "INFORMATION CONCERNING THE COMPANY, ACQUISITION, MERIDIAN AND BR -- Business of BR and its Subsidiaries" and "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES" in the Information Statement is incorporated herein by reference. The information with respect to the directors and executive officers of BR, the Company and Acquisition set forth in Schedule 1 to the Information Statement is incorporated herein by reference. (e) and (f) During the last 5 years, none of BR, the Company, Acquisition, the Partnership, MOHI and Meridian, nor, to the best knowledge of BR, the Partnership and the Company, any of the persons listed in Schedule 1 to the Information Statement (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS (a),(b) The information set forth under "SPECIAL FACTORS -- Background"; "SPECIAL FACTORS -- Purpose and Structure of the Merger"; and "CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS" in the Information Statement is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION (a) The information set forth on the cover page and under "INTRODUCTION" and "THE MERGER" in the Information Statement is incorporated herein by reference (b) Not applicable. -5- 6 ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE (a)-(g) The information set forth under "SPECIAL FACTORS -- Purpose and Structure of the Merger" and "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES" in the Information Statement is incorporated herein by reference. ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS (a) The information set forth under "SPECIAL FACTORS -- Financing of the Merger" in the Information Statement is incorporated herein by reference. (b) The information set forth under "FEES AND EXPENSES" in the Information Statement is incorporated herein by reference. (c),(d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS (a)-(d) The information set forth under "INTRODUCTION"; "SPECIAL FACTORS -- Background"; "SPECIAL FACTORS -- Purpose and Structure of the Merger"; "SPECIAL FACTORS -- Fairness of the Merger"; "SPECIAL FACTORS -- Certain Federal Income Tax Consequences"; and "SPECIAL FACTORS -- Effect of the Merger on the Market for Units; NYSE and PSE Listing and Exchange Act Registration" in the Information Statement is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION (a)-(f) The information set forth under "INTRODUCTION"; "SPECIAL FACTORS -- Background"; "SPECIAL FACTORS -- Purpose and Structure of the Merger"; and "SPECIAL FACTORS -- Fairness of the Merger" in the Information Statement is incorporated herein by reference. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS (a) The information set forth under "SPECIAL FACTORS -- Fairness of the Merger" in the Information Statement is incorporated herein by reference. (b),(c) Not applicable. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER (a),(b) The information set forth under "INTRODUCTION"; and "SPECIAL FACTORS -- Background" in the Information Statement is incorporated herein by reference. ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES The information set forth under "THE MERGER" and "CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS" in the Information Statement is incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION (a),(b) The information set forth under "SPECIAL FACTORS -- Purpose and Structure of the Merger" in the Information Statement is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE TRANSACTION (a) The information set forth under "SPECIAL FACTORS -- Appraisal Rights" in the Information Statement is incorporated herein by reference. (b),(c) Not applicable. -6- 7 ITEM 14. FINANCIAL INFORMATION (a) The information set forth under "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES -- Selected Financial Data" and "INDEX TO FINANCIAL INFORMATION" in the Information Statement is incorporated herein by reference. (b) Not applicable. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED (a) Not applicable. (b) The information set forth under "FEES AND EXPENSES" in the Information Statement is incorporated herein by reference. ITEM 16. ADDITIONAL INFORMATION The information set forth in the Information Statement is incorporated herein by reference in its entirety. ITEM 17. MATERIALS TO BE FILED AS EXHIBITS (a) -- Not applicable. (b) -- Not applicable. (c)(1)* -- Agreement and Plan of Merger dated as of April 28, 1994 between Diamond Shamrock Offshore Partners Limited Partnership and Meridian Offshore Company (included as Appendix A to Exhibit (d)(1)). (c)(2)* -- Unit Purchase Agreement dated as of April 26, 1994 between Maxus Energy Corporation, Maxus Exploration Company, Maxus Offshore Exploration Company, Meridian Offshore Company and Meridian Offshore Acquisition Company. (c)(3)* -- Transition Services Agreement dated as of April 26, 1994 between Maxus Exploration Company and Meridian Offshore Company. (c)(4)* -- Purchase and Sale Agreement dated as of April 26, 1994 between Maxus Exploration Company and Meridian Oil Inc. (c)(5) -- Confidentiality Agreement dated as of March 30, 1994 between Maxus Energy Corporation and Meridian Oil Inc. (d)(1) -- Information Statement of Diamond Shamrock Offshore Partners Limited Partnership dated June , 1994. (e) -- Not applicable. (f) -- Not applicable. (g)(1)* -- Class Action Complaint captioned Susser vs. Burlington Resources, et al. (C.A. No. 13483), filed in the Court of Chancery of the State of Delaware in and for New Castle County on April 27, 1994. (g)(2) -- Class Action Complaint captioned Sonem Partners, Ltd. vs. Diamond Shamrock Offshore Partners Limited Partnership, et al. (C.A. No. 13532), filed in the Court of Chancery of the State of Delaware in and for New Castle County on or about May 27, 1994.
- --------------- * Previously filed. -7- 8 SIGNATURES After due inquiry and to the best knowledge and belief of the undersigned, the undersigned certify that the information set forth in this statement is true, complete and correct. BURLINGTON RESOURCES INC. By: /s/ GERALD J. SCHISSLER Name: Gerald J. Schissler Title: Senior Vice President, Law MERIDIAN OFFSHORE COMPANY By: /s/ L. DAVID HANOWER Name: L. David Hanower Title: Senior Vice President DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP By: Meridian Offshore Company, its managing general partner By:/s/ L. DAVID HANOWER Name: L. David Hanower Title: Senior Vice President June 23, 1994 -8- 9 EXHIBIT INDEX (a) -- Not applicable. (b) -- Not applicable. (c)(1)* -- Agreement and Plan of Merger dated as of April 28, 1994 between Diamond Shamrock Offshore Partners Limited Partnership and Meridian Offshore Company (included as Appendix A to Exhibit (d)(1)). (c)(2)* -- Unit Purchase Agreement dated as of April 26, 1994 between Maxus Energy Corporation, Maxus Exploration Company, Maxus Offshore Exploration Company, Meridian Offshore Company and Meridian Offshore Acquisition Company. (c)(3)* -- Transition Services Agreement dated as of April 26, 1994 between Maxus Exploration Company and Meridian Offshore Company. (c)(4)* -- Purchase and Sale Agreement dated as of April 26, 1994 between Maxus Exploration Company and Meridian Oil Inc. (c)(5) -- Confidentiality Agreement dated as of March 30, 1994 between Maxus Energy Corporation and Meridian Oil Inc. (d)(1) -- Information Statement of Diamond Shamrock Offshore Partners Limited Partnership dated June , 1994. (e) -- Not applicable. (f) -- Not applicable. (g)(1)* -- Class Action Complaint captioned Susser vs. Burlington Resources, et al. (C.A. No. 13483), filed in the Court of Chancery of the State of Delaware in and for New Castle County on April 27, 1994. (g)(2) -- Class Action Complaint captioned Sonem Partners, Ltd. vs. Diamond Shamrock Offshore Partners Limited Partnership, et al. (C.A. No. 13532), filed in the Court of Chancery of the State of Delaware in and for New Castle County on or about May 27, 1994.
EX-99.1 2 (C)(5) CONFIDENTIALITY AGREEMENT, MARCH 30, 1994 1 EXHIBIT (c)(5) Maxus Energy Corporation 717 North Harwood Street Dallas, Texas 75201 214 953-2000 March 30, 1994 [MAXUS LOGO] Meridian Oil, Inc. 2919 Allen Parkway Houston, Texas 77019 Gentlemen: In connection with your possible interest in the acquisition of certain assets of Maxus Energy Corporation and/or of its subsidiaries or affiliates ("Maxus") located in or relating to properties located in the offshore Gulf of Mexico and adjoining lands (the "Property"), Maxus is furnishing you or your representatives with certain information (which includes but is not limited to the items specified on the attached Exhibit A), which is either non-public, confidential or proprietary in nature. This information furnished to you or your representatives, together with any analyses, compilations, forecasts, studies or other documents prepared by you, your agents, representatives (including lawyers, accountants and financial advisors) or employees which contain or otherwise reflect such information or your review of, or interest in, the Property, is hereinafter referred to as the "Information." In consideration of Maxus furnishing you with the Information, you agree that: 1. The Information will be kept confidential and shall not, without Maxus' prior written consent, be disclosed by you, or by your agents, representatives or employees, in any manner whatsoever, in whole or in part, and shall not be used by you, your agents, representatives or employees, other than in connection with the transaction described above. Moreover, you agree to reveal the Information only to your agents, representatives and employees who need to know the Information for the purpose of evaluating the transaction described above, who are informed by you of the confidential nature of the Information and who shall agree to act in accordance with the terms and conditions of this Agreement. 2. Without Maxus' prior written consent, except as required by law, you and your agents, representative and employees will not disclose to any person the fact that the Information has been made available, that discussions or negotiations are taking place or have taken place concerning a possible transaction involving the Property or Maxus, or any of the terms, conditions or other facts with respect to any such possible transaction, including the status thereof. 3. In the event the 2 Meridian Oil, Inc. March 30, 1994 Page 2 proposed acquisition is not consummated, all copies of the Information, except for that portion of the Information which consists of analyses, compilations, forecasts, studies or other documents prepared by you, your agents, representatives or employees, will be returned to Maxus immediately. That portion of the Information which consists of analyses, compilations, forecasts, studies or other documents prepared by you, your agents, representatives or employees, will be destroyed and any oral Information will continue to be subject to the terms of this Agreement. 4. The term Information shall not include such portions of the Information which (i) are or become generally available to the public other than as a result of a disclosure by you, your agents, representatives or employees, or (ii) are received from an independent third party who to the best of your knowledge had obtained the information lawfully and was under no obligation of secrecy, or (iii) you can show were independently developed by you or on your behalf by personnel having no access to the Information at the time of independent development. 5. You acknowledge that neither Maxus nor its representatives, agents, officers or employees have made any express or implied representation or warranty as to the accuracy or completeness of the Information, and Maxus and its representatives, agents, officers and employees shall have no liability based on or in connection with the Information, or any errors therein or omissions therefrom. You agree that you are not entitled to rely on the accuracy or completeness of the Information and that you shall be entitled to rely solely on the representations and warranties made to you in any final purchase agreement regarding an acquisition. 6. In the event that you or anyone to whom you transmit the Information pursuant to this Agreement become legally compelled to disclose any of the Information, you will provide Maxus with prompt notice so that Maxus may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. In the event that such protective order or other remedy is not obtained, or Maxus waives compliance with the provisions of this Agreement, you will furnish only that portion of the Information which you are advised, by written opinion of counsel to you, is legally required and will exercise your best efforts to obtain reliable assurance that confidential treatment will be accorded the Information. 7. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions 3 Meridian Oil, Inc. March 30, 1994 Page 3 hereof or affecting the validity or enforceability of such provisions in any other jursdiction. 8. This Agreement shall be governed and construed in accordance with the laws of the State of Texas. 9. You acknowledge that disclosure of the Information may cause significant damage and harm to Maxus and that remedies at law may be inadequate to protect against breach of this Agreement, and you hereby agree in advance to the granting of injunctive relief in Maxus' favor without proof of actual damages, in addition to any other remedy to which Maxus may be entitled. 10. The confidentiality obligations in this Agreement shall terminate one (1) year from the date of this Agreement or, as to specific portions of the Information which are subject to separate confidentiality agreements, such later date provided in such separate confidentiality agreements. Very truly yours, MAXUS ENERGY CORPORATION /s/ W. H. BAGLEY --------------------------------- ACCEPTED AND AGREED TO THIS 30 DAY OF MARCH, 1994 MERIDIAN OIL, INC. /s/ RANDOLPH P. MUNDT - ----------------------------- Name SR. V.P. - ----------------------------- Title Meridian Oil Inc. 4 EXHIBIT "A" INFORMATION TO BE PROVIDED BY MAXUS * YR-END 1993 RESERVE REPORT (PDP'S, PUD'S, PROBABLE) BY FIELD WITH APPROPRIATE BACK-UP FILES (INCLUDING AVAILABLE AND APPLICABLE MAPS, FUTURE COST ESTIMATES, ETC.) * ACCESS TO AUDITORS FOR RESERVE VERIFICATION * LAST 3 YEARS LOE DATA BY FIELD * MARKETING SUMMARIES * PARTNERSHIP'S CONSOLIDATED FINANCIAL AND TAX RECORDS * COPY OF PARTNERSHIP AGREEMENT * ENVIRONMENTAL REPORTS AND LITIGATION FILES * PRESENTATIONS BY MAXUS MANAGEMENT ON PROPERTIES' UPSIDE POTENTIAL (DEVELOPMENT AND EXPLOITATION) EX-99.2 3 (D)(1) INFORMATION STATEMENT - DIAMOND SHAMROCK 1 REVISED PRELIMINARY COPY DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP 5051 WESTHEIMER SUITE 1400 HOUSTON, TEXAS 77056 ------------------------------------------ INFORMATION STATEMENT ------------------------------------------ This Information Statement is being furnished by Diamond Shamrock Offshore Partners Limited Partnership, a Delaware limited partnership (the "Partnership"), to holders of record as of the close of business on June 20, 1994 of limited partnership units of the Partnership (the "Units") represented by depositary receipts (the "Depositary Units"), in connection with an Agreement and Plan of Merger dated as of April 28, 1994 (the "Merger Agreement"), between the Partnership and Meridian Offshore Company, a Delaware corporation (the "Company") which is a direct wholly owned subsidiary of Meridian Oil Inc., a Delaware corporation ("Meridian"), and an indirect wholly owned subsidiary of Burlington Resources Inc., a Delaware corporation ("BR"). Pursuant to the Merger Agreement (i) the Partnership will be merged with and into the Company (the "Merger") and (ii) holders of record of Depositary Units on the effective date of the Merger will receive $4.485 in cash for each Unit (the "Merger Consideration"). The Merger is the second step in a transaction pursuant to which (i) on April 26, 1994, the Company acquired the managing general partnership interest of Maxus Offshore Exploration Company ("Maxus Offshore") in the Partnership and 64,163,885 Units held by Maxus Exploration Company ("Maxus Exploration"), and Meridian Offshore Acquisition Company, a Delaware corporation which is an affiliate of the Company ("Acquisition"), acquired the special general partnership interest of Maxus Energy Corporation ("Maxus Energy" and, together with Maxus Offshore and Maxus Exploration, "Maxus") in the Partnership, for an aggregate purchase price of $291,088,000 (of which $3,341,230 was attributable to the general partnership interests in the Partnership) or approximately $4.485 per Unit, and (ii) on April 28, 1994, the Partnership and the Company entered into the Merger Agreement, pursuant to which holders of Units will receive $4.485 per Unit in cash, the same price paid to Maxus for its interests in the Partnership. The Merger Agreement and the Merger have each been approved by the Board of Directors of the Company, on behalf of the Company, and by the Company, in its capacity as managing general partner of the Partnership, on behalf of the Partnership. The Company, as the holder of the managing general partnership interest in the Partnership and of 64,163,885 Units, and Meridian Offshore Acquisition Company, a Delaware corporation which is an affiliate of the Company ("Acquisition"), as the holder of the special general partnership interest in the Partnership, have each executed a written consent approving the Merger. Under Delaware law and the Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended (the "Partnership Agreement"), the Merger does not require the vote or consent of any other Unit holder. NO MEETING OF UNIT HOLDERS WILL BE HELD TO CONSIDER APPROVAL OF THE MERGER AND NO VOTE OR CONSENT OF UNIT HOLDERS IS BEING SOLICITED. --------------------- NEITHER THE PARTNERSHIP NOR THE COMPANY IS ASKING YOU FOR A PROXY OR CONSENT AND YOU ARE REQUESTED NOT TO SEND THE PARTNERSHIP OR THE COMPANY A PROXY OR CONSENT. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IN UNLAWFUL. --------------------- THE DATE OF THIS INFORMATION STATEMENT IS , 1994. 2 AVAILABLE INFORMATION The Partnership and BR are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, file reports, proxy statements (in the case of BR only) and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements (in the case of BR) and other information filed with the Commission can be inspected and copied at the public reference facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for inspection and copying at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Although the Company, BR and the Partnership believe that the Merger is not a "Rule 13e-3 transaction" within the meaning of Rule 13e-3 under the Exchange Act, the Company, BR and the Partnership have filed with the Commission a Rule 13e-3 Transaction Statement under the Exchange Act in connection with the Merger. This Information Statement also constitutes a part of such Rule 13e-3 Transaction Statement. The Rule 13e-3 Transaction Statement and any amendments thereto, including exhibits filed as a part thereof, are available for inspection and copying as set forth above. DOCUMENTS INCORPORATED BY REFERENCE This Information Statement incorporates by reference documents relating to the Partnership and BR which are not presented herein or delivered herewith. Documents relating to the Partnership and BR (other than exhibits to such documents unless such exhibits are specifically incorporated by reference) are available to any person, including any beneficial owner, to whom this Information Statement is delivered, on written or oral request, without charge, from Meridian Offshore Company, 5051 Westheimer, Suite 1400, Houston, Texas 77056, Attention: Wendi L. Shackelford, Corporate Secretary, Telephone: (713) 624-9000. Copies of documents so requested will be sent by first class mail, postage paid, within one business day of the receipt of such request. The following Partnership documents are incorporated by reference herein: 1. Annual Report on Form 10-K for the year ended December 31, 1993 (the "1993 Partnership 10-K"). 2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (the "1994 Partnership 10-Q"). The following BR documents are incorporated by reference herein: 1. Annual Report on Form 10-K for the year ended December 31, 1993 (the "1993 BR 10-K"). 2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (the "1994 BR 10-Q"). All documents filed by the Partnership or BR with the Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and prior to the date of the Merger shall be deemed to be incorporated by reference herein and shall be a part hereof from the date of filing of such documents. Any statements contained in a document incorporated by reference herein or contained in this Information Statement shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS INFORMATION STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. ii 3 TABLE OF CONTENTS
PAGE NO. --- AVAILABLE INFORMATION................................................................ ii DOCUMENTS INCORPORATED BY REFERENCE.................................................. ii GLOSSARY............................................................................. iv INTRODUCTION......................................................................... 1 SPECIAL FACTORS...................................................................... 2 Background......................................................................... 2 Purpose and Structure of the Merger................................................ 3 Fairness of the Merger............................................................. 4 Effect of the Merger on the Market for Units; NYSE and PSE Listing and Exchange Act Registration.................................................................... 6 Financing of the Merger............................................................ 6 Appraisal Rights................................................................... 6 Certain Federal Income Tax Consequences............................................ 7 Accounting Treatment............................................................... 8 Certain Litigation................................................................. 8 THE MERGER........................................................................... 9 Approval of the Merger............................................................. 9 Terms of the Merger................................................................ 9 Effects of the Merger.............................................................. 11 CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS.................. 11 Unit Purchase Agreement............................................................ 11 Transition Agreement............................................................... 12 Purchase and Sale Agreement........................................................ 12 INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES............................ 12 Business and Properties............................................................ 12 Oil and Gas Reserves............................................................... 15 Future Net Cash Flows.............................................................. 16 Certain Projections................................................................ 17 Recent Developments................................................................ 19 Selected Financial Data............................................................ 19 PRICE RANGE OF UNITS; CASH DISTRIBUTIONS............................................. 20 INFORMATION CONCERNING THE COMPANY, ACQUISITION, MERIDIAN AND BR..................... 20 Business of BR and its Subsidiaries................................................ 20 Selected Financial Data............................................................ 20 FEES AND EXPENSES.................................................................... 22 REGULATORY APPROVALS................................................................. 22 INDEX TO FINANCIAL INFORMATION....................................................... F-1 SCHEDULE 1 -- DIRECTORS AND EXECUTIVE OFFICERS OF BR AND THE COMPANY................. S-1 APPENDIX A -- AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 28, 1994 BETWEEN DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP AND MERIDIAN OFFSHORE COMPANY.......
iii 4 GLOSSARY Certain terms used in this Information Statement have the following meanings: "Bbl" means barrel. "Bcf" means billion cubic feet of gas. "Bcfe" means billion cubic feet of gas equivalent. Oil is converted into cubic feet of gas equivalent based on 6 Mcf of gas to one barrel of oil. "MB" means thousands of barrels. "MBO" means thousands of barrels of oil. "Mcf" means thousand cubic feet of gas. "Mmcf" means million cubic feet of gas. "Proved reserves" are those estimated quantities of crude oil, natural gas and natural gas liquids, which, upon analysis of geological and engineering data, appear with reasonable certainty to be recoverable in the future from known oil and gas reservoirs under existing economic and operating conditions. The categories of proved reserves are as follows: "Proved developed reserves" are those proved reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. "Proved undeveloped reserves" are those proved reserves which are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required. "Unproved reserves" are potential oil and gas reserves that currently have a degree of uncertainty that precludes them from being classified as proved reserves. The classifications of unproved reserves, based upon increasing degrees of uncertainty, are probable reserves, possible reserves and speculative reserves. In all cases, the degree of uncertainty relates to the geological, geophysical and engineering knowledge of the area. The categories of unproved reserves are as follows: "Probable reserves" are unproved reserves in an area of known commercial oil and/or gas production where there is either an absence of, or insufficient, geological, geophysical and/or engineering data from which to have adequate certainty that the reserves can be classified as proved reserves. "Possible reserves" are unproved reserves in an area where engineering, geological and geophysical data indicate the existence of hydrocarbons but further data (particularly drilling) is required to prove the presence of oil and/or gas. "Speculative reserves" are unproved reserves in an area which has characteristics analogous to known hydrocarbon producing environments but where there is a lack of information to indicate the presence of hydrocarbons. iv 5 INTRODUCTION This Information Statement is being furnished to Unit holders by the Partnership in connection with the Merger, pursuant to which (i) the Partnership will be merged with and into the Company and (ii) each outstanding Unit (other than Units held by the Company and its affiliates) will be converted into the right to receive the Merger Consideration in cash, without interest. The Merger is the second step in a transaction pursuant to which (i) on April 26, 1994, the Company acquired the managing general partnership interest of Maxus Offshore in the Partnership (representing a 0.99% economic interest in the Partnership) and 64,163,885 Units held by Maxus Exploration, and Acquisition acquired the special general partnership interest of Maxus Energy in the Partnership (representing a 0.01% economic interest in the Partnership), for an aggregate purchase price of $291,088,000 or approximately $4.485 per Unit, and (ii) on April 28, 1994, the Partnership and the Company entered into the Merger Agreement, pursuant to which holders of Units will receive $4.485 per Unit, the same price paid to Maxus for its interests in the Partnership. The principal executive offices of the Partnership, BR and the Company are each located at 5051 Westheimer, Suite 1400, Houston, Texas 77056. The telephone number of each of the Partnership, BR and the Company at such address is (713) 624-9000. The Partnership is engaged in the exploration for, and the development and production of, oil and gas on federal offshore leases located off the coast of Louisiana and Texas. The Company is a direct wholly owned subsidiary of Meridian and was formed for the purposes of acquiring the .99% managing general partnership interest of Maxus Offshore in the Partnership and the 64,163,885 Units owned by Maxus Exploration and effecting the Merger. BR is a holding company whose principal operating subsidiary, Meridian, is engaged in the exploration, development and production of oil and gas and related marketing activities. The Company and the Partnership have entered into the Merger Agreement, which provides for the consummation of the Merger. The Company, as the holder of the managing general partnership interest in the Partnership and 64,163,885 Units, and Acquisition, as the holder of the special general partnership interest in the Partnership, have each executed a written consent approving the Merger. Under Delaware law and the Partnership Agreement, the Merger does not require the consent of any other Unit holder. As of the date of this Information Statement, there are 73,761,740 Units outstanding held by approximately 14,679 Unit holders of record, of which 64,163,885 Units or approximately 87% are owned by the Company. --------------------- NO MEETING OF UNIT HOLDERS WILL BE HELD TO CONSIDER APPROVAL OF THE MERGER AND NO VOTE OR CONSENT OF UNIT HOLDERS IS BEING SOLICITED. NEITHER THE PARTNERSHIP NOR THE COMPANY IS ASKING YOU FOR A PROXY OR CONSENT AND YOU ARE REQUESTED NOT TO SEND THE PARTNERSHIP OR THE COMPANY A PROXY OR CONSENT. --------------------- 6 SPECIAL FACTORS BACKGROUND On March 8, 1994, George E. Howison, President and Chief Executive Officer of Meridian, was contacted by Charles S. Weiss, Managing Director of Smith Barney Shearson, who advised Mr. Howison that he understood that Maxus was interested in selling all of its general and limited partnership interests in the Partnership (the "Maxus Interests"). Mr. Weiss advised Mr. Howison that Smith Barney Shearson was not acting on behalf of Maxus. Mr. Howison was told that Maxus would provide information concerning the Partnership assets to Meridian and that Maxus would permit access to Maxus employees for discussions concerning those assets. Mr. Howison indicated to Mr. Weiss that Meridian might be interested in acquiring the Maxus Interests. On March 29, 1994, Randolph P. Mundt, Senior Vice President of Meridian, was contacted by W. H. Bagley, Vice President of Maxus, to discuss Meridian's potential interest in acquiring the Maxus Interests. Mr. Mundt indicated that Meridian would be interested in acquiring these interests, and asked for additional information. Mr. Bagley generally discussed the types of information that could be made available, such as an inventory of properties and a production history with respect to the properties. On March 30, 1994, Maxus and Meridian executed a Confidentiality Agreement under which Meridian was provided with data relating to the oil and gas properties owned by the Partnership (the "Properties") and two other oil and gas properties owned by Maxus and operated by the same Maxus regional staff (the "Maxus Fee Properties"). This data included a list of the properties and Maxus' and the Partnership's interest therein. On April 5, 1994, Mr. Bagley and Steven G. Crowell, Senior Vice President of Maxus, made a presentation to Bobby S. Shackouls, Executive Vice President and Chief Operating Officer, Mr. Mundt, James S. Buchanan, Senior Vice President, L. David Hanower, Senior Vice President, Steven W. Nance, Vice President, and David M. Drummond, Vice President of Meridian, concerning the operational attributes of the Properties and the Maxus Fee Properties, marketing arrangements, the Partnership's structure, and staffing requirements associated with the management of the Partnership. Matthew Buten, Vice President of Smith Barney Shearson, attended the April 5 meeting at Meridian's request. Additional data supporting the presentation on April 5 and other information concerning the assets being sold were provided to Meridian personnel during the week of April 11, 1994. On April 15, 1994, Mr. Mundt, accompanied by Mr. Hanower, presented Mr. Crowell, McCarter Middlebrook, Vice President and General Counsel, and George W. Pasley, Senior Vice President and Chief Financial Officer of Maxus, with preliminary indications of interest with respect to the acquisition of the Properties and the Maxus Fee Properties. On April 18, 1994, Mr. Crowell called Mr. Mundt and indicated that Maxus was interested in pursuing the negotiation of definitive agreements that would specify the terms and conditions under which the Partnership Interests and the Maxus Fee Properties would be purchased. Between April 19 and April 25, 1994, representatives of the Company, including Mr. Mundt, Mr. Hanower, Gary P. Cooperstein and Warren de Wied of Fried, Frank, Harris, Shriver & Jacobson, counsel to Meridian, and representatives of Maxus, including Mr. Crowell, Mr. Middlebrook and Ed Notestine, formerly General Counsel and currently a consultant to Maxus, negotiated with respect to the terms of an acquisition of the Maxus Interests by the Company and Acquisition, including the structure of the transaction and representations and warranties and indemnities to be provided by Maxus. In the course of these negotiations, the Company agreed to make an upward adjustment to the purchase price to be paid to Maxus of approximately $15 million (an increase from approximately $4.25 per Unit to approximately $4.485 per Unit) to reflect Maxus' pro rata share of the cash proceeds of the sale by the Partnership of its interests in Main Pass blocks 72, 73 and 74 to Pogo Producing Company. During the same period, the foregoing representatives of the Company and Maxus prepared drafts of an acquisition agreement for the transaction and negotiated and prepared drafts of an agreement for certain transition services to be provided by Maxus to the Partnership. The parties also negotiated the terms of the purchase of the Maxus Fee Properties during the same period. On April 25, 1994, Maxus issued a press release disclosing that it was negotiating with an unidentified third party with respect to a sale of the Maxus Interests at a price of approximately $4.48 per Unit. 2 7 On April 26, 1994, the parties executed a unit purchase agreement (the "Unit Purchase Agreement") with respect to the sale of the managing general partnership interest of Maxus Offshore and the 64,163,885 Units held by Maxus Exploration to the Company and the sale of the special general partnership interest of Maxus Energy to Acquisition, for a total purchase price of $291,088,000 (of which $3,341,230 was attributable to the 1.0% economic interest in the Partnership represented by the general partnership interests in the Partnership), or approximately $4.485 per Unit. The closing of the sale and purchase took place simultaneously with the execution of the Unit Purchase Agreement. Immediately following the closing of this transaction, Maxus Exploration paid to the Partnership $36,849,635 in satisfaction of the amount estimated to be outstanding under a promissory note of Maxus Exploration to the Partnership and $253,050 in satisfaction of the Partnership's share of the value of certain hedging transactions undertaken by Maxus, approximately 35% of which were allocated for the account of the Partnership. In addition, Maxus Exploration and the Company entered into a transition services agreement (the "Transition Agreement"), which provides that Maxus will continue, for a period of up to 90 days after April 26, 1994, to provide certain services to the Partnership. Also on April 26, 1994, Maxus Exploration and Meridian entered into a separate purchase and sale agreement (the "Purchase and Sale Agreement") pursuant to which Meridian agreed to purchase the Maxus Fee Properties for approximately $58,000,000. For additional information concerning the foregoing agreements, see "CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS." On April 28, 1994, the Company and the Partnership entered into the Merger Agreement, and the Company and Acquisition each executed a written consent approving the Merger. PURPOSE AND STRUCTURE OF THE MERGER The purpose of the Merger is to acquire all of the outstanding Units, thereby acquiring the entire equity interest in the Partnership. Since 1988, BR has been selling its nonstrategic real estate, minerals and forest product assets and reinvesting the net proceeds in domestic oil and gas reserves and in the repurchase of its common stock. BR's current strategy is to increase reserves principally through capital improvements to its existing properties and through acquisitions of proved properties. The Company acquired the Maxus Interests and is effecting the Merger at this time in furtherance of this strategy. The Company has structured the acquisition of the Partnership essentially as a unitary transaction involving a negotiated acquisition of the Maxus Interests to be followed by a merger at the same purchase price per unit that was negotiated with the holders of 87.1% of the Partnership interests. The Company believes that the acquisition of the Maxus Interests in conjunction with the Merger represents an opportunity for BR and the Company to establish an operating position in a high priority, strategic area. The Company believes that the Properties (which are primarily gas-producing properties) have access to premium gas markets in the northeastern United States and that the acquisition will provide further diversification from BR's existing gas markets (a significant portion of which includes highly competitive markets in California). In addition, the Company believes that the Properties have high growth and exploratory potential. Meridian's staff and management have considerable operating experience in offshore waters and Meridian believes this experience increases the potential for further growth through exploration and exploitation of the Properties. Moreover, the Partnership's proved reserves have a reserve to production ratio of between five and seven years, which complements the higher reserve to production ratio of BR's existing asset base. Because the Company and Acquisition own all of the outstanding general partnership interests in the Partnership and the Company owns approximately 87% of the outstanding Units, under the Partnership Agreement and Delaware law the Company and Acquisition currently have the power to approve a merger without the consent of any other Unit holder. On April 28, 1994, the Company, as the holder of a .99% managing general partnership interest in the Partnership and 64,163,885 Units, and Acquisition, as the holder of a .01% special general partnership interest in the Partnership, each executed a written consent approving the 3 8 Merger. Under applicable federal securities laws, the Merger cannot be effected until at least 20 calendar days after this Information Statement has been sent or given to Unit holders. Accordingly, the Company expects that the Merger will be consummated on , 1994 or as promptly as practicable thereafter, assuming that the conditions to the Merger set forth in the Merger Agreement have been satisfied. See "THE MERGER -- Terms of the Merger." As a result of the Merger, the interest of the Company in the net book value and net income of the Partnership will increase from 87.1% to 100%. Except as described above, BR, the Company and the Partnership have no present plans or proposals that would relate to or result in any extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Partnership or its subsidiaries, a sale or transfer of a material amount of assets of the Partnership or its subsidiaries, any change in the Partnership's management, any material change in the Partnership's distribution rate or policy or indebtedness or capitalization, or any other material change in the Partnership's structure or business. FAIRNESS OF THE MERGER The Company believes that the Merger is fair to Unit holders. In reaching this conclusion, the Company considered the factors discussed below. (i) The purchase price of $4.485 per Unit pursuant to the Merger is the same price paid by the Company and Acquisition to acquire the Maxus Interests from Maxus on April 26, 1994. See "SPECIAL FACTORS -- Background of the Merger." The Company views the acquisition of the Maxus Interests and the Merger as essentially a unitary transaction, on terms which were approved by the holders of 87% of the Units, and in which Unit holders are being treated alike (except that, as noted in clauses (ii) and (iii) below, certain aspects of the Merger are more favorable to Unit holders than the terms of the purchase of the Maxus Interests). The purchase price was negotiated in an arm's length transaction with Maxus, which the Company believed to be sophisticated and experienced in purchase and sale transactions involving oil and gas properties. Based upon statements by Maxus, the Company believed that, prior to selling the Maxus Interests to the Company and Acquisition, Maxus had solicited offers from other third parties and that the price paid by the Company and Acquisition to acquire the Maxus Interests represented the most favorable offer received by Maxus. (ii) Unit holders of record as of May 13, 1994 would receive the Partnership distribution of $.13 declared on April 25, 1994, which was paid on June 7, 1994. Maxus did not and will not receive any such distribution. (iii) Under the Unit Purchase Agreement, Maxus made certain representations and warranties to the Company and Acquisition regarding, among other things, the financial condition, assets, liabilities and operations of the Partnership. Maxus is obligated to indemnify the Company against all damages incurred by the Company or Acquisition arising out of a breach of any representation, warranty or agreement by Maxus in the Unit Purchase Agreement, any filings by the Partnership with the Commission prior to April 26, 1994, and certain other matters. Accordingly, the purchase price received by Maxus could be reduced in the future by indemnification payments to the Company. Unit holders are not being asked to make any of the foregoing representations or warranties or to indemnify the Company against any of the foregoing matters, and therefore the Merger Consideration of $4.485 per Unit to be received by Unit holders will not be subject to any such potential future reduction. Although as of the date of this Information Statement the Company has not asserted any claims for indemnification against Maxus, for the foregoing reasons the Merger Consideration could be greater than the per Unit consideration retained by Maxus. See "CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS -- Unit Purchase Agreement." (iv) The Company considered conditions in the oil and gas industry in general, and the current environment for acquisitions of oil and gas properties (including offshore oil and gas properties). Meridian believes that it has significant experience in acquiring oil and gas properties and, based upon its view of conditions in the oil and gas industry in general, the current acquisition environment for oil and gas properties and the factors described in clauses (i) and (vi), the Company believes that the Merger Consideration is consistent with consideration paid in connection with acquisitions of oil and gas properties generally and is fair to the Unit holders. 4 9 (v) The Company considered the current market price of the Units (the closing sales price of the Units on April 25, 1994, the last trading day prior to the announcement of the acquisition of the Maxus Interests, was $4.625) and historical market prices for the Units during the past two years. See "PRICE RANGE OF UNITS; CASH DISTRIBUTIONS." There is limited liquidity in the market for the Units and the Merger represents an opportunity for holders to liquidate their investment which might not otherwise be available to Unit holders. While the Units had historically traded at prices higher than the Merger Consideration (the high sales price of the Units for the year ended December 31, 1993 was $6.875), the Units had also traded at lower prices (the closing price for the Units on March 31, 1994 was $4.00 per Unit; the average closing price for the Units for the 30 days prior to the announcement of the acquisition of the Maxus Interests was $4.494), and the Company believed historical prices to be less significant given that (i) the same purchase price was paid to Maxus for its 87.1% interest in the Partnership in a negotiated transaction and (ii) Maxus had had the opportunity to seek other offers and, based upon statements by Maxus, the Company believed that Maxus had done so. (vi) The Company also considered information relating to the Properties, including the historical operations of the Properties, current operations and potential of the Properties, levels of oil and gas reserves, the ratio of oil reserves to gas reserves, and programs for development and production optimization. Meridian believes that it has significant experience in evaluating oil and gas properties and, based upon its view of the Properties and the factors described in clauses (i) and (iv), the Company believes that the Merger Consideration is consistent with consideration paid in connection with acquisitions of oil and gas properties generally and is fair to the Unit holders. See "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES." (vii) Unit holders are not entitled to appraisal rights in connection with the Merger, and the lack of appraisal rights was deemed a negative factor. See "SPECIAL FACTORS -- Appraisal Rights" and "SPECIAL FACTORS -- Certain Litigation." (viii) The Company did not structure the Merger to require approval of a majority of unaffiliated Unit holders. (ix) No unaffiliated representative was retained to act solely on behalf of unaffiliated Unit holders for the purpose of negotiating the terms of the Merger or preparing a report concerning the fairness of the Merger. In view of the number and variety of factors considered, the Company did not find it practicable to, and did not, assign relative weights to the factors described above. However, the Company believes that the factors described in (i), (ii), (iii) and (iv) above are favorable to its determination of fairness, factors (v) and (vi) are neutral, and factors (vii), (viii) and (ix) are negative. As stated above, the Merger is not structured to require the approval of a majority of unaffiliated Unit holders. In addition, neither Meridian, the Company, the Partnership nor a majority of the non-employee directors of Meridian or the Company retained or considered retaining an unaffiliated representative to act solely on behalf of unaffiliated Unit holders for the purpose of negotiating the terms of the Merger or preparing a report concerning the fairness of the Merger. While these factors could be viewed as unfavorable to a determination of fairness, the Company believes, notwithstanding these factors, that the terms of the Merger are fair to Unit holders (a) because the purchase price of $4.485 per Unit pursuant to the Merger is the same price paid by the Company and Acquisition to acquire the Maxus Interests from Maxus on April 26, 1994; the Company views the acquisition of the Maxus Interests and the Merger as essentially a unitary transaction, on terms which were approved by the holder of 87% of the Units, and in which all Unit holders are being treated alike (except that, as noted in clauses (ii) and (iii) above, certain aspects of the Merger are more favorable to Unit holders than the terms of the purchase of the Maxus Interests); the purchase price was negotiated in an arm's length transaction with Maxus, which the Company believed to be sophisticated and experienced in purchase and sale transactions involving oil and gas properties; and, based upon statements by Maxus, the Company believed that, prior to selling the Maxus Interests to the Company and Acquisition, Maxus had solicited offers from other third parties and that the price paid by the Company and Acquisition to acquire the Maxus Interests represented the most favorable offer received by Maxus, and (b) for the other reasons set forth in clauses (ii), (iii) and (vi) above. 5 10 The Company did not believe current net book value per Unit to be relevant to its determination of fairness because such value (approximately $2.00 per Unit at March 31, 1994 on a pro forma basis giving effect to the sale of the Partnership's interests in Main Pass blocks 72, 73 and 74 on April 25, 1994 to Pogo Producing Company) is substantially less than the Merger Consideration and historical trading prices for the Units. The Company did not consider liquidation value to be relevant to its determination of fairness because the Company intends to continue to operate the business currently conducted by the Partnership as a going concern and therefore the Company evaluated the Partnership on a going concern basis, although the Company believed that estimates of future net revenue, information concerning historical operations, current operations and potential of the Properties, levels of reserves, the ratio of oil reserves to gas reserves, programs for development and production optimization, estimates of future oil and gas prices and general economic and market conditions, which were considered by it in its determination of fairness, would also be taken into account in determining liquidation value. A dissolution of the Partnership, which could lead to liquidation of the Partnership, requires an election to dissolve by the managing general partner of the Partnership which is approved by the affirmative vote of the holders of a majority of the Units. The Company, as the managing general partner and holder of a majority of the Units, currently has no intention to dissolve or liquidate the Partnership. Under the Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act, in the event of a dissolution of the Partnership, the Partnership is not required to distribute the assets of the Partnership within a specific time period. Accordingly, the value of the Partnership's assets in a liquidation would depend upon prevailing conditions at the time of any such sale. Such value, on a per Unit basis, could be higher or lower than the Merger Consideration of $4.485 per Unit in cash. However, based upon the factors set forth in clauses (i), (iv) and (vi) above, the Company has no reason to believe that the consideration Unit holders would receive in a liquidation would be greater than the Merger Consideration. Neither Meridian nor the Company received any report, opinion or appraisal from an outside party in connection with the acquisition of the Maxus Interests or the Merger. For the reasons stated above, BR and the Partnership acting through the Company also believe that the Merger is fair to Unit holders. EFFECT OF THE MERGER ON THE MARKET FOR UNITS; NYSE AND PSE LISTING AND EXCHANGE ACT REGISTRATION As a result of the Merger, the Units will cease to be outstanding and will be delisted from the New York Stock Exchange (the "NYSE") and the Pacific Stock Exchange (the "PSE"), and the registration of the Units under the Exchange Act will be terminated. FINANCING OF THE MERGER The amount of funds needed by the Company to purchase all of the outstanding Units pursuant to the Merger and to pay related fees and expenses will be approximately $45 million. See "FEES AND EXPENSES." The Company plans to obtain all of such funds through capital contributions or advances made by Meridian. Meridian plans to obtain the funds for such capital contributions or advances from working capital. APPRAISAL RIGHTS Holders of Units do not have appraisal rights in connection with the Merger. The Partnership is a Delaware limited partnership and the Partnership Agreement provides that the Partnership Agreement shall be construed in accordance with and governed by the laws of the State of Delaware. The Company is not aware of any provisions of Delaware law expressly providing rights to holders of interests in a Delaware limited partnership in lieu of appraisal rights. In cases involving corporations, courts applying Delaware law have held that a controlling stockholder of a corporation involved in a merger has a fiduciary duty to other stockholders that requires that the merger be fair to other stockholders. In determining whether a merger is fair to minority stockholders of a corporation, these courts have considered, among other things, the type and amount of consideration to be received by stockholders and whether there was fair dealing among the parties. These 6 11 courts have held that a damages remedy may be available in a merger which is the result of procedural unfairness, including fraud, misrepresentation or other misconduct. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is a summary of the Federal income tax consequences of the Merger to Unit holders. This discussion does not address the particular Federal income tax consequences that may be relevant to certain types of taxpayers subject to special treatment under the Federal income tax laws (such as life insurance companies, banks, tax-exempt organizations, foreign corporations and nonresident aliens). Moreover, because certain of the tax consequences of the Merger are uncertain (due to the absence of precedental authority), Unit holders are strongly urged to consult with their own tax advisors regarding the Federal (as well as state, local and foreign) tax consequences of the Merger. Upon the Merger, a Unit holder will generally recognize gain or loss, for Federal income tax purposes, measured by the difference between the amount realized by the Unit holder in the Merger (which will include not only the cash received by the Unit holder, but also the Unit holder's proportionate share of the liabilities of the Partnership at the time of the Merger) and the Unit holder's aggregate basis in his Units (which will generally equal the price paid by the Unit holder for his Units, increased by the amount of income and gain allocated to the Unit holder through and including the date of the Merger and the Unit holder's proportionate share of the liabilities of the Partnership at the time of the Merger, and decreased by the amount of deduction and loss allocated to the Unit holder through and including the date of the Merger - including depletion allowances to which the Unit holder was entitled but, as to any depletable property, not in excess of the Unit holder's proportionate share of the Partnership's basis in such depletable property - and the amount of any cash distributions made to the Unit holder prior to the Merger). Assuming that the Units were held by the Unit holder as a capital asset, such gain or loss will be capital gain or loss (long term or short term depending upon whether or not the Unit holder has held his Units for more than a year at the time of the Merger), except to the extent provided in the following paragraph. A Unit holder will recognize ordinary income for Federal income tax purposes (which may be substantial in amount) to the extent that the amount realized by the Unit holder in the Merger, determined as set forth above, is attributable to (1) inventory items which have "appreciated substantially in value" and (2) unrealized receivables (which includes, generally, the depreciation and intangible drilling deductions previously allocated to the Unit holder as well as the depletion deductions to which the Unit holder was entitled with respect to the depletable properties of the Partnership - but, as to any depletable property, not in excess of the Unit holder's proportionate share of the Partnership's basis in such depletable property). In the case of a Unit holder realizing an overall gain in connection with the Merger, the ordinary income which the Unit holder must recognize pursuant to the foregoing rule will reduce the amount of capital gain that the Unit holder would otherwise recognize (assuming, as stated above, that the Units are held by the Unit holder as a capital asset). The amount of ordinary income which a Unit holder must recognize pursuant to the foregoing rule may, however, be in excess of the Unit holder's overall gain on the Merger, in which event the Unit holder will recognize no capital gain but, instead, will recognize a capital loss in an amount equal to the excess. In the case of a Unit holder who realizes an overall loss on the Merger, any ordinary income which the Unit holder is required to recognize under the foregoing rule will result in a corresponding increase in the amount of the Unit holder's capital loss (assuming again that the Units are held by the Unit holder as a capital asset). The foregoing rules are complicated by a relatively recently enacted provision of the Internal Revenue Code of 1986, as amended (the "Code"), under which no regulations have yet been issued. This provision provides that if a partner contributes property to a partnership having a value that does not equal its basis and, within five years of the date of the contribution, the property is distributed by the partnership (other than to the contributing partner), the contributing partner must recognize gain or loss for Federal income tax purposes equal to the difference between the fair market value of the contributed property and its basis at the time of the contribution (with appropriate adjustments being made to the contributing partner's basis in the partnership). For Federal income tax purposes, the sale of the Units which was effected on April 26, 1994 pursuant to the Unit Purchase Agreement (the "Sale Transaction") resulted in a termination of the Partnership under Section 708(b)(1)(B) of the Code, a theoretical distribution of the assets of the 7 12 Partnership to the partners existing immediately subsequent to the Sale Transaction, including the Unit holders, and a theoretical recontribution of these assets to a newly formed partnership. As a result, Unit holders are treated, for Federal income tax purposes, as having made property contributions to the Partnership immediately subsequent to the Sale Transaction, and, in most if not all cases, the value of the assets that the Unit holders are treated as having contributed to the Partnership will not be equal to the Unit holder's basis in those assets (which, in the aggregate, will equal the Unit holder's basis in his Units immediately subsequent to the Sale Transaction). Accordingly, this new provision of the Code would appear to apply to Unit holders. Arguments can be made, however, based on the legislative history of the provision, that the foregoing provision should only apply to property which was not contributed to the Partnership in connection with the Partnership's formation in 1985 or, if so contributed, should only apply to the extent of the Unit holder's pro rata share of any decrease or increase in the value of the property occurring between the time of the Partnership's formation and the date of the Sale Transaction. Additionally, arguments can be made that, as a policy matter, the provision should not apply at all in a situation such as the Merger where, contemporaneously with the distribution of the property that the Unit holders are treated as having contributed to the Partnership, the contributing partners are recognizing the full amount of gain or loss attributable to their Units. However, in the absence of any controlling precedental authority, no assurance can be given that the provision will not apply. Assuming that the provision does apply, any Unit holder at the time of the Merger who was also a Unit holder at the time of the Sale Transaction will be required, for Federal income tax purposes, to recognize gain or loss in the Merger in a net amount equal to the difference between the Unit holder's basis in his Units and the fair market value of those Units at the time of the Sale Transaction. A Unit holder at the time of the Merger who acquired his Units subsequent to the Sale Transaction will have to recognize gain or loss in an amount equal to that which the person who held the Units at the time of the Sale Transaction would have had to recognize pursuant to the foregoing rule, generally increased or decreased by the amount of any adjustment made to the Unit holder's share of the Partnership's basis in its assets, under Section 754 of the Code, in connection with the Unit holder's acquisition of his Units (although, as a practical matter, the subsequent Unit holder will not know the prior Unit holder's basis in his Units at the time of the Sale Transaction and, therefore, will not be able to determine the amount of the prior holder's gain or loss or the amount of the Section 754 adjustment resulting from the subsequent Unit holder's acquisition of his Units). The character of the foregoing gain or loss will be determined by reference to each property that the Unit holder is deemed as having contributed to the Partnership at the time of the Sale Transaction, with the amount of the gain or loss being computed separately with respect to each property (but with the aggregate, net amount of the gain or loss being as set forth above). Any gain or loss recognized under this provision will result in a corresponding increase or decrease in the Unit holder's basis in his Units and, therefore, in a corresponding reduction in the overall gain or a corresponding increase in the overall loss recognized by the Unit holder in connection with the Merger (pursuant to the rules discussed in the second and third paragraphs under this heading, "Special Factors -- Certain Federal Income Tax Consequences"). As a result, application of the foregoing provision will not alter the net amount of gain or loss that must be recognized by a Unit holder as a result of the Merger, but may alter the character of all or a portion of that gain or loss. ACCOUNTING TREATMENT The acquisition of the Units pursuant to the Merger will be accounted for as a purchase of assets whereby the oil and gas reserves underlying the Units will be consolidated with the Company's reserves. CERTAIN LITIGATION On April 27, 1994, a purported class action entitled Susser vs. Burlington Resources Inc., et al. (C.A. No. 13483) (the "Action") was filed in the Delaware Chancery Court. The complaint (which names as defendants BR, the Partnership, Maxus Energy, Maxus Offshore and three officers and directors of Maxus Offshore) alleges, among other things, (i) that the proposed purchase price to be paid to Unit holders does not represent the true value of the assets and future prospects underlying the limited partnership interests in the Partnership, but is an attempt to benefit BR unfairly at the expense of Unit holders, that the market value and 8 13 intrinsic value of the Units was and is materially in excess of $4.48 per Unit and that the purchase price is not the result of arm's length negotiations, (ii) that Maxus was under pressure to sell its stake in the Partnership due to growing financial problems at Maxus, (iii) that defendants' announcement of the proposed Merger fails to adequately disclose, inter alia, whether defendants obtained a fairness opinion from an independent investment bank and that allegedly the Partnership was on the verge of reporting sustained and significant profits, and (iv) that Maxus and BR have breached and continue to breach their purported fiduciary duties as past and present controlling security holders of the Partnership, including that Maxus did not attempt to achieve the highest possible price for the Partnership. The complaint seeks, among other things, preliminary and permanent injunctive relief and unspecified damages. BR and the Company believe that the Action is wholly without merit and intend to defend it vigorously. On or about May 27, 1994, a purported class action entitled Sonem Partners, Ltd. vs. Diamond Shamrock Offshore Partners Limited Partnership, et al. (C.A. No. 13532) (the "Sonem Action") was filed in the Delaware Chancery Court. The complaint (which names as defendants the Partnership, Maxus Offshore and Maxus Energy) claims, among other things, that Maxus Offshore and Maxus Energy owed a duty, in connection with the sale of their interests in the Partnership, to the Partnership and its public Unit holders to treat them in a fair and equitable manner, to refrain from abusing their positions of control and not to favor their own interests at the expense of the Partnership and its public Unit holders. The complaint alleges, inter alia, that (1) Maxus Offshore and Maxus Energy, by engaging in two simultaneous transactions (the sale of their Partnership interests and the sale of the Maxus Fee Properties to BR), breached their duties by failing to seek the maximum value for each publicly-held Unit and, instead, agreed to sell Maxus' control of the Partnership for an amount below its realizable value and compensated themselves by the sale of the Maxus Fee Properties at an artificially inflated value; (2) the consideration to be paid to the Partnership's public Unit holders is grossly unfair, inadequate and substantially below the fair value of the Partnership; and (3) the transaction is wrongful, unfair and harmful to the Partnership's public Unit holders. The complaint seeks, among other things, preliminary and permanent injunctive relief, rescission, an accounting and unspecified damages. The Company believes that the Partnership is not an appropriate party to the Sonem Action and that such action as to the Partnership is wholly without merit, and the Company intends to defend it vigorously. THE MERGER APPROVAL OF THE MERGER On April 28, 1994, the Board of Directors of the Company approved on behalf of the Company, and the Company, in its capacity as managing general partner of the Partnership, approved on behalf of the Partnership, the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement. Also on April 28, 1994, the Company, as the holder of a .99% managing general partnership interest in the Partnership and of 64,163,885 Units, and Acquisition, as the holder of a .01% special general partnership interest in the Partnership, executed written consents approving the Merger. Under Delaware law and the Partnership Agreement, by reason of such consents, no other vote or consent of Unit holders is required in order to consummate the Merger. TERMS OF THE MERGER Merger Consideration At the Effective Time (as defined below), each partnership interest in the Partnership held by the Company or any of its affiliates will be cancelled and each outstanding Unit (other than Units held by the Company or any of its affiliates) will be converted into the right to receive the Merger Consideration of $4.485 per Unit in cash, without interest, and all such Units will automatically cease to be outstanding and will be cancelled and retired and cease to exist. Effective Time The Merger will become effective (the "Effective Time") at the time a Certificate of Merger is duly filed with the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation 9 14 Law and the Delaware Revised Uniform Limited Partnership Act or at such other time as may be specified in the Certificate of Merger. Provided the conditions to the Merger have been satisfied or waived, it is anticipated that the Merger will be consummated on , 1994 or as promptly as practicable thereafter. Parties; Surviving Corporation In the Merger, the Partnership will be merged with and into the Company, whereupon the separate existence of the Partnership will cease. The Company will be the surviving corporation in the Merger and will continue its existence under the laws of the State of Delaware. At the election of the Company, any direct or indirect wholly owned subsidiary of Meridian Oil Holding Inc. ("MOHI") may be substituted for the Company as a party in the Merger. Conditions to the Merger The obligations of the Company and the Partnership to effect the Merger are each subject to (i) no statute, rule, regulation, executive order, decree, injunction or other order having been executed, entered, promulgated or enforced by any court or governmental authority which is in effect and has the effect of prohibiting consummation of the Merger, (ii) the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), having expired or been terminated (which was terminated effective June 9, 1994), and (iii) a 20 calendar day period having elapsed from the date of mailing of this Information Statement to Unit holders. Procedures for Exchange of Units Prior to the Effective Time, the Company will appoint a bank or trust company to act as disbursing agent (the "Disbursing Agent") for the payment of the Merger Consideration upon surrender of certificates representing the Units. Promptly after the Effective Time, the Company will cause the Disbursing Agent to mail to each person who was a record holder as of the Effective Time of an outstanding certificate or certificates which immediately prior to the Effective Time represented Depositary Units (the "Certificates"), a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Disbursing Agent) and instructions for use in effecting the surrender of the Certificate in exchange for payment of the Merger Consideration. Upon surrender to the Disbursing Agent of a Certificate, together with such letter of transmittal duly executed and such other documents as may be reasonably required by the Disbursing Agent, the holder of such Certificate will be paid in exchange therefor cash in an amount equal to the product of the number of Units represented by such Certificate multiplied by the Merger Consideration, and such Certificate shall forthwith be cancelled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. At and after the Effective Time, there will be no registration of transfers of Units and the Partnership will instruct the depositary for the Depositary Units not to register transfers of the Depositary Units. From and after the Effective Time, the holders of Units outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Units except as otherwise provided in the Merger Agreement or by applicable law. At any time more than one year after the Effective Time, the Company will be entitled to require the Disbursing Agent to deliver to it any funds made available to the Disbursing Agent and not disbursed in exchange for Certificates. Thereafter, holders of Units will be entitled to look only to the Company (subject to abandoned property, escheat and other similar laws) as general creditors thereof with respect to any Merger Consideration that may be payable upon due surrender of the Certificates held by them. Neither the Company nor the Disbursing Agent will be liable to any holder of a Unit for any Merger Consideration delivered to a public official pursuant to any abandoned property, escheat or other similar law. Distribution Unit holders of record on May 13, 1994 received the Partnership distribution of $.13 per Unit declared on April 25, 1994, which was paid on June 7, 1994. 10 15 The foregoing summary of the Merger Agreement is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Appendix A. EFFECTS OF THE MERGER As a result of the Merger, each outstanding Unit (other than Units held by the Company or any of its affiliates) will be converted into the right to receive the Merger Consideration of $4.485 per Unit in cash, without interest, and all such Units will automatically cease to be outstanding and will be cancelled and retired and cease to exist and will have no further interest in the net book value, assets, net income, cash flow, distributions or other future performance of the Partnership, and the current holders of Units (other than the Company and its affiliates) will have no equity interest in the Partnership and, therefore, will not be able to participate in the future growth, if any, of the Partnership. At the same time, the interest of the Company in the net book value, assets, net income, cash flow, distributions and future performance of the Partnership will increase from 87.1% to 100%. CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS UNIT PURCHASE AGREEMENT On April 26, 1994, the Company and Acquisition purchased the Maxus Interests for an aggregate purchase price of $291,088,000 (of which $3,341,230 was attributable to the 1.0% economic interest in the Partnership represented by the general partnership interests in the Partnership) or approximately $4.485 per Unit, pursuant to the Unit Purchase Agreement. In accordance with the terms of the Unit Purchase Agreement, Maxus Exploration used $36,849,635 of the purchase price to repay the amount estimated to be outstanding under a promissory note of Maxus in favor of the Partnership and used $253,050 of the purchase price to pay the Partnership its share of the value of certain hedging transactions undertaken by Maxus, approximately 35% of which were allocated for the account of the Partnership. In the Unit Purchase Agreement, Maxus made certain representations and warranties to the Company and Acquisition, including representations and warranties with respect to (i) the organization and qualification of Maxus, the Partnership and its subsidiary, Diamond Shamrock Offshore Pipeline Company ("Pipeline"), (ii) the power and authority of Maxus to consummate the purchase and sale of the Maxus Interests, (iii) the absence of any material adverse change affecting the Partnership since December 31, 1993, (iv) the absence of pending or threatened litigation affecting the Partnership or Pipeline, (v) the accuracy of all filings of the Partnership with the Commission since December 31, 1990, including the Partnership's financial statements, (vi) the absence of consent or approval requirements for consummation of the purchase and sale, (vii) compliance by the Partnership with applicable laws, (viii) title of Maxus to the Maxus Interests, (ix) rights of the Partnership under oil and gas leases and (x) the absence of material liabilities or obligations of the Partnership other than those reflected in its financial statements at December 31, 1993 or incurred subsequently in the ordinary course of business. Under the Unit Purchase Agreement, Maxus agreed to indemnify and hold harmless the Company and Acquisition from and against all damages incurred by the Company or Acquisition or any of their affiliates, arising out of, resulting from or relating to (i) a breach of any representation, warranty or agreement of Maxus contained in or made pursuant to the Unit Purchase Agreement or any facts or circumstances constituting such a breach, (ii) the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 and all other forms, reports and documents filed by the Partnership with the Commission prior to April 26, 1994, (iii) any indebtedness of Maxus or any of its affiliates to the Partnership, or any transaction or arrangement (contractual or otherwise) involving the Partnership and Maxus or any of its affiliates, other than transactions or arrangements set forth in the Transition Agreement, and (iv) the transactions under an agreement of purchase and sale dated as of March 28, 1994, pursuant to which the Partnership sold certain oil and gas properties to Pogo Producing Company. 11 16 TRANSITION AGREEMENT Concurrently with the execution of the Unit Purchase Agreement, Maxus Exploration and the Company entered into the Transition Agreement, pursuant to which Maxus Exploration will continue to provide management, operations, accounting, tax, marketing, technical and administrative services to the Partnership of the same type, level and quality provided prior to April 26, 1994, for a period of up to 90 days after April 26, 1994, to the extent Maxus Exploration is capable of providing such services and such services are not terminated by the Company. Under the Transition Agreement, Maxus Exploration will also assist the Company in preparing tax returns of the Partnership covering periods through December 31, 1994. The Company agreed (i) to cause the Partnership to reimburse Maxus Exploration as provided in the Partnership Agreement with respect to service relating to periods prior to April 26, 1994, (ii) on behalf of the Partnership, to pay Maxus Exploration a fixed fee of $375,000 for services for each of the periods ending May 31, 1994 and June 30, 1994, and (iii) on behalf of the Partnership, to reimburse Maxus Exploration as provided in the Partnership Agreement for any services thereafter. The Company also agreed to indemnify and hold harmless Maxus Exploration against damages incurred by it arising out of the performance of the services, except to the extent arising from its gross negligence or willful misconduct. The Transition Agreement also permits the Company to terminate certain existing marketing arrangements between Maxus and the Partnership pursuant to which Maxus markets gas produced by the Partnership, at no cost to the Partnership, and to require Maxus to assign to the Partnership all of its right, title and interest under certain gas sales and exchange contracts for which Maxus previously obtained gas supplies under the marketing arrangements referred to above. Maxus further agreed that, to the extent the Company incurs damages arising out of matters for which Maxus could bring a claim under its insurance policies, Maxus will use its best efforts to bring a claim under such policies and will remit the net proceeds of any such claim to the Company. PURCHASE AND SALE AGREEMENT Also on April 26, 1994, Meridian and Maxus Exploration entered into the Purchase and Sale Agreement, pursuant to which Meridian agreed to acquire the interests of Maxus in the Maxus Fee Properties for $58,000,000, subject to certain adjustments. Maxus' interests in the Maxus Fee Properties consisted of approximately 1,801 net acres in the McFarlan Field in Wharton County, Texas and approximately 3,300 net acres in Grand Isle Block 25 located offshore Louisiana (daily gross production attributable to the Maxus Fee Properties is approximately 30 Mmcf and approximately 148 Bbls of condensate). The Purchase and Sale Agreement contains representations and warranties, covenants, closing conditions and indemnities customary for purchase and sale transactions involving oil and gas properties. The sale of the Maxus Fee Properties closed on June 22, 1994. INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES BUSINESS AND PROPERTIES The following information is excerpted from the 1993 Partnership 10-K, which was prepared by Maxus Offshore, which at that time was the managing general partner of the Partnership: "The Partnership is engaged in oil and gas exploration and production activities in federal waters offshore Texas and Louisiana. The Partnership was formed in Delaware in 1985 to succeed to the oil and gas exploration and production business previously conducted by [Maxus] Exploration, a wholly owned subsidiary of Maxus [Energy], in federal waters offshore Texas and Louisiana. . . ." "The Partnership properties include interests in 82 offshore federal leases within 45 fields. The Partnership is the operator of 46 of such leases. Of the leases, 49 are held by either oil or gas production, with sales being made from all of such leases in 1993. During 1993, the Partnership properties produced approximately 74 Mmcf of gas per day and 4,100 barrels of oil per day." 12 17 "The following table sets forth information with respect to certain of the Partnership properties. The blocks shown in the table are listed in descending order based upon the present value of estimated future net cash flows from production at December 31, 1993, before income taxes, discounted at 10% per annum ("Discounted Present Value"), with the total proved reserves from such blocks accounting for 55% of the Discounted Present Value attributable to the Partnership properties as of December 31, 1993. The two largest blocks, accounting for approximately 28% of the Partnership properties on a percentage of Discounted Present Value basis, are discussed in greater detail below.
1993 AVERAGE NET % OF YEAR DAILY PRODUCTION WORKING PRODUCTION ----------------- BLOCKS INTEREST(1) COMMENCED(2) BBL MCF ------ ----------- ------------ ----- ------ Green Canyon 18.......................... 15.00 1987 1,149 1,341 West Cameron 142......................... 100.00 1993 3(3) 102(3) Ewing Banks 944, 988..................... 15.00 1988 588 633 Main Pass 127 Complex.................... 100.00 1980 8 23,526 Vermilion 225/226........................ 68.16 1983; 1992 119 8,592
- --------------- (1) A working interest entitles the owner to explore, develop, operate and receive the production from a property, subject usually to a royalty and sometimes to other non-operating interests. The working interest bears the operating and development costs. If more than one block is shown and different ownership interests occur in each block, then the working interest shown is a unitized working interest. (2) For blocks with platforms that commenced production in different years, the year production commenced is shown for each platform. (3) Average is for eight days of production during 1993." "Green Canyon Block 18 accounts for approximately 15.2% of the Discounted Present Value of the Partnership properties. The block contains 5,760 acres in which the Partnership holds a 15% working interest. A total of 14 wells are currently producing." "West Cameron Block 142 accounts for approximately 12.9% of the Discounted Present Value of the Partnership properties. The block was discovered and developed in 1993. Two wells were drilled on the block and current net production is approximately 13 Mmcf per day and 340 barrels of oil per day." "During 1993, the Partnership had gas discoveries at West Cameron 142, Main Pass 181 and Main Pass 111, blocks where it had a 100% working interest. The Partnership's reserve additions resulted in replacement of approximately 122% of the year's production." Developed and Undeveloped Properties "The following table sets forth information at December 31, 1993 with respect to the developed and undeveloped oil and gas properties owned by the Partnership. As used in this report, "gross" acres are the total number of acres in which the Partnership owns any interest. "Net" acres are the sum of the fractional working interests the Partnership owns in gross acres.
DEVELOPED UNDEVELOPED ------------------ -------------------- GROSS NET GROSS NET ACRES ACRES ACRES ACRES ------ ------ ------- ------- Offshore Louisiana......................... 26,383 9,686 219,005 145,707 Offshore Texas............................. 12,478 2,800 132,761 77,319 ------ ------ ------- ------- Total............................ 38,861 12,486 351,766 223,026
The Managing General Partner believes that the time remaining under the primary terms of the leases covering undeveloped acreage included in the Partnership properties is, as a whole, sufficient for their exploration and development under current conditions." 13 18 Drilling Activity "The following table sets forth information regarding exploratory and development wells drilled for the three years ended December 31, 1993. As used in this report, "gross" wells are the total number of wells in which the Partnership owns any interest. "Net" wells are the sum of the fractional interests the Partnership owns in gross wells. "Productive" wells are either producing wells or wells capable of commercial production although currently shut-in. One or more completions in the same bore hole are counted as one well.
YEAR ENDED DECEMBER 31, --------------------- 1993 1992 1991 --- --- --- Net Exploratory Wells Drilled Productive............................................ 2.0 0 2.3 Dry................................................... 1.0 1.0 1.6 --- --- --- Total......................................... 3.0 1.0 3.9 Net Development Wells Drilled Productive............................................ 1.5 3.2 .4 Dry................................................... .1 .0 2.1 --- --- --- Total......................................... 1.6 3.2 2.5
At February 28, 1994, the Partnership had 5 gross wells (.9 net wells) in progress." Productive Wells "The following table sets forth the Partnership's total gross and net productive oil and gas wells, including multiple completions, at December 31, 1993.
GROSS NET ----- ---- Productive oil wells.......................................... 101 20.4 Productive gas wells.......................................... 103 36.2 Multiple completions.......................................... 11 3.7
Production and Sales of Oil and Gas "The following table sets forth the average sales prices and production costs of crude oil and natural gas produced for the three years ended December 31, 1993.
YEAR ENDED DECEMBER 31, ------------------------------ 1993 1992 1991 ------ ------ ------ Average Sales Price Crude Oil (per barrel)....................... $17.12 $18.61 $20.16 Natural Gas (per Mcf)........................ $ 2.21 $ 2.01 $ 1.88 Average Production Cost (per barrel)*.......... $ 2.72 $ 2.33 $ 2.49
- --------------- * Production or lifting cost is exclusive of depreciation and depletion applicable to capitalized lease acquisition, exploration and development expenditures. The gas production was converted to equivalent barrels of crude oil by dividing the Mcf volume by six. Six Mcf of gas have approximately the heating value of one barrel of crude oil." Regulation of Crude Oil and Natural Gas Production "Domestic exploration for and production and sale of oil and gas are extensively regulated at both the national and local levels. The heavy regulatory burden on the oil and gas industry increases its costs of doing business and consequently affects its profitability." 14 19 Environmental Regulation "Various federal, state and local laws and regulations covering the discharge of materials into the environment or otherwise relating to the protection of the environment may affect the Partnership's operations and costs. Environmental protection laws to date have not required the Partnership to make any significant additional capital outlays. It is not anticipated that the Partnership will be required in the near future to expend amounts that are material in relation to its total capital expenditure program by reason of environmental laws and regulations, but inasmuch as such laws and regulations are constantly being revised and changed, the Managing Partner is unable to predict the ultimate cost of complying with present and future environmental laws and regulations." Competition and Marketing "The Partnership's production represents only a small fraction of the total world markets for oil and natural gas. As a result, the prices the Partnership receives depend primarily on the relative balance between supply and demand in these markets." "The Managing General Partner believes that the longer term potential for growth in natural gas demand remains high due to the abundance of the fuel, environmental awareness and price advantages; however, market prices remain extremely volatile with weather and regional supply and demand imbalances causing the potential for large monthly price swings. To counteract the potential for pricing swings, the Managing General Partner entered into a hedging program that essentially fixed prices beginning with June 1993 production for approximately 40% of the Partnership's gas production. The program has been extended through 1994 and may cover a larger portion of the Partnership's gas production. Overall, the Partnership has been able to realize premium gas prices resulting from focused marketing efforts and the addition of aggregated supply, which enables the marketing staff to offer large volumes backed by diversified supply sources." "The Partnership's natural gas volumes are combined with aggregated, third party supplies for ultimate sale to several different types of customers under various sales arrangements, all of which are classified as either spot or term sales. Spot sales are made on a day-to-day basis, generally under contracts having terms of approximately one calendar month or less. Term sales are firm commitments that are made on a multi-month basis. Pricing is predominately set as a function of market clearing prices (index prices) which will fluctuate with the market, or fixed prices which will remain steady with the market. Index prices may be converted to a fixed price via the hedging program described above. Of the Partnership's total natural gas sales volumes and gas sales revenue in 1993, approximately 41% was ultimately sold directly to local distribution companies and end-users with the remaining 58% ultimately being sold to pipelines and gas marketing companies." "The world oil market continues to be subject to uncertainty. Iraq has not yet resumed oil sales due to its failure to agree to United Nations imposed conditions on such sales, but the threat of increased Iraqi production continues to overhang the market. Oil prices have recently decreased primarily due to additional availabilities from non-OPEC countries and excessive OPEC production coupled with limited demand growth in developed countries." OIL AND GAS RESERVES The following information is excerpted from the 1993 Partnership 10-K: "Net proved developed and undeveloped reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserve volumes that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are proved reserve volumes that are expected to be recovered from new wells on undrilled acreage or from existing wells where a significant expenditure is required for recompletion." 15 20 "The following table represents the Partnership's net interests in estimated quantities of proved developed and undeveloped reserves of crude oil, including condensate (in thousands of barrels), and natural gas (in millions of cubic feet) at December 31, 1993, 1992 and 1991, and changes in such estimated quantities for the years then ended:
OIL GAS (MB) (MMCF) ------ ------- NET PROVED DEVELOPED AND UNDEVELOPED RESERVES January 1, 1991................................................. 11,354 186,846 Revisions of previous estimates................................. 760 (5,257) Extensions, discoveries and other additions..................... 122 2,945 Production...................................................... (2,061) (32,778) Purchase of reserves in place................................... 207 26,752 ------ ------- December 31, 1991............................................... 10,382 178,508 Revisions of previous estimates................................. 953 (192) Extensions, discoveries and other additions..................... 307 10,852 Production...................................................... (1,583) (31,559) ------ ------- December 31, 1992............................................... 10,059 157,609 Revisions of previous estimates................................. 487 (9,692) Extensions, discoveries and other additions..................... 660 47,223 Production...................................................... (1,517) (27,181) ------ ------- December 31, 1993............................................... 9,689 167,959 ====== ======= NET PROVED DEVELOPED RESERVES January 1, 1991................................................. 10,805 137,731 December 31, 1991............................................... 9,806 141,641 December 31, 1992............................................... 9,287 120,328 December 31, 1993............................................... 9,046 118,567
FUTURE NET CASH FLOWS The following information is excerpted from the 1993 Partnership 10-K: "The standardized measure of discounted future net cash flows ("standardized measure") relating to proved oil and gas reserves is calculated and presented in accordance with Statement of Financial Accounting Standards No. 69. The standardized measure has been prepared assuming year-end selling prices (adjusted for future fixed and determinable contractual price changes) for the Partnership's estimated share of future production from proved oil and gas reserves. Future production and development costs were computed by applying year-end costs to future years. A prescribed 10% discount factor was applied to future net cash flows. Because prices fluctuate, a calculation of the standardized measure utilizing current prices would result in different discounted future net cash flows for 1993 than is presented." 16 21 "The Partnership cautions that this standardized measure is not representative of fair market value, and the standardized measure presented for the Partnership's proved oil and gas reserves is not representative of the reserve value. The standardized measure is intended only to assist financial statement users in making comparisons between companies."
1993 1992 1991 --------- -------- --------- Future cash inflows............................ $ 522,176 $546,581 $ 580,780 Future production and development costs........ (179,006) (87,974) (200,596) --------- -------- --------- Future net cash flows.......................... 343,170 358,607 380,184 Annual discount at 10% rate.................... (96,820) (79,706) (77,528) --------- -------- --------- Standardized measure of discounted future net cash flows................................... $ 246,350 $278,901 $ 302,656 ========= ======== =========
"The following are the principal sources of change in the standardized measure:
1993 1992 1991 -------- -------- -------- January 1,..................................... $278,901 $302,656 $417,655 Sales and transfers of oil and gas produced, net of production costs................... (71,482) (79,701) (85,962) Net changes in prices and production costs... (6,474) (9,504) (119,686) Extensions, discoveries and improved recovery, less related costs.............. 48,483 15,152 6,051 Previously estimated development costs incurred during the year.................. 6,099 (2,966) 5,719 Revisions of previous quantity estimates..... (12,710) 28,433 17,855 Purchase of reserves in place................ 3,509 -- 20,682 Accretion of discount........................ 27,890 30,266 41,766 Other........................................ (27,866) (5,435) (1,424) -------- -------- -------- December 31,................................... $246,350 $278,901 $302,656 ======== ======== ========
CERTAIN PROJECTIONS In connection with its evaluation of the acquisition of the Maxus Interests and the Merger, the Company prepared for internal use certain estimates of future oil and gas production and net cash flows from the Properties. The Company and BR do not as a matter of course make public forecasts or estimates of future sales, production, capital expenditures, earnings or cash flows. The projections and estimates set forth below were not prepared with a view to public disclosure and are based upon numerous assumptions with respect to future prices of oil and gas, future production levels, results of development programs, timing of production and of development programs, future development costs and economic and other factors which are subject to significant uncertainties and conditions, many of which are beyond the control of the Company and BR. Neither the Company nor BR assumes any responsibility for the accuracy of the projections or estimates set forth below and there can be no assurance that such projections or estimates will be realized and actual results may be higher or lower than those shown. Such projections or estimates were not prepared with a view to complying with published guidelines of the Commission regarding projections and forecasts and were not prepared in accordance with guidelines published by the American Institute of Certified Public Accountants. Oil and Gas Production from Proved Reserves Approximately 42% of the proved reserves attributable to the Properties as of December 31, 1993 consisted of proved developed reserves which were currently producing and approximately 58% of the proved reserves attributable to the Properties as of December 31, 1993 were either proved developed reserves which were not currently producing or proved undeveloped reserves. The Company currently estimates that capital expenditures for the development of such non-producing reserves will aggregate approximately $11 million in 17 22 1994, $17.5 million in 1995, $2.5 million in 1996, $2 million in 1997 and $2 million in 1998. The Company believes that these capital expenditure programs should result in increases in oil and gas production. Based upon numerous assumptions, including the capital expenditures program described above, future oil and gas prices, rates of development of proved undeveloped reserves and a variety of other assumptions, the Company prepared estimates of oil and gas production of the Properties from proved reserves. The Company estimated oil production from proved reserves of 1,405 MBO, 1,446 MBO, 1,149 MBO, 803 MBO and 924 MBO for the years 1994, 1995, 1996, 1997 and 1998, respectively (of which 39 MBO, 139 MBO, 111 MBO, 76 MBO and 97 MBO were estimated to be attributable to production from proved undeveloped reserves), compared with historical oil production of the Partnership of 1,583 MBO and 1,517 MBO for the years 1992 and 1993, respectively. The Company estimated gas production from proved reserves of 27,156 Mmcf, 31,642 Mmcf, 27,896 Mmcf, 19,785 Mmcf and 14,263 Mmcf for the years 1994, 1995, 1996, 1997 and 1998, respectively (of which 3,836 Mmcf, 10,529 Mmcf, 10,490 Mmcf, 7,498 Mmcf and 5,634 Mmcf were estimated to be attributable to production from proved undeveloped reserves), compared with historical gas production of the Partnership of 31,559 Mmcf and 27,181 Mmcf for the years 1992 and 1993, respectively. Cash Flows from Proved Reserves In connection with the Company's evaluation of the acquisition of the Maxus Interests and the Merger, the Company prepared for internal use projections of net cash flow of the Properties (cash flow from operations of the Properties less capital expenditures for proved reserves) from proved reserves for the years 1994 through 1998. The assumptions underlying these projections were as follows: (a) the levels of production described above would be achieved; (b) capital expenditures would be equal to the amounts set forth above; (c) the Company used for this purpose estimates of future gas and oil prices based upon the actual average oil and gas prices received by the Partnership for 1993, with escalators, which were gas prices of $2.28, $2.40, $2.55, $2.71 and $2.82 per Mcf and oil prices of $15.39, $16.07, $16.58, $17.00 and $17.53 per Bbl for the years 1994, 1995, 1996, 1997 and 1998, respectively (for the quarter ended March 31, 1994, the Partnership reported that it had received average gas and oil prices of $2.37 per Mcf and $12.71 per Bbl, respectively; for the month of May 1994, the average gas and oil prices received by the Partnership were approximately $2.15 per Mcf and $14.44 per Bbl, respectively (the Partnership's proved reserves consist primarily of gas reserves; information concerning production from proved reserves is set forth in the preceding paragraph)); (d) royalty payments would remain a constant percentage of revenue; and (e) lease operating expenses would be equal to those incurred in 1993 and increase by 4% annually. These projections do not include any capital expenditures for the exploration, exploitation and development of probable, possible and speculative reserves or cash flows attributable to production from probable, possible or speculative reserves. Forecasts of future oil and gas prices are subject to numerous uncertainties. Actual future prices may be higher or lower than the prices set forth above and none of the Company, BR or the Partnership assumes any responsibility for the accuracy of such price estimates. Based upon the foregoing, the Company projected that net cash flow of the Properties (after capital expenditures for proved reserves) from proved reserves would be $56 million, $64 million, $70 million, $49 million and $41 million for the years 1994, 1995, 1996, 1997 and 1998, respectively, compared with historical net cash flow of the Partnership of $48 million and $38 million for the years 1992 and 1993, respectively. Unproved Reserves A substantial portion of the Properties consists of undeveloped acreage (approximately 225,000 net undeveloped acres at December 31, 1993), and the Company currently anticipates additional exploration and exploitation of the Properties in the future. In connection with the Company's evaluation of the acquisition of the Maxus Interests, the Company identified several major areas which it believes, based upon two dimensional and three dimensional seismic data, merit exploitation activity. Based upon the Company's review of such data, the Company estimates that these areas contain approximately 115 Bcfe of probable reserves (in addition to the 224 Bcfe of proved reserves attributable to the Properties as of December 31, 1993). The Company currently intends to drill wells in these areas commencing in 1994 or 1995. Such wells would involve capital expenditures not reflected in the projections set forth above and, depending upon the outcome of such activities, significant additional capital expenditures to develop these properties could be made in the future. 18 23 The Company believes that, if these activities are successful, these properties would generate significant increases in proved reserves, production, cash flow and operating income in the future, which are not reflected in the projections described above. In addition, other activities could result in material future increases in proved reserves, production, cash flow and operating income from the Properties. In the course of discussions between the parties, Maxus provided the Company with certain estimates prepared by Maxus of possible reserves and speculative reserves associated with the Properties, which indicated that Maxus believed that the Properties included possible reserves of approximately 500 Bcfe and speculative reserves of approximately 1,325 Bcfe. However, the Company has not independently verified this data. Estimates of probable reserves, possible reserves and speculative reserves are highly uncertain and there can be no assurance as to the level of reserves which may ultimately be recovered from the Properties. Future development and production of reserves is subject to numerous uncertainties, and will be substantially affected by changes in market prices for oil and gas and advances in drilling, completion and production technologies. Given the high level of uncertainty associated with possible and speculative reserves, the Company believes that information concerning such reserves is substantially less significant than information with respect to proved reserves. RECENT DEVELOPMENTS On March 30, 1994, the Partnership learned that it was the high bidder in a federal lease auction for two offshore blocks, Eugene Island 395 and West Cameron 54. The acquisitions of these blocks by the Partnership were approved on April 11 and June 1, 1994, respectively, and the leases are effective as of May 1 and July 1, 1994, respectively. SELECTED FINANCIAL DATA The following selected financial data relating to the Partnership (including pro forma data to reflect the sale by the Partnership on April 25, 1994 of its interests in Main Pass Blocks 72, 73 and 74 to Pogo Producing Company for approximately $18.2 million) has been taken from the 1993 Partnership 10-K for the five years ended December 31, 1993 as contained in reports filed with the Commission or as contained in the 1994 Partnership 10-Q. More comprehensive information is included in such reports and other documents filed by the Partnership with the Commission, and the financial data set forth below is qualified in its entirety by reference to such reports and other documents, including the financial statements and related notes contained therein. The selected financial data set forth below should be read in conjunction with the financial statements and the notes thereto as listed in the Index to Financial Information on Page F-1. DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) SELECTED BALANCE SHEET DATA
MARCH 31, DECEMBER 31, 1994 MARCH 31, MARCH 31, ------------------------------------------------------------- PRO FORMA 1994 1993 1993 1992 1991 1990 1989 --------- --------- --------- --------- --------- --------- --------- --------- Total Assets................. $171,975 $167,941 $184,780 $ 164,861 $ 193,692 $ 222,084 $ 222,357 $ 217,149 Net Assets................... 147,885 143,851 158,315 139,081 164,557 192,121 190,009 183,979 Book Value per Unit.......... 2.00 1.95 2.15 1.89 2.23 2.70 2.78 3.11
SELECTED INCOME STATEMENT DATA
THREE MONTHS THREE THREE ENDED MONTHS MONTHS YEAR ENDED MARCH 31, ENDED ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31, 1994 MARCH 31, MARCH 31, 1993 ------------------------------------------------------------ PRO FORMA 1994 1993 PRO FORMA 1993 1992 1991 1990 --------- --------- --------- ------------ ------------ ------------ ------------ ------------ Sales and Operating Revenues......... $19,180 $20,694 $24,377 $ 78,620 $ 87,069 $ 95,871 $ 104,696 $ 111,767 Net Income......... 4,023 4,770 5,679 8,744 12,522 20,865 11,420 26,766 Net Income per Unit............. .05 .06 .08 .12 .17 .28 .16 .39 Cash Distributions per Unit......... -- -- .16 .51 .51 .65 .44 .30 1989 ------------ Sales and Operating Revenues......... $ 115,752 Net Income......... 2,931 Net Income per Unit............. .05 Cash Distributions per Unit......... 2.80
19 24 PRICE RANGE OF UNITS; CASH DISTRIBUTIONS The Units are listed and traded on the NYSE and the PSE under the symbol DSP. The following table sets forth, for the periods indicated, the reported high and low sales prices for the Units as reported in the Partnership 1993 10-K with respect to the years 1992 and 1993, and thereafter the high and low closing sale prices for the Units on the NYSE as reported in published financial sources.
DISTRIBUTIONS HIGH LOW PAID ---- ---- ---- 1992 First quarter.............................................. $ 4 $ 2 3/8 $ .14 Second quarter............................................. 3 5/8 2 3/4 .17 Third quarter.............................................. 4 3/4 3 1/8 .15 Fourth quarter............................................. 5 5/8 4 1/2 .19 1993 First quarter.............................................. $ 6 7/8 $ 4 5/8 $ .16 Second quarter............................................. 6 7/8 6 .10 Third quarter.............................................. 6 3/4 5 5/8 .12 Fourth quarter............................................. 6 3/8 5 .13 1994 First quarter.............................................. $ 6 $ 4 -- Second quarter (through , 1994).................. 5 4 $ .13
On April 25, 1994, the last full trading day prior to the announcement of the sale and purchase of the Maxus Interests and the proposed Merger, the high and low sales prices for the Units on the NYSE were $4 5/8 and $4 1/2, respectively. On , 1994, the last full trading day prior to the date of this Information Statement, the high and low sales prices for the Units on NYSE were $ and . UNIT HOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE UNITS. INFORMATION CONCERNING THE COMPANY, ACQUISITION, MERIDIAN AND BR BUSINESS OF BR AND ITS SUBSIDIARIES The Company is a Delaware corporation which was formed for the purposes of acquiring the .99% managing general partnership interest of Maxus Offshore in the Partnership and the 64,163,885 Units held by Maxus Exploration, and effecting the Merger. Acquisition is a Delaware corporation which was formed for the purpose of acquiring the .01% special general partnership interest of Maxus Energy in the Partnership. It is anticipated that prior to the Merger, Acquisition will be merged with and into the Company, as a result of which the Company will be the sole general partner of the Partnership. Each of the Company and Acquisition is a direct wholly owned subsidiary of Meridian, which in turn is a direct wholly owned subsidiary of MOHI. MOHI is a direct wholly owned subsidiary of BR. Each of such corporations is a Delaware corporation with its principal executive offices at 5051 Westheimer, Suite 1400, Houston, Texas 77056. BR is a holding company whose principal operating subsidiary is Meridian. Meridian is engaged in (i) the exploration, development and production of oil and gas, and (ii) related marketing activities which include aggregation and resale of third-party oil and gas, operating intrastate natural gas pipelines and holding interests in crude oil pipelines. MOHI is the largest independent (nonintegrated) oil and gas company in the United States with total domestic proved equivalent reserves of approximately 6 trillion cubic feet of gas equivalent. SELECTED FINANCIAL DATA The following selected consolidated financial data relating to BR has been taken from the 1993 BR 10-K for the five years ended December 31, 1993 as contained in reports filed with the Commission or as contained 20 25 in the 1994 BR 10-Q. More comprehensive information is included in such reports and other documents filed by BR with the Commission, and the financial data set forth below is qualified in its entirety by reference to such reports and other documents, including the financial statements and related notes contained therein. BURLINGTON RESOURCES INC. SELECTED FINANCIAL DATA (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) SELECTED CONSOLIDATED BALANCE SHEET DATA
MARCH MARCH DECEMBER 31, 31, 31, ---------------------------------------------- 1994 1993 1993 1992 1991 1990 1989 ------- ------ ------ ------ ------ ------ ------ Total Assets..................... $ 4,469 $4,405 $4,448 $4,470 $5,480 $5,250 $4,625 Long-Term Debt(a)................ 817 935 819 1,003 1,298 529 87 Stockholders' Equity(b).......... 2,639 2,455 2,608 2,406 2,907 3,024 3,223 Book Value per Common Share...... 20.35 18.94 20.11 18.67 22.11 21.92 22.08
SELECTED CONSOLIDATED INCOME STATEMENT DATA -- CONTINUING OPERATIONS
THREE THREE MONTHS MONTHS ENDED ENDED MARCH MARCH FOR THE YEAR ENDED DECEMBER 31, 31, 31, -------------------------------------------------- 1994 1993 1993 1992 1991 1990 1989 ------- ------- ------ ------ ------ ------ ------ Revenues................ $ 320 $ 316 $1,249 $1,141 $1,036 $1,025 $ 797 Operating Income........ 69 66 256 240 177 216 90 Income from Continuing Operations............ 48 45 255 190 100 124 77 Earnings per Common Share(c).............. 0.37 0.35 1.95 1.44 0.75 0.87 0.52 Ratio of Earnings to Fixed Charges(d)...... 3.48x 3.11x 4.79x 3.49x 1.95x 2.97x 3.27x Cash Dividends Declared per Common Share(e)... 0.1375 0.1375 0.55 0.60 0.70 0.70 0.61
- --------------- (a) Excludes current maturities. (b) On June 30, 1992 BR distributed its El Paso Natural Gas Company ("EPNG") common stock to BR's stockholders of record as of June 15, 1992. The distribution was accounted for as a $575 million non-cash dividend. (c) Excluding non-recurring items totaling $0.45, $0.24, and $0.08 per share, earnings per common share from continuing operations would have been $1.50, $1.20 and $0.67 for the years ended 1993, 1992 and 1991, respectively. (d) Earnings represent pretax income from continuing operations available for fixed charges, less equity in undistributed earnings of 20-50% owned companies, together with a portion of rent under long-term operating leases representative of an interest factor. Fixed charges represent interest expense, capitalized interest and a portion of rent under long-term operating leases representative of an interest factor. (e) On April 7, 1994 BR's Board of Directors declared dividends of $0.1375 per common share, payable on July 1, 1994. In July 1992, the quarterly dividend rate was reduced to $0.125 per share to reflect the June 30, 1992 spin-off of EPNG to BR's stockholders. 21 26 FEES AND EXPENSES As described above, Smith Barney Shearson informed Meridian of Maxus' potential interest in selling the Maxus Interests. In connection with the acquisition of the Maxus Interests and the Merger, Meridian has agreed to pay Smith Barney Shearson a fee of $500,000. Smith Barney Shearson was not asked to, and did not, provide any report, opinion or appraisal in connection with the purchase of the Maxus Interests or the Merger. The Company has retained Georgeson & Company Inc. to act as the Information Agent and The First National Bank of Boston to act as the Disbursing Agent in connection with the Merger. Each of the Information Agent and the Disbursing Agent will receive reasonable and customary compensation for its services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection therewith. It is estimated that the expenses incurred in connection with the purchase of the Maxus Units and the Merger will be approximately as set forth below. Filing Fees.............................................................. $ Financial Advisory Fees and Expenses..................................... Information Agent Fees and Expenses...................................... Disbursing Agent Fees and Expenses....................................... Legal Fees............................................................... Printing and Mailing Costs............................................... Miscellaneous............................................................ -------- Total.......................................................... ========
Meridian and the Company will be responsible for all of the foregoing fees and expenses. Brokers, dealers, commercial banks and trust companies will, upon request only, be reimbursed by the Company for customary mailing and handling expenses incurred by them in forwarding material to their customers. REGULATORY APPROVALS Under the HSR Act and the rules promulgated thereunder by the Federal Trade Commission (the "FTC"), the Merger may not be consummated until notifications have been given and certain information has been furnished to the FTC and the Antitrust Division of the Department of Justice (the "Antitrust Division") and specified waiting period requirements have been satisfied. The Company and the Partnership filed notification and report forms under the HSR Act with the FTC and the Antitrust Division on May 27, 1994. Early termination of the waiting period under the HSR Act was granted effective June 9, 1994. The Company and the Partnership are not aware of any other regulatory approvals required in connection with the Merger. If any other regulatory approvals are required, the Company and the Partnership intend to seek such approvals as promptly as practicable. 22 27 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP INDEX TO FINANCIAL INFORMATION FINANCIAL INFORMATION FROM ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993
PAGES ---- SELECTED FINANCIAL DATA.............................................................. F-2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................... F-3 FINANCIAL STATEMENTS: Report of Independent Accountants.................................................. F-6 Statement of Income for the three years ended December 31, 1993.................... F-7 Balance Sheet at December 31, 1993 and 1992........................................ F-8 Statement of Cash Flows for the three years ended December 31, 1993................ F-9 Statement of Changes in Partners' Capital for the three years ended December 31, 1993............................................................................ F-10 Notes to Financial Statements...................................................... F-11 Supplementary Financial Information................................................ F-15 Financial Statement Schedules: For the three years ended December 31, 1993 II. Related Party Receivables................................................ F-19 V. Oil and Gas Properties and Equipment..................................... F-20 VI. Accumulated Depreciation and Depletion -- Oil and Gas Properties and Equipment................................................................ F-21
All other schedules have been omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes to Financial Statements. FINANCIAL INFORMATION FROM QUARTERLY REPORT ON FORM 10-Q FOR THE UNAUDITED QUARTERLY PERIOD ENDED MARCH 31, 1994 INTERIM FINANCIAL STATEMENTS: Statement of Income............................................................. F-23 Balance Sheet................................................................... F-24 Statement of Cash Flows......................................................... F-25 Statement of Changes in Partners' Capital....................................... F-26 Notes to Interim Financial Statements........................................... F-27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER 1994....................................... F-28 PRO FORMA INFORMATION................................................................ F-29 UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 1994............................... F-30 UNAUDITED PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993......... F-31 UNAUDITED PRO FORMA STATEMENT OF INCOME FOR THE QUARTER ENDED MARCH 31, 1994......... F-32
F-1 28 PRELIMINARY NOTE The information on pages F-2 through F-32 of this Information Statement has been taken directly from historical Securities and Exchange Commission (the "Commission") filings of Diamond Shamrock Offshore Partners Limited Partnership (the "Partnership"), which were prepared by Maxus Offshore Exploration Company ("Maxus Offshore"), the predecessor managing general partner of the Partnership, and relate to periods prior to the date on which Meridian Offshore Company became the managing general partner of the Partnership. Certain textual information, including information with respect to the distribution policy of the Partnership, future capital expenditures plans of the Partnership, the future outlook of the Partnership and arrangements between the Partnership and Maxus Offshore and its affiliates, is included solely because such information was contained in the Partnership's historical filings with the Commission for the relevant periods and does not take into account the transfer to Meridian Offshore Company of the managing general partnership interest in the Partnership or the proposed merger of the Partnership into Meridian Offshore Company. For additional information, see "SPECIAL FACTORS -- Purpose and Structure of the Merger" and "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES" in this Information Statement. FINANCIAL INFORMATION FROM ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993 The information on pages F-2 through F-21 is from the Diamond Shamrock Offshore Partners Limited Partnership's Annual Report on Form 10-K for the year ended December 31, 1993, as filed with the Securities and Exchange Commission by Maxus Offshore Exploration Company, which at that time was the managing general partner of Diamond Shamrock Offshore Partners Limited Partnership. DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER UNIT)
1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- Sales and operating revenues (including $49,081 to related parties in 1993)..... $ 87,069 $ 95,871 $104,696 $111,767 $115,752 Net income................................ 12,522 20,865 11,420 26,766 2,931 Net income per Unit....................... .17 .28 .16 .39 .05 Cash distributions per Unit............... .51 .65 .44 .30 2.80 Total assets.............................. 164,861 193,692 222,084 222,357 217,149 Net assets................................ 139,081 164,557 192,121 190,009 183,979
F-2 29 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Diamond Shamrock Offshore Partners Limited Partnership ("Partnership") reported net income of $12.5 million for the year ended December 31, 1993, $8.3 million less than 1992, primarily due to lower sales and operating revenues of $8.8 million, resulting chiefly from lower oil prices and lower gas volumes. Loss on the sales of assets, an exploratory dry hole in the fourth quarter and higher geological and geophysical costs also contributed to the lower reported net income. Net income for 1992 was $9.4 million higher than 1991 due to lower production costs, lower exploration costs and a decline in depreciation and depletion. Lower natural gas sales volumes accounted for $10.7 million of the sales and operating revenue decline in 1993; however, the Partnership benefited from $5.4 million of higher gas prices. Average production was 74 million cubic feet per day ("mmcfpd"), 14% lower than 1992. Natural declines in production at Vermilion 226/237, Main Pass 116, Main Pass 73, High Island 365/376 and Brazos 412 were partially offset by new volumes at Vermilion 225. The 1992 gas volumes of 86 mmcfpd were 4 mmcfpd below the 1991 level primarily due to natural declines, along with sanding problems at West Cameron 648. This drop was partially offset by new production from Main Pass 181 and the Vermilion blocks acquired in 1991. The 1993 average gas price was $2.21 per thousand cubic feet ("mcf"), up $.20 per mcf from $2.01 per mcf in 1992. Gas prices averaged $1.88 per mcf in 1991. Crude oil and condensate sales revenues were down in 1993 due to both lower prices ($2.3 million) and volumes ($1.2 million). Crude oil and condensate sales volumes averaged 4,157 barrels per day ("bpd") in 1993, compared to 4,325 bpd in 1992 and 5,647 bpd in 1991. Green Canyon 18 and Ewing Bank 944/988 accounted for almost 700 BPD of the decline from 1991 to 1992 due to casing pressure problems. During 1993, new development wells at Green Canyon 18 replaced production lost in 1992. However, natural declines on this and other blocks still resulted in a slight decrease during 1993. Prices for 1993 averaged $17.12 per barrel, down from an average realized price of $18.61 per barrel in 1992 and $20.16 per barrel in 1991. In 1993, other revenues, net included a loss of $3.3 million from the sale of the Partnership's interest in East Cameron Block 220. Other revenues, net in 1991 reflected a $2.2 million adverse pricing adjustment. The Partnership reported production and operating costs in 1993 of $17.6 million, compared to $18.3 million and $20.1 million in 1992 and 1991, respectively. The higher 1991 costs, relative to 1993 and 1992, were due primarily to workovers performed in 1991 at Green Canyon 18 and Main Pass 72/73/74. Exploration costs totaled $8.5 million in 1993, up slightly from 1992, due to higher geological and geophysical costs. In 1992, exploration costs were $7.8 million compared to $16.9 million in 1991 resulting from less drilling activity and lower geological and geophysical costs. General and administrative costs were $5.6 million and $6.8 million during 1993 and 1992, respectively, compared to 1991 general and administrative costs of $7.2 million, resulting from lower direct and allocated administrative charges. The decline in depreciation and depletion expense of $3.3 million during 1993 to $39.6 million was primarily due to lower gas production. A $4.7 million decrease in depreciation and depletion expense during 1992 as compared to 1991 was also due to lower production, offset somewhat by a rise in impairments for unproven acreage. The Partnership is not required to pay federal income taxes on its income and, therefore, no tax provision or benefit is reflected in the Statement of Income. FINANCIAL CONDITION Net cash provided by operating activities for the Partnership during 1993 decreased 10% to $61.8 million compared to $68.7 million in 1992 and $62.8 million in 1991. Compared to 1992, lower 1993 sales and F-3 30 operating revenues were offset in part by lower general and administrative costs and working capital requirements. For 1992, lower exploration costs and lower working capital requirements more than offset sales declines resulting in an increase in net cash provided by operating activities from 1991. The ratio of current assets to current liabilities (current ratio) was 1.2 at December 31, 1993 versus 2.1 at December 31, 1992. Most of the change resulted from a reduction in the note receivable with Maxus Energy Corporation ("Maxus") due to an increase in capital expenditures. The 1992 current ratio remained essentially unchanged from 1991. Expenditures for oil and gas properties and equipment, including dry hole costs, in 1993 were $36.1 million compared to $18.4 million in 1992 and $63.0 million in 1991. Higher expenditures for exploratory and development drilling, production equipment and property and lease acquisitions contributed to the increase over 1992 spending levels. During 1993, the Partnership was the successful bidder for seven offshore federal blocks at a cost of $4.3 million. The Partnership also drilled successful exploratory wells on West Cameron Block 142, Main Pass 111 and Main Pass 181. The reduction in 1992 from 1991 was largely due to lower property acquisition costs as the 1991 expenditures included the purchase of Freeport-McMoRan Inc.'s interest in producing oil and gas leases on Blocks 225 and 226, Vermilion area, offshore Louisiana, for $29.0 million. In addition, lower exploratory and development drilling expenditures also contributed to the decline in 1992 from 1991. The 1991 acquisition of the interests in the Vermilion area was funded by cash from operations and by proceeds from the issuance to Maxus Exploration Company ("Exploration") of newly issued units of the limited partnership ("Units") in the amount of $21.0 million. No additional Units were issued in 1992 or 1993 and, at December 31, 1993, Exploration owned approximately 87.0% of the Units outstanding. The Partnership distributed $38.0 million in cash ($.51 per Unit) to its partners during 1993, compared to total distributions of $48.4 million ($.65 per Unit) and $30.5 million ($.44 per Unit) in 1992 and 1991, respectively. The Partnership presently intends to continue its distribution policy, which commenced in January 1990, of distributing on a quarterly basis substantially all distributable cash. For this purpose, distributable cash means net cash provided by operating activities and proceeds from the sale of assets, less (i) expenditures for oil and gas properties and equipment, including dry hole costs, (ii) reserves for future operating and capital requirements and contingencies and (iii) other Partnership obligations. Because of the uncertainties of future oil and gas prices, production levels, future expenditures for properties and equipment and other factors, the amount of cash distributions for 1994 cannot be predicted but, as in 1993, is expected to vary quarterly based upon the levels of distributable cash available to the Partnership and changes, if any, in the Partnership's distribution policy. No cash distribution will be made for the first quarter 1994 due to the Partnership's lack of distributable cash for such quarter. The Partnership has an agreement with Maxus providing for the Partnership to invest its surplus funds with Maxus at an interest rate not less than the rate (including points or other financing charges or fees) that Maxus would be charged by unrelated lenders on comparable loans. At December 31, 1993, the aggregate principal amount of such investment, evidenced by a note receivable, was $7.4 million and, at December 31, 1992, such amount was $21.5 million. Since its formation, the Partnership has incurred no debt. During 1993, the Partnership entered into a hedging program with respect to natural gas based on an average of approximately 35 billion British thermal units per day. The program began with June production and has been extended through December 1994. Throughout 1993, this program enhanced net cash provided from operating activities by $.8 million. F-4 31 FUTURE OUTLOOK Natural gas prices continue to be somewhat volatile, primarily due to weather and regional supply and demand imbalances. Maxus Offshore Exploration Company ("Managing Partner") believes the desirability of natural gas as a fuel alternative will result in continued stability in demand with prices as strong or stronger than in recent years, but subject to seasonal and other periodic fluctuations. Oil prices decreased substantially during the second half of 1993 and have remained at reduced levels. Although oil markets remain unstable, general price levels will likely continue to be negatively impacted by excess production, especially from non-OPEC countries, limited worldwide demand growth and the overhang from potential Iraqi oil exports in the future. For 1994, gas production is expected to equal 1993 while oil production is anticipated to increase slightly. Normal declines are expected to be offset by new oil volumes at Green Canyon 18 and new gas volumes from West Cameron 142, which was placed into production in the fourth quarter of 1993. The Managing Partner has planned an exploratory and development program of approximately $22.5 million for 1994, about half the 1993 actual program spending of $41.6 million. Emphasis in 1994 will be placed on maximizing the value of existing assets while maintaining the flexibility to respond to changes which would make further exploratory activity economical. Currently, the Partnership anticipates expenditures for platforms at High Island 376, Main Pass 181 and Main Pass 111. In addition, development drilling activity is planned for Main Pass 111, High Island 376 and Main Pass 288. With current market expectations for 1994, the Managing Partner is of the opinion that the Partnership has the financial resources to meet anticipated needs for future operations. Net cash provided by operating activities is expected to be adequate to fund the Partnership's planned program for 1994. F-5 32 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Diamond Shamrock Offshore Partners Limited Partnership In our opinion, the financial statements listed in the index appearing on page F-1 present fairly, in all material respects, the financial position of Diamond Shamrock Offshore Partners Limited Partnership at December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE Dallas, Texas February 22, 1994 F-6 33 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP STATEMENT OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER UNIT)
YEAR ENDED DECEMBER 31, --------------------------------- 1993 1992 1991 ------- ------- -------- REVENUES Sales and operating revenues (including $49,081 to related parties in 1993).............................. $87,069 $95,871 $104,696 Other revenues, net...................................... (3,395) 720 (1,523) ------- ------- -------- 83,674 96,591 103,173 ------- ------- -------- COSTS AND EXPENSES Production and operating costs........................... 17,551 18,291 20,121 Exploration, including exploratory dry holes............. 8,484 7,846 16,926 Depreciation and depletion............................... 39,564 42,824 47,494 General and administrative expenses...................... 5,553 6,765 7,212 ------- ------- -------- 71,152 75,726 91,753 ------- ------- -------- NET INCOME................................................. 12,522 20,865 11,420 General Partners' Interest............................... 125 209 114 ------- ------- -------- NET INCOME APPLICABLE TO LIMITED PARTNERS.................. $12,397 $20,656 $ 11,306 ======= ======= ======== PER UNIT Net income............................................... $ .17 $ .28 $ .16 Cash distributions....................................... $ .51 $ .65 $ .44 AVERAGE UNITS OUTSTANDING.................................. 73,761,740 73,761,740 71,116,911
See Notes to Financial Statements. F-7 34 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP BALANCE SHEET (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------- 1993 1992 -------- -------- ASSETS Current Assets Note receivable -- Maxus Energy Corporation.......................... $ 7,428 $ 21,487 Accounts receivable -- oil & gas..................................... 9,335 14,849 Accounts receivable -- joint interest................................ 1,817 1,242 Other................................................................ 1,105 1,780 -------- -------- Total Current Assets......................................... 19,685 39,358 -------- -------- Oil and Gas Properties and Equipment................................... 698,798 697,333 Less -- Accumulated depreciation and depletion......................... 553,622 542,999 -------- -------- 145,176 154,334 -------- -------- $164,861 $193,692 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Current Liabilities Accounts payable..................................................... $ 15,081 $ 17,586 Take-or-pay liability................................................ 1,600 934 -------- -------- Total Current Liabilities.................................... 16,681 18,520 Other Liabilities and Deferred Credits................................. 3,766 3,549 Take-or-pay Liability.................................................. 5,333 7,066 Partners' Capital...................................................... 139,081 164,557 -------- -------- $164,861 $193,692 ======== ========
See "Commitments and Contingencies." The Partnership uses the successful efforts method to account for its oil and gas producing activities. See Notes to Financial Statements. F-8 35 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1993 1992 1991 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................. $ 12,522 $ 20,865 $ 11,420 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion........................... 39,564 42,824 47,494 Dry hole costs....................................... 3,050 4,136 7,660 Other, including net (gain) loss on sales of assets............................................ 3,522 -- (514) Changes in components of working capital: Accounts receivable............................... 4,939 2,282 290 Other current assets.............................. 675 (801) (608) Accounts payable.................................. (2,505) (626) (2,909) -------- -------- -------- Net cash provided by operating activities............ 61,767 68,680 62,833 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for oil and gas properties and equipment, including dry hole costs................................ (36,135) (18,375) (63,010) Proceeds from sales of assets.............................. -- 72 1,050 (Increase) decrease in current note receivable............. 14,059 (1,634) 8,630 Other...................................................... (1,693) (314) (195) -------- -------- -------- Net cash used in investing activities................... (23,769) (20,251) (53,525) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions paid.................................... (37,998) (48,429) (30,520) Proceeds from sale of Units and reinvestments.............. -- -- 21,000 Proceeds from capital contributions by general partners.... -- -- 212 -------- -------- -------- Net cash used in financing activities................... (37,998) (48,429) (9,308) Net change in cash........................................... -- -- -- Cash at beginning of year.................................... -- -- -- -------- -------- -------- Cash at end of year.......................................... $ -- $ -- $ -- ======== ======== ========
See Notes to Financial Statements. F-9 36 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
LIMITED PARTNERS -------------------------- MAXUS GENERAL EXPLORATION PARTNERS COMPANY UNITHOLDERS TOTAL -------- ----------- ----------- -------- January 1, 1991.................................... $4,699 $ 124,303 $61,007 $190,009 Net income....................................... 114 9,772 1,534 11,420 Distributions.................................... (305) (25,959) (4,256) (30,520) Repurchase of Units.............................. -- 656 (656) -- Reinvestments.................................... 212 21,000 -- 21,212 -------- ----------- ----------- -------- December 31, 1991.................................. 4,720 129,772 57,629 192,121 Net income....................................... 209 17,969 2,687 20,865 Distributions.................................... (484) (41,706) (6,239) (48,429) -------- ----------- ----------- -------- December 31, 1992.................................. 4,445 106,035 54,077 164,557 Net income....................................... 125 10,784 1,613 12,522 Distributions.................................... (380) (32,724) (4,894) (37,998) -------- ----------- ----------- -------- December 31, 1993.................................. $4,190 $ 84,095 $50,796 $139,081 ====== ======== ======== ========
See Notes to Financial Statements. F-10 37 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS Data is as of December 31 of each year or for the year then ended and dollar amounts in tables are in thousands. Certain balance sheet amounts have been reclassified to conform to the 1993 presentation. (1) ORGANIZATION AND CONTROL Diamond Shamrock Offshore Partners Limited Partnership ("Partnership") is a Delaware limited partnership formed to succeed to substantially all of the oil and gas exploration and production business previously conducted by Maxus Exploration Company ("Exploration") in federal waters offshore Texas and Louisiana. Exploration is a wholly owned subsidiary of Maxus Energy Corporation ("Maxus") through which Maxus conducts all of its North American oil and gas exploration and production operations. The Partnership was formed in 1985 when it sold to the public five million units of limited partnership interest ("Units") and issued 37.5 million Units to Exploration in exchange for its transfer of oil and gas properties. Maxus Offshore Exploration Company ("Managing Partner"), a wholly owned subsidiary of Maxus, and Maxus have a combined 1% general partners' interest in the Partnership and are the managing general partner and special general partner, respectively. Maxus' aggregate interest in the Partnership was approximately 87.1% at December 31, 1993, 1992 and 1991. The Partnership has no officers, directors or employees. Certain employees of Exploration are engaged principally in the conduct of the Partnership's oil and gas exploration and production business and certain officers of Maxus perform all management functions required for the Partnership. Neither Maxus nor the Managing Partner receive, as general partners of the Partnership, any carried interests, promotions, back-ins or other compensation. The Partnership reimburses Maxus for all direct costs incurred in managing the Partnership and all indirect costs (principally salaries and other general and administrative costs) allocable to the Partnership. The allocation between the Partnership and Maxus of direct and indirect costs incurred by Maxus and its subsidiaries is made by Maxus. Maxus believes that the method of allocation is reasonable. (2) SIGNIFICANT ACCOUNTING POLICIES Exploration and Development Costs Oil and gas exploration and development activities are accounted for at cost under the successful efforts method of accounting. Costs of acquiring unproved oil and gas leasehold acreage are capitalized. Lease rentals and geological and geophysical costs are charged to expense as incurred. If, and when, exploratory wells are determined to be nonproductive, the related costs are charged to expense. Costs incurred to drill and equip development wells, including production facilities, are capitalized. Depreciation and Depletion Depreciation and depletion related to the capitalized costs of all development drilling, successful exploratory drilling and related production equipment, and estimated future abandonment and dismantlement costs for offshore production platforms are provided by the unit of production method based upon estimated proved recoverable reserves. A valuation allowance is provided by a charge against earnings to reflect the impairment of unproved acreage. F-11 38 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Retirements and Property Dispositions Gains or losses on sales or retirements are reflected in earnings when related to complete production units for which individual depreciation and depletion allowances are accumulated. Gains or losses from other sales or retirements are charged to accumulated depreciation and depletion. Income Taxes The Partnership is not subject to federal or state income taxes; accordingly, no recognition has been given to income taxes in the accompanying financial statements. The income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly. The partners will have different investment bases depending upon the timing and prices of Units acquired, and each partner's tax accounting, which is partially dependent upon their individual tax situation, may differ from the accounting methods followed in the financial statements. Accordingly, there could be significant differences between the partners' tax bases and their proportionate shares of the net assets reported in the financial statements. In 1993, the Partnership adopted the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires disclosure by a publicly held partnership of the aggregate difference in the bases of its net assets for financial and tax reporting purposes. Because the aggregate tax bases of the partners cannot be readily determined, the difference in the financial and tax bases of the partnership's net assets cannot be disclosed. Further, since taxes relating to the partners' distributive shares of the partnership income or loss are determined at the partners' level, rather than at the partnership level, the adoption of SFAS 109 had no effect on the Partnership's financial statements. Revenue Recognition Oil and natural gas revenues are accounted for using the sales method. Under this method, sales are recorded on all production sold by the Partnership regardless of the Partnership's ownership interest in the respective property. Imbalances result when sales differ from the seller's net revenue interest in the particular property's gas reserves and are recorded to reflect the Partnership's balancing position. At year-end 1993 and 1992, the volumetric imbalance and related values were immaterial. Take-or-Pay Liability In 1988, the Partnership received cash under provisions of a take-or-pay contract and recognized a liability to provide gas. The contract stipulated that the liability would be repaid if it was not eliminated by gas deliveries. During 1993, a portion of the take-or-pay liability was repaid at the option of the natural gas purchaser. Such payments will continue during 1994 and into 1997. Hedging The Partnership periodically hedges against the effects of fluctuations in the price of natural gas through price swap agreements. Gains or losses on these hedges are deferred until the related sales are recognized. The Partnership's hedging program began with June 1993 production based on approximately 35 billion British Thermal Units ("BTUs") per day. The program has been extended through December 1994 and may cover a larger portion of the Partnership's production. F-12 39 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (3) DISTRIBUTION POLICY The Partnership presently intends to continue its current distribution policy, which commenced in January 1990, of distributing on a quarterly basis substantially all distributable cash. For this purpose, distributable cash means net cash provided by operating activities and proceeds from the sale of assets, less (i) expenditures for oil and gas properties and equipment, including dry hole costs, (ii) reserves for future operating and capital requirements and contingencies and (iii) other Partnership obligations. During 1993, 1992 and 1991, the Partnership made per Unit distributions of cash in the aggregate of $.51, $.65 and $.44, respectively. Because of the uncertainties of future oil and gas prices, production levels, future expenditures for properties and equipment and other factors, the amount of cash distributions for 1994 cannot be predicted but is expected to vary quarterly based upon the levels of distributable cash available to the Partnership and changes, if any, in the Partnership's distribution policy. On January 25, 1994, the Managing Partner of the Partnership announced that no cash distribution would be paid to any partner or unitholder of the Partnership for the first quarter of 1994 due to the Partnership's lack of distributable cash for such quarter. (4) RELATED PARTY TRANSACTIONS The Partnership is charged for all direct costs and expenses associated with its operations. Additionally, general and administrative costs are allocated to the Partnership by Maxus. Allocation percentages are generally determined from studies of time devoted to specific services and utilization of jointly shared facilities as determined on an annual basis. Such direct and allocated administrative charges amounted to $5,553,000, $6,765,000 and $7,212,000 in 1993, 1992 and 1991, respectively. During 1993, the Partnership entered into an agreement with Maxus Gas Marketing Company ("MGMC"), a wholly owned subsidiary of Maxus, to sell substantially all of the Partnership's gas production to MGMC at prices comparable to those received for like sales at similar properties. For the year 1993, such sales amounted to $45,944,000. An additional $3,137,000 of oil was sold during 1993 to Maxus. The Partnership has invested its excess funds with Maxus (See Note 6: "Note Receivable -- Maxus Energy Corporation"). (5) SALES TO MAJOR CUSTOMERS Sales of oil and gas to major customers (over 10% of sales) are summarized below: 1993 Maxus Gas Marketing Company.................................. $45,944 53% 1992 Amoco Production Company..................................... $12,917 13% Arkla Energy Resources....................................... $ 9,533 10% 1991 Shell Oil Company............................................ $12,736 12%
F-13 40 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (6) NOTE RECEIVABLE -- MAXUS ENERGY CORPORATION The Partnership has an agreement to invest its surplus funds with Maxus. This investment is evidenced by a promissory note, including amendments or extensions. The note bears interest at a rate adjusted monthly not less than the rate (including points or other financing charges or fees) that Maxus would be charged by unrelated lenders on comparable loans. Interest earned on this note, which is included in "Other revenues, net," was $930,000, $1,262,000 and $1,210,000 in 1993, 1992 and 1991, respectively. (7) VALUE OF FINANCIAL INSTRUMENTS The fair value of the Partnership's natural gas price swap agreements is the estimated amount the Partnership would receive to terminate the swap agreements at the reporting date. At December 31, 1993, the estimated fair value was $2.2 million. The fair value of all other financial instruments approximate their recorded value. (8) ACCOUNTS RECEIVABLE The Partnership's accounts receivable relate primarily to sales of oil and gas and amounts due from joint interest partners for expenditures made by the Partnership on their behalf. In addition to sales made to MGMC, sales are made to several major oil and gas and gas pipeline companies. The Partnership reviews the financial condition of potential purchasers and partners prior to signing sales or joint interest agreements. Payment terms are on a short term basis and in accordance with industry standards. (9) PROPERTY AND EQUIPMENT Summarized below is detail of the Partnership's property and equipment holdings:
1993 1992 -------- -------- Proved properties....................................... $661,252 $665,222 Unproved properties..................................... 37,546 32,111 -------- -------- 698,798 697,333 Less -- Accumulated depreciation and depletion.......... 553,622 542,999 -------- -------- $145,176 $154,334 ======== ========
(10) PROPERTY SALES AND ACQUISITIONS During fourth quarter 1993, the Partnership recorded in "Other revenues, net," the $3.3 million loss on the sale of its entire interest in East Cameron 220, offshore Louisiana. Although a loss was recorded on the sale of the property, the disposition did not have a material effect on the ongoing results of operations or financial position of the Partnership for the year 1993. In July 1991, the Partnership purchased an interest in producing oil and gas leases on Blocks 225 and 226, Vermilion area, offshore Louisiana, for $29.0 million. On a pro forma basis, the acquisition did not have a material impact on 1991 operations. (11) COMMITMENTS AND CONTINGENCIES In instances where the Partnership owns less than a 100% of the working interest in a particular property, it is subject to joint operating agreements, area of mutual interest agreements, bidding agreements, and similar agreements which commit the Partnership for its share of any options, benefits or contingencies as covered by the terms and conditions of any such agreements. F-14 41 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER UNIT) QUARTERLY DATA
1993 -------------------------------------------------------------- FOR THE MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, YEAR --------- -------- ------------- ------------ -------- Sales and operating revenues (a).......... $24,377 $ 23,551 $19,344 $ 19,797 $ 87,069 Gross profit (b).......................... 8,079 9,526 5,929 6,420 29,954 Net income (loss)......................... 5,679 6,095 4,335 (3,587) 12,522 Per Unit Net income (loss)....................... .08 .08 .06 (.05) .17 Distributions........................... .16 .10 .12 .13 .51 Market price per Unit High.................................... 6 7/8 6 7/8 6 3/4 6 3/8 6 7/8 Low..................................... 4 5/8 6 5 5/8 5 4 5/8
1992 -------------------------------------------------------------- FOR THE MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, YEAR --------- -------- ------------- ------------ -------- Sales and operating revenues.............. $25,051 $ 22,701 $23,383 $ 24,736 $ 95,871 Gross profit (b).......................... 7,359 8,071 8,697 10,629 34,756 Net income................................ 833 6,272 6,475 7,285 20,865 Per Unit Net income (c).......................... .01 .09 .09 .10 .28 Distributions........................... .14 .17 .15 .19 .65 Market price per Unit High.................................... 4 3 5/8 4 3/4 5 5/8 5 5/8 Low..................................... 2 3/8 2 3/4 3 1/8 4 1/2 2 3/8
- --------------- (a) Includes related party sales of $7,189, $15,211, $12,192 and $14,489 for quarters ended March 31, June 30, September 30 and December 31, respectively. (b) Gross profit is sales and operating revenues less production costs and depreciation and depletion. (c) As net income per unit is rounded, the sum of net income per unit does not equal the annual per unit amount. F-15 42 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP SUPPLEMENTARY FINANCIAL INFORMATION -- (CONTINUED) OIL AND GAS PRODUCING ACTIVITIES The following are disclosures about the oil and gas producing activities of the Partnership as required by Statement of Financial Accounting Standards No. 69: RESULTS OF OPERATIONS Results of operations relating to all of the Partnership's oil and gas activity are shown below. These results exclude revenues and expenses related to the purchase and resale of natural gas, administrative overhead and interest income.
1993 1992 1991 ------- ------- -------- Sales (including $49,081 to related parties in 1993)... $85,984 $93,399 $103,329 Production costs....................................... 16,466 15,819 18,754 Exploration costs...................................... 8,484 7,846 16,926 Depreciation and depletion............................. 39,564 42,824 47,494 (Gain)/loss on sales of assets......................... 3,522 -- (514) Other.................................................. 802 542 3,247 ------- ------- -------- Results of operations.................................. $17,146 $26,368 $ 17,422 ======= ======= ========
CAPITALIZED COSTS Capitalized costs applicable to the Partnership's oil and gas producing activities, all of which are conducted in the United States, include the cost of mineral interests in properties, completed and incomplete wells and related support equipment as follows:
1993 1992 1991 -------- -------- -------- Proved properties.................................... $661,252 $665,222 $650,527 Unproved properties.................................. 37,546 32,111 38,880 -------- -------- -------- 698,798 697,333 689,407 Less -- Accumulated depreciation and depletion....... 553,622 542,999 506,528 -------- -------- -------- $145,176 $154,334 $182,879 ======== ======== ========
COSTS INCURRED Costs incurred by the Partnership in its oil and gas producing activities (whether capitalized or charged against earnings) were as follows:
1993 1992 1991 ------- ------- ------- Property acquisition costs.............................. $ 5,111 $ 637 $36,629 Exploration costs....................................... 17,048 6,942 20,449 Development costs....................................... 19,410 14,506 15,198 ------- ------- ------- $41,569 $22,085 $72,276 ======= ======= =======
F-16 43 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP SUPPLEMENTARY FINANCIAL INFORMATION -- (CONTINUED) OIL AND GAS RESERVES Net proved developed and undeveloped reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserve volumes that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are proved reserve volumes that are expected to be recovered from new wells on undrilled acreage or from existing wells where a significant expenditure is required for recompletion. The following table represents the Partnership's net interests in estimated quantities of proved developed and undeveloped reserves of crude oil, including condensate (in thousands of barrels), and natural gas (in millions of cubic feet) at December 31, 1993, 1992 and 1991, and changes in such estimated quantities for the years then ended:
OIL GAS (MB) (MMCF) ------ ------- NET PROVED DEVELOPED AND UNDEVELOPED RESERVES January 1, 1991.................................................. 11,354 186,846 Revisions of previous estimates.................................. 760 (5,257) Extensions, discoveries and other additions...................... 122 2,945 Production....................................................... (2,061) (32,778) Purchase of reserves in place.................................... 207 26,752 ------ ------- December 31, 1991................................................ 10,382 178,508 Revisions of previous estimates.................................. 953 (192) Extensions, discoveries and other additions...................... 307 10,852 Production....................................................... (1,583) (31,559) ------ ------- December 31, 1992................................................ 10,059 157,609 Revisions of previous estimates.................................. 487 (9,692) Extensions, discoveries and other additions...................... 660 47,223 Production....................................................... (1,517) (27,181) ------ ------- December 31, 1993................................................ 9,689 167,959 ====== ======= NET PROVED DEVELOPED RESERVES January 1, 1991.................................................. 10,805 137,731 December 31, 1991................................................ 9,806 141,641 December 31, 1992................................................ 9,287 120,328 December 31, 1993................................................ 9,046 118,567
F-17 44 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP SUPPLEMENTARY FINANCIAL INFORMATION -- (CONTINUED) FUTURE NET CASH FLOWS The standardized measure of discounted future net cash flows ("standardized measure") relating to proved oil and gas reserves is calculated and presented in accordance with Statement of Financial Accounting Standards No. 69. The standardized measure has been prepared assuming year-end selling prices (adjusted for future fixed and determinable contractual price changes) for the Partnership's estimated share of future production from proved oil and gas reserves. Future production and development costs were computed by applying year-end costs to future years. A prescribed 10% discount factor was applied to future net cash flows. Because prices fluctuate, a calculation of the standardized measure utilizing current prices would result in different discounted future net cash flows for 1993 than is presented. The Partnership cautions that this standardized measure is not representative of fair market value, and the standardized measure presented for the Partnership's proved oil and gas reserves is not representative of the reserve value. The standardized measure is intended only to assist financial statement users in making comparisons between companies.
1993 1992 1991 -------- -------- -------- Future cash inflows.................................. $522,176 $546,581 $580,780 Future production and development costs.............. (179,006) (87,974) (200,596) -------- -------- -------- Future net cash flows................................ 343,170 358,607 380,184 Annual discount at 10% rate.......................... (96,820) (79,706) (77,528) -------- -------- -------- Standardized measure of discounted future net cash flows.............................................. $246,350 $278,901 $302,656 ======== ======== ========
The following are the principal sources of change in the standardized measure:
1993 1992 1991 -------- -------- -------- January 1,........................................... $278,901 $302,656 $417,655 Sales and transfers of oil and gas produced, net of production costs................................ (71,482) (79,701) (85,962) Net changes in prices and production costs......... (6,474) (9,504) (119,686) Extensions, discoveries and improved recovery, less related costs................................... 48,483 15,152 6,051 Previously estimated development costs incurred during the year................................. 6,099 (2,966) 5,719 Revisions of previous quantity estimates........... (12,710) 28,433 17,855 Purchase of reserves in place...................... 3,509 -- 20,682 Accretion of discount.............................. 27,890 30,266 41,766 Other.............................................. (27,866) (5,435) (1,424) -------- -------- -------- December 31,......................................... $246,350 $278,901 $302,656 ======== ======== ========
F-18 45 SCHEDULE II DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP RELATED PARTY RECEIVABLES FOR THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
DEDUCTIONS BALANCE AT BALANCE AT ---------- END OF PERIOD YEAR BEGINNING OF AMOUNTS ------------- ENDED NAME OF DEBTOR PERIOD ADDITIONS COLLECTED CURRENT ----- ------------------ ------------ --------- ---------- ------------- December 31, 1991.......... Maxus Energy Corp. $ 28,483 -- $ 8,630 $19,853 December 31, 1992.......... Maxus Energy Corp. $ 19,853 $ 1,634 -- $21,487 December 31, 1993.......... Maxus Energy Corp. $ 21,487 -- $ 14,059 $ 7,428
- --------------- Refer to Note 6 to the Financial Statements, "Note Receivable -- Maxus Energy Corporation." F-19 46 SCHEDULE V DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP OIL AND GAS PROPERTIES AND EQUIPMENT FOR THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
BALANCE AT BALANCE AT BEGINNING ADDITIONS DISPOSALS END OF OF PERIOD AT COST AND TRANSFERS PERIOD ---------- --------- ------------- ---------- Year ended December 31, 1991...................... $ 682,135 $63,010 $ (55,738) $ 689,407 Year ended December 31, 1992...................... $ 689,407 $18,375 $ (10,449) $ 697,333 Year ended December 31, 1993...................... $ 697,333 $36,135 $ (34,670) $ 698,798
F-20 47 SCHEDULE VI DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP ACCUMULATED DEPRECIATION AND DEPLETION OIL AND GAS PROPERTIES AND EQUIPMENT FOR THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS)
BALANCE AT DISPOSALS BALANCE AT BEGINNING ADDITIONS AND END OF OF PERIOD AT COST TRANSACTIONS PERIOD ---------- --------- ------------- ---------- Year ended December 31, 1991...................... $ 507,100 $47,494 $ (48,066) $ 506,528 Year ended December 31, 1992...................... $ 506,528 $42,824 $ (6,353) $ 542,999 Year ended December 31, 1993...................... $ 542,999 $39,564 $ (28,941) $ 553,622
F-21 48 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP FINANCIAL INFORMATION FROM QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1994 The information on pages F-22 through F-32 is from the Diamond Shamrock Offshore Partners Limited Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994. The accompanying financial statements have not been examined by independent accountants, but in the opinion of Diamond Shamrock Offshore Partners Limited Partnership's management all adjustments (consisting only of normal accruals) necessary for a fair presentation of results of operations, changes in partners' capital, financial position and cash flows at the date and for the periods indicated have been included. F-22 49 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP STATEMENT OF INCOME -- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER UNIT)
THREE MONTHS ENDED MARCH 31, --------------------- 1994 1993 ------- ------- REVENUES Sales and operating revenues -- trade.............................. $ 3,476 $17,188 Sales and operating revenues -- associated companies............... 17,218 7,189 Other revenues, net................................................ 443 144 ------- ------- 21,137 24,521 COSTS AND EXPENSES Production and operating costs..................................... 3,943 5,514 Exploration, including exploratory dry holes....................... 794 506 Depreciation and depletion......................................... 10,334 10,784 General and administrative expenses (b)............................ 1,296 2,038 ------- ------- 16,367 18,842 NET INCOME........................................................... 4,770 5,679 General Partners' Interest......................................... 48 57 ------- ------- NET INCOME APPLICABLE TO LIMITED PARTNERS............................ $ 4,722 $ 5,622 ======= ======= NET INCOME PER UNIT (c).............................................. $ .06 $ .08 AVERAGE UNITS OUTSTANDING............................................ 73,761,740 73,761,740
See Notes to Interim Financial Statements (Unaudited). F-23 50 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP BALANCE SHEET (DOLLARS IN THOUSANDS)
MARCH 31, 1994 DECEMBER 31, (UNAUDITED) 1993 ------------ ------------ ASSETS Current Assets Note receivable -- Maxus Energy Corporation........................ $ 17,328 $ 7,428 Accounts receivable -- oil and gas sales........................... 8,819 9,335 Accounts receivable -- joint interest.............................. 1,519 1,817 Other.............................................................. 454 1,105 ------- -------- Total Current Assets....................................... 28,120 19,685 ------- -------- Oil and Gas Properties and Equipment -- held for sale, net........... 14,116 -- ------- -------- Oil and Gas Properties and Equipment................................. 598,496 698,798 Less -- Accumulated depreciation and depletion..................... 472,791 553,622 ------- -------- 125,705 145,176 ------- -------- $167,941 $164,861 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Current Liabilities Accounts payable................................................... $ 13,660 $ 15,081 Take-or-pay liability.............................................. 1,600 1,600 ------- -------- Total Current Liabilities.................................. 15,260 16,681 Other Liabilities and Deferred Credits............................... 3,763 3,766 Take-or-Pay Liability................................................ 5,067 5,333 Partners' Capital.................................................... 143,851 139,081 ------- -------- $167,941 $164,861 ======== ========
The Partnership uses the successful efforts method to account for its oil and gas producing activities. See Notes to Interim Financial Statements (Unaudited). F-24 51 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS -- (UNAUDITED) (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------------------- 1994 1993 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................... $ 4,770 $ 5,679 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion...................................... 10,334 10,784 Dry hole costs.................................................. (9) (332) (Gain)/Loss on sale of assets................................... (42) -- Changes in components of working capital: Accounts receivable.......................................... 814 1,596 Other current assets......................................... 651 237 Accounts payable............................................. (1,421) (2,710) -------- -------- Net cash provided by operating activities....................... 15,097 15,254 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for oil and gas properties and equipment, including dry hole costs........................................................ (4,951) (8,029) (Increase) decrease in current note receivable....................... (9,900) 4,654 Other................................................................ (246) 42 -------- -------- Net cash used in investing activities............................. (15,097) (3,333) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions paid.............................................. -- (11,921) -------- -------- Net cash used in financing activities............................. -- (11,921) -------- -------- Net change in cash..................................................... -- -- Cash at beginning of period............................................ -- -- -------- -------- Cash at end of period.................................................. $ -- $ -- ======== ========
See Notes to Interim Financial Statements (Unaudited). F-25 52 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL -- (UNAUDITED)(A) (DOLLARS IN THOUSANDS)
LIMITED PARTNERS -------------------------- MAXUS GENERAL EXPLORATION PARTNERS COMPANY UNITHOLDERS TOTAL -------- ----------- ----------- -------- December 31, 1993.................................. $4,190 $84,095 $50,796 $139,081 Net income....................................... 48 4,108 614 4,770 ------ ------- ------- -------- March 31, 1994..................................... $4,238 $88,203 $51,410 $143,851 ====== ======= ======= ========
See Notes to Interim Financial Statements (Unaudited). F-26 53 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) (A) ORGANIZATION Diamond Shamrock Offshore Partners Limited Partnership ("Partnership") is a Delaware limited partnership formed in 1985 to succeed to substantially all of the oil and gas exploration and production business previously conducted by Maxus Exploration Company ("Exploration"), a wholly owned subsidiary of Maxus Energy Corporation ("Maxus"), in federal waters offshore Texas and Louisiana. In exchange for its contribution of properties to the Partnership, Exploration received units of limited partnership interest ("Units") in the Partnership. As of March 31, 1994, Maxus Offshore Exploration Company ("MOEC"), a wholly owned subsidiary of Maxus, was the managing general partner of the Partnership and Maxus was the special general partner. On April 26, 1994, Maxus, MOEC and Exploration sold all their partnership interests consisting of general partners' interests and Units to affiliates of Burlington Resources Inc. for an aggregate $291.1 million. Maxus' aggregate ownership interest in the Partnership was approximately 87.1%. As a result of the sale, Meridian Offshore Company, a Burlington Resources Inc. affiliate, became the managing general partner of the Partnership and Meridian Offshore Acquisition Company became the special general partner. (B) GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses represent allocations from Maxus. Maxus believes that the method of allocation is reasonable. (C) INCOME PER UNIT Net Income per Unit is calculated for financial reporting purposes only. Income or loss for federal income tax purposes will be calculated and communicated separately for each Unitholder subsequent to December 31, 1994. (D) FINANCIAL INSTRUMENTS As discussed in the Partnership's Annual Report on Form 10-K for year ended December 31, 1993, the Partnership hedged against the effects of fluctuations in the price of natural gas through price swap agreements. As of April 26, 1994, the Partnership settled all then-outstanding hedged positions for a $253,050 gain. (E) DISPOSITION OF ASSETS On April 25, 1994, the Partnership sold its interests in Main Pass Blocks 72, 73 and 74, offshore Louisiana, to Pogo Producing Company for approximately $18.2 million. The net book value of the properties was $14.1 million. The unaudited pro forma financial statements are presented on pages F-30 through F-32. F-27 54 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER, 1994 RESULTS OF OPERATIONS Diamond Shamrock Offshore Partners Limited Partnership ("Partnership") reported net income of $4.8 million for the first three months of 1994, a $.9 million decline over the same period in 1993. This decrease was a result of lower sales and operating revenues, despite lower production costs and lower administrative expenses. Sales and operating revenues for the first three months of 1994 were $20.7 million, down from $24.4 million recorded for the same period of 1993. Average gas production in the first three months of 1994 was down 18% to 73 million cubic feet ("mmcf") per day compared to 89 mmcf per day in the same period of 1993. Contributing to the volume decline were watering and sanding at Main Pass 116/126 (7 mmcf per day) and watering at Vermilion 226/237 (3 mmcf per day) and Main Pass 181 (5 mmcf per day) partially offset by new production at West Cameron 142 (8 mmcf per day). The average gas price in the first quarter 1994 was $2.37 per thousand cubic feet ("mcf"), up $.31 per mcf from $2.06 per mcf in the first quarter last year. Crude oil and condensate sales revenues were down in the first three months of 1994 due to lower oil prices which averaged $12.71 per barrel compared to $18.05 per barrel in the first quarter last year. Production increased to 4,468 barrels ("bbls") per day compared to 4,246 bbls per day in the same period in 1993. New production from West Cameron 142 (252 bbls per day) and Ewing Bank 944/988 (420 bbls per day) were partially offset by watering at Vermilion 226 and field decline at Main Pass 288/289. Production and operating costs were $3.9 million in the first quarter 1994 as compared to $5.5 million in the first quarter 1993. The decrease resulted from third-party gas purchase costs of $1.1 million recorded in first quarter 1993. Depreciation and depletion expense was $10.3 million in the first quarter of 1994, $.5 million below the same period last year. Lower production was responsible for the decline, despite higher depletion rates. FINANCIAL CONDITION Net cash provided by operating activities for the Partnership during the first three months of 1994 decreased slightly to $15.1 million from $15.3 million in the same period in 1993. Lower working capital requirements offset the decline in operating cash income. Expenditures for oil and gas properties and equipment, including dry hole costs, in the first three months of 1994 were $5.0 million compared to $8.0 million in 1993. The decrease in 1994 was largely due to lower spending on exploratory wells. During the first quarter 1994, the Partnership was high bidder at the Federal lease sale on two blocks offshore Louisiana. One of these, Eugene Island 395 (100% working interest) has been awarded to the Partnership. The bid for the other, West Cameron 54 (100% working interest), must be accepted or rejected by the Minerals Management Service on or before June 29, 1994. At March 31, 1994, the Partnership's ratio of current assets to current liabilities (current ratio) equaled 1.8 compared to a ratio of 1.2 at December 31, 1993. Current assets rose primarily due to an increase in the note receivable with Maxus Energy Corporation ("Maxus") which, at March 31, 1994, was $17.3 million, an increase of $9.9 million from December 31, 1993. This note was repaid in full on April 26, 1994 upon sale of Maxus' interest to Meridian Offshore Company and the proceeds from the repayment have been advanced to Meridian Offshore Company. No cash distribution was made for the first quarter 1994 due to the Partnership's lack of distributable cash for the quarter. A second quarter cash distribution, payable June 7, 1994, was declared at $.13 per Unit to Unitholders of record on May 13, 1994. F-28 55 OTHER EVENTS On April 25, 1994 the Partnership sold its interest in Main Pass 72, 73 and 74 to Pogo Producing Company for $18.2 million. The net book value of the properties was $14.1 million. On April 26, 1994, Maxus, the special general partner of the Partnership, Maxus Offshore Exploration Company, the managing general partner, and Maxus Exploration Company sold all of their interests in the Partnership consisting of general partners' interests and 64,163,885 Units to affiliates of Burlington Resources Inc. for an aggregate of $291.1 million. Units were sold at an equivalent of approximately $4.48 per Unit. Maxus' aggregate ownership interest in the Partnership was approximately 87.1%. As a result of the sale, Meridian Offshore Company, a Burlington Resources Inc. affiliate, became the managing general partner of the Partnership and Meridian Offshore Acquisition Company became the special general partner. Also, on April 26, 1994, Burlington Resources Inc. announced that it intends to acquire the remaining Units through merger for $4.48 per unit. F-29 56 PRO FORMA INFORMATION On April 25, 1994, the Partnership sold its interests in Main Pass Blocks 72, 73 and 74, offshore Louisiana, to Pogo Producing Company for approximately $18.2 million. The net book value of these properties was $14.1 million. An unaudited pro forma balance sheet as of March 31, 1994 has been prepared as if the sale had occurred at that date. The unaudited pro forma statements of income for the year ended December 31, 1993 and the three months ended March 31, 1994 have been prepared as if the sale had occurred at January 1, 1993 and January 1, 1994, respectively. The pro forma data are not necessarily indicative of the financial results which would have occurred had the sale been effective on those dates and should not be viewed as indicative of the Partnership in future periods. The unaudited pro forma financial statements are presented on pages F-30 through F-32. DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 1994
PRO-FORMA HISTORICAL ADJUSTMENTS D.S. OFFSHORE ------------------ PARTNERS DEBIT CREDIT PRO-FORMA ------------- ------- ------- --------- ASSETS Current Assets Note Receivable -- Maxus Energy Corporation........ $ 17,328 $18,150 -- $ 35,478 Accounts Receivable -- oil and gas sales........... 8,819 -- -- 8,819 Accounts Receivable -- joint interest.............. 1,519 -- -- 1,519 Other.............................................. 454 -- -- 454 --------- ------- ------- -------- Total Current Assets....................... 28,120 18,150 -- 46,270 --------- ------- ------- -------- Oil and Gas Properties and Equipment -- held for sale, net................................. 14,116 -- $14,116 -- --------- ------- ------- -------- Oil and Gas Properties and Equipment................. 598,496 -- -- 598,496 Less -- Accumulated depreciation and depletion..... 472,791 -- -- 472,791 --------- ------- ------- -------- 125,705 -- -- 125,705 --------- ------- ------- -------- $ 167,941 $18,150 $14,116 $171,975 ========= ======= ======= ======== LIABILITIES AND PARTNERS' CAPITAL Current Liabilities Accounts Payable................................... $ 13,660 -- -- $ 13,660 Take-or-pay liability.............................. 1,600 -- -- 1,600 --------- ------- ------- -------- Total Current Liabilities.................. 15,260 -- -- 15,260 Other Liabilities and Deferred Credits............... 3,763 -- -- 3,763 Take-or-Pay Liability................................ 5,067 -- -- 5,067 Partners' Capital.................................... 143,851 -- $ 4,034 147,885 --------- ------- ------- -------- $ 167,941 -- $ 4,034 $171,975 ========= ======= ======= ========
F-30 57 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP UNAUDITED PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993
PRO-FORMA HISTORICAL ADJUSTMENTS D.S. OFFSHORE --------------- PARTNERS DEBIT CREDIT PRO FORMA ------------- ------ ------ --------- REVENUES Sales and operating revenues -- trade............... $37,988 $6,600 -- $31,388 Sales and operating revenues -- associated companies........................................ 49,081 1,849 -- 47,232 Other revenues, net................................. (3,395) -- -- (3,395) ------- ------ ------ ------- 83,674 8,449 -- 75,225 COSTS AND EXPENSES Production and operating costs...................... 17,551 -- $1,355 16,196 Exploration, including exploratory dry holes........ 8,484 -- -- 8,484 Depreciation and depletion.......................... 39,564 -- 3,316 36,248 General and administrative expenses................. 5,553 -- -- 5,553 ------- ------ ------ ------- 71,152 -- 4,671 66,481 NET INCOME............................................ 12,522 8,449 4,671 8,744 General Partner's Interest.......................... 125 85 47 87 ------- ------ ------ ------- NET INCOME APPLICABLE TO LIMITED PARTNERS............. $12,397 $8,364 $4,624 $ 8,657 ======= ====== ====== ======= NET INCOME PER UNIT................................... $ .17 $ .12 ======= ======= AVERAGE UNITS OUTSTANDING............................. 73,761,740 73,761,740
F-31 58 DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP UNAUDITED PRO FORMA STATEMENT OF INCOME FOR THE QUARTER ENDED MARCH 31, 1994
PRO-FORMA HISTORICAL ADJUSTMENTS D.S. OFFSHORE ---------------- PARTNERS DEBIT CREDIT PRO-FORMA ------------- ------ ------ --------- REVENUES Sales and operating revenues -- trade.............. $ 3,476 $1,116 -- $ 2,360 Sales and operating revenues -- associated companies....................................... 17,218 398 -- 16,820 Other revenues, net................................ 443 -- -- 443 ------- ------ ----- ------- 21,137 1,514 -- 19,623 COSTS AND EXPENSES Production and operating costs..................... 3,943 -- $118 3,825 Exploration, including exploratory dry holes....... 794 -- -- 794 Depreciation and depletion......................... 10,334 -- 649 9,685 General and administrative expenses................ 1,296 -- -- 1,296 ------- ------ ----- ------- 16,367 -- 767 15,600 NET INCOME........................................... 4,770 1,514 767 4,023 General Partner's Interest......................... 48 15 7 40 ------- ------ ----- ------- NET INCOME APPLICABLE TO LIMITED PARTNERS........................................... $ 4,722 $1,499 $760 $ 3,983 ======= ====== ===== ======= NET INCOME PER UNIT.................................. $ .06 $ .05 ======= ======= AVERAGE UNITS OUTSTANDING............................ 73,761,740 73,761,740
F-32 59 SCHEDULE 1 DIRECTORS AND EXECUTIVE OFFICERS OF BR, THE COMPANY AND ACQUISITION The name, business address and present principal occupation or employment and five year employment history of each director and executive officer of BR, the Company and Acquisition are set forth below. The business address of each director and executive officer, unless otherwise indicated below, is 5051 Westheimer, Houston, Texas 77056. Each of the individuals listed below is a United States citizen. To the knowledge of BR and the Company, none of such individuals owns any Units. DIRECTORS OF BR
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, NAME BUSINESS ADDRESS AND FIVE YEAR HISTORY - ----------------------------------- -------------------------------------------------------- John V. Byrne...................... President, Oregon State University, Corvallis, Oregon 97331 -- Education. Since November 1984, Dr. Byrne's principal occupation has been as shown above. S. Parker Gilbert.................. Retired. Mr. Gilbert's address is c/o Morgan Stanley Group Inc., 1251 Avenue of the Americas, New York, New York 10020. Mr. Gilbert has been retired since January 1991. From January 1984 until December 1990, Mr. Gilbert was Chairman and Managing Director of Morgan Stanley Group Inc. James F. McDonald.................. President and Chief Executive Officer, Scientific-Atlanta, Inc., One Technology Parkway South, Norcross, Georgia 30092 -- Telecommunications. Since July 1993, Mr. McDonald's principal occupation has been as shown above. From July 1991 to July 1993, Mr. McDonald was a partner with J.H. Whitney & Co. From January 1991 until July 1991, Mr. McDonald was Vice Chairman of the Board of Prime Computer Inc. From January 1990 until January 1991, Mr. McDonald was Vice Chairman of the Board and Chief Executive Officer of Prime Computer, Inc. From September 1989 until January 1990, Mr. McDonald was President and Chief Executive Officer of Prime Computer, Inc. From October 1988 until August 1989, Mr. McDonald was Chairman of the Board, President and Chief Executive Officer of Gould/ Computer Systems Inc. and Gould/IGD Inc. Thomas H. O'Leary.................. Chairman of the Board, President and Chief Executive Officer of BR. Since February 1993, Mr. O'Leary's principal occupation has been as shown above. From July 1992 to February 1993, Mr. O'Leary was Chairman of the Board and Chief Executive Officer of BR. From October 1990 until July 1992, Mr. O'Leary was Chairman of the Board, President and Chief Executive Officer of BR. From January 1989 until October 1990, Mr. O'Leary was President and Chief Executive Officer of BR. Donald M. Roberts.................. Vice Chairman and Treasurer, United States Trust Company of New York, 114 West 47th Street, New York, New York 10036. Since February 1990, Mr. Roberts' principal occupation has been as shown above. From January 1989 to February 1990, Mr. Roberts was Treasurer of United States Trust Company of New York. Walter Scott, Jr................... Chairman and President, Peter Kiewit Sons', Inc., 1000 Kiewit Plaza, Omaha, Nebraska 68131 -- Construction, Mining and Telecommunications. For over five years, Mr. Scott's principal occupation has been as shown above.
S-1 60
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, NAME BUSINESS ADDRESS AND FIVE YEAR HISTORY - ----------------------------------- -------------------------------------------------------- William E. Wall.................... Of Counsel, Siderius Lonergan, 847 Logan Building, 500 Union Street, Seattle, Washington 98101 -- Law. For more than 5 years, Mr. Wall's principal occupation has been as shown above. EXECUTIVE OFFICERS OF BR; DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND ACQUISITION John E. Hagale..................... Senior Vice President and Chief Financial Officer of BR since April 1994. Executive Vice President and Chief Financial Officer of Meridian since March 1993. Vice President, Finance, of BR from April 1992 to February 1993. Vice President, Taxes, of BR from November 1990 to April 1992. Assistant Vice President, Taxes, of BR from January 1989 to November 1990. Executive Vice President and Chief Financial Officer and Director of the Company and Acquisition. Harold E. Haunschild............... Vice President, Human Resources, of BR since July 1992. Executive Vice President, Human Resources and Administration, of Meridian since May 1993. Assistant Vice President, Com- pensation and Benefits, of BR from May 1988 to July 1992. Executive Vice President of the Company and Acquisition. George E. Howison.................. President and Chief Executive Officer of Meridian since May 1993. Senior Vice President and Chief Financial Officer of BR from November 1990 to April 1994. Vice President, Planning and Treasurer, August 1988 to October 1990. President of the Company and Acquisition. L. Edward Parker................... Executive Vice President, Marketing, of Meridian since February 1993. Senior Vice President, Marketing, of Meridian from December 1990 to February 1993. Vice President, Marketing, of Meridian from August 1988 to November 1990. Executive Vice President of the Company and Acquisition. Gerald J. Schissler................ Senior Vice President, Law, of BR since December 1993. Executive Vice President, Law and Corporate Affairs, of Meridian since July 1993. Consultant from June 1991 to July 1993. Senior Vice President, Law, of Meridian Minerals Company, a subsidiary of BR, from November 1987 to June 1991. Executive Vice President and Director of the Company and Acquisition. Bobby S. Shackouls................. Executive Vice President and Chief Operating Officer of Meridian since June 1993. President and Chief Operating Officer of Torch Energy Advisors, Inc., an affiliate of Torchmark Corporation, from September 1988 to May 1993. Executive Vice President and Director of the Company and Acquisition.
S-2 61 APPENDIX A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 28, 1994 BETWEEN DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP AND MERIDIAN OFFSHORE COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 62 TABLE OF CONTENTS AGREEMENT AND PLAN OF MERGER............................................................. 1 Background............................................................................... 1 ARTICLE I THE MERGER..................................................................... 1 SECTION 1.01 The Merger................................................................ 1 SECTION 1.02 Effective Time............................................................ 2 SECTION 1.03 Effects of the Merger..................................................... 2 SECTION 1.04 Certificate of Incorporation and By-Laws.................................. 2 SECTION 1.05 Directors and Officers.................................................... 2 SECTION 1.06 Conversion of Units....................................................... 2 SECTION 1.07 Closing................................................................... 3 ARTICLE II EXCHANGE OF UNITS............................................................. 3 SECTION 2.01 Exchange of Certificates.................................................. 3 SECTION 2.02 Distribution.............................................................. 4 ARTICLE III CONDITIONS TO CONSUMMATION OF THE MERGER..................................... 4 SECTION 3.01 Conditions to Each Party's Obligation to Effect the Merger................ 5 ARTICLE IV MISCELLANEOUS................................................................. 5 SECTION 4.01 Amendment................................................................. 5 SECTION 4.02 Entire Agreement; Assignment.............................................. 5 SECTION 4.03 Validity.................................................................. 5 SECTION 4.04 Governing Law............................................................. 5 SECTION 4.05 Descriptive Headings...................................................... 6 SECTION 4.06 Parties in Interest....................................................... 6 SECTION 4.07 Counterparts.............................................................. 6
(i) 63 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of April 28, 1994 (the "Agreement"), between DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP, a Delaware limited partnership (the "Partnership"), and MERIDIAN OFFSHORE COMPANY, a Delaware corporation (the "Company"). BACKGROUND The Board of Directors of the Company has approved on behalf of the Company, and the Company, in its capacity as managing general partner of the Partnership, has approved on behalf of the Partnership, upon the terms and subject to the conditions set forth in this Agreement, the merger of the Partnership into the Company (the "Merger"), whereby each outstanding LP Unit (as defined in the Second Amended and Restated Agreement of Limited Partnership of the Partnership, as amended (the "Partnership Agreement")) not owned by the Company or any of its affiliates will be converted into the right to receive the Merger Consideration (as hereinafter defined). The Company, as the holder of a .99% managing general partnership interest in the Partnership and 64,163,885 LP Units, and Meridian Offshore Acquisition Company, as the holder of a .01% special general partnership interest in the Partnership, have both executed a written consent approving the Merger. Now, therefore, the Partnership and the Company hereby agree as follows: ARTICLE I THE MERGER SECTION 1.01 The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the relevant provisions of the Delaware General Corporation Law (the "DGCL") and the Delaware Revised Uniform Limited Partnership Act (the "DRULPA"), the Partnership shall be merged with and into the Company as soon as practicable following the satisfaction or waiver, if permissible, of the conditions set forth in Article III. Following the Merger, the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall continue its existence under the laws of the State of Delaware, and the separate existence of the Partnership shall cease. At the election of the Company, any direct or indirect wholly-owned subsidiary of Meridian Oil Holding Inc. ("Parent") may be substituted for the Company as a constituent party in the Merger. SECTION 1.02 Effective Time. As soon as practicable following the satisfaction or waiver of the conditions set forth in Article III, the Merger shall be consummated by filing with the Secretary of State of the State of Delaware a certificate of merger or other appropriate documents (in any case, the "Certificate of Merger") in accordance with the DGCL and the DRULPA. The Merger shall become effective at such time as the Certificate of Merger is duly filed, or at such other time as the Partnership and the Company shall specify in the Certificate of Merger (the time the Merger becomes effective being the "Effective Time"). SECTION 1.03 Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. SECTION 1.04 Certificate of Incorporation and By-Laws. The Certificate of Incorporation and the By-Laws of the Company shall be the certificate of incorporation and by-laws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. SECTION 1.05 Directors and Officers. The directors and officers of the Company immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified. 64 SECTION 1.06 Conversion of Units. At the Effective Time, by virtue of the Merger and without any action on the part of the Partnership, the Company or the holders of any of the following securities: (a) each partnership interest in the Partnership held by the Company or any affiliate of the Company shall be cancelled and retired and shall cease to exist, and no payment or consideration shall be made with respect thereto; (b) each issued and outstanding LP Unit, other than LP Units included in the partnership interests referred to in paragraph (a) above shall be converted into the right to receive from the Surviving Corporation an amount in cash, without interest, equal to $4.485 per LP Unit (the "Merger Consideration"). At the Effective Time, all such LP Units shall cease to be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such LP Unit shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest; and (c) each issued and outstanding share of capital stock of the Company shall remain outstanding and shall represent one fully paid and nonassessable share of common stock, par value $.01, of the Surviving Corporation. SECTION 1.07 Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article III, at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, NY 10004, unless another date or place is agreed to in writing by the parties hereto. ARTICLE II EXCHANGE OF UNITS SECTION 2.01 Exchange of Certificates. (a) Prior to the Effective Time, the Company shall appoint a bank or trust company to act as disbursing agent (the "Disbursing Agent") for the payment of Merger Consideration upon surrender of certificates representing the LP Units. Parent will enter into a disbursing agent agreement with the Disbursing Agent, in form and substance reasonably acceptable to the Company, and shall deposit or cause to be deposited with the Disbursing Agent in trust for the benefit of the holders of LP Units cash in an aggregate amount necessary to make the payments pursuant to Section 1.06 to holders of LP Units (such amounts being hereinafter referred to as the "Exchange Fund"). The Disbursing Agent shall, pursuant to irrevocable instructions, make the payments provided for in the preceding sentence out of the Exchange Fund. The Disbursing Agent shall invest portions of the Exchange Fund as the Company directs, provided that such investments shall be in obligations of or guaranteed by the United States of America, in commercial paper obligations receiving the highest rating from either Moody's Investors Service, Inc. or Standard & Poor's Corporation, or in certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital exceeding $100 million. The Exchange Fund shall not be used for any other purpose, except as provided in this Agreement. (b) Promptly after the Effective Time, the Surviving Corporation shall cause the Disbursing Agent to mail to each person who was a record holder as of the Effective Time of an outstanding certificate or certificates which immediately prior to the Effective Time represented Depositary Units (as defined in the Partnership Agreement) representing LP Units (the "Certificates"), and whose LP Units were converted into the right to receive Merger Consideration pursuant to Section 1.06, a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Disbursing Agent) and instructions for use in effecting the surrender of the Certificate in exchange for payment of the Merger Consideration. Upon surrender to the Disbursing Agent of a Certificate, together with such letter of transmittal duly executed and such other documents as may be reasonably required by the Disbursing Agent, the holder of such Certificate shall be paid in exchange therefor cash in an amount equal to the product of the number of LP Units represented by such Certificate multiplied by the Merger Consideration, and such Certificate shall forthwith be cancelled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. If payment is to be made to a person other -2- 65 than the person in whose name the Certificate surrendered is registered, it shall be a condition of payment that the Certificate so surrendered be properly endorsed or otherwise be in proper form for transfer and that the person requesting such payment pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 2.01, each Certificate (other than Certificates representing LP Units owned by the Company or any affiliate of the Company shall represent for all purposes only the right to receive the Merger Consideration in cash multiplied by the number of LP Units represented by such Certificate, without any interest thereon. (c) At and after the Effective Time, there shall be no registration of transfers of LP Units and the Partnership shall instruct the depositary for the Depositary Units not to register transfers of the Depositary Units which were outstanding immediately prior to the Effective Time. From and after the Effective Time, the holders of LP Units outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such LP Units except as otherwise provided in this Agreement or by applicable law. All cash paid upon the surrender of Certificates in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the LP Units previously represented by such Certificates. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, such Certificates shall be cancelled and exchanged for cash as provided in this Article II. (d) At any time more than one year after the Effective Time, the Surviving Corporation shall be entitled to require the Disbursing Agent to deliver to it any funds which had been made available to the Disbursing Agent and not disbursed in exchange for Certificates (including, without limitation, all interest and other income received by the Disbursing Agent in respect of all such funds). Thereafter, holders of LP Units shall look only to the Surviving Corporation (subject to abandoned property, escheat and other similar laws) as general creditors thereof with respect to any Merger Consideration that may be payable, without interest, upon due surrender of the Certificates held by them. Notwithstanding the foregoing, neither the Surviving Corporation nor the Disbursing Agent shall be liable to any holder of an LP Unit for any Merger Consideration delivered in respect of such LP Unit to a public official pursuant to any abandoned property, escheat or other similar law. SECTION 2.02 Distribution. Nothing in this Agreement shall be construed as affecting the rights of holders of LP Units to receive the distribution of $.13 per LP Unit to be paid on June 7, 1994 to holders of record of LP Units as of May 13, 1994. ARTICLE III CONDITIONS TO CONSUMMATION OF THE MERGER SECTION 3.01 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger are subject to the satisfaction or waiver, where permissible, prior to the Effective Time, of the following conditions: (a) no statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent), shall have been enacted, entered, promulgated or enforced by any court or governmental authority which is in effect and has the effect of prohibiting the consummation of the Merger; provided that each of the parties shall have used its best efforts to prevent the entry of any injunction or other order and to appeal as promptly as possible any injunction or other order that may be entered; and (b) the waiting period (and any extension thereof) applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if any, shall have expired or been terminated and a 20-day period shall have elapsed from the date of mailing to holders of LP Units of an information statement with respect to the Merger. -3- 66 ARTICLE IV MISCELLANEOUS SECTION 4.01 Amendment. This Agreement may not be amended except by an instrument in writing signed on behalf of all the parties. SECTION 4.02 Entire Agreement; Assignment. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. Neither this Agreement nor any right, interest or obligation under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise without the prior written consent of the other parties. SECTION 4.03 Validity. In the event any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. SECTION 4.04 Governing Law. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware regardless of the laws that might otherwise govern under principles of conflicts of laws applicable thereto. SECTION 4.05 Descriptive Headings. The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 4.06 Parties in Interest. Nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 4.07 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its respective officers thereunto duly authorized, all as of the day and year first above written. DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP By Meridian Offshore Company, its managing general partner By /s/ RANDOLPH P. MUNDT ---------------------------------- Name: Randolph P. Mundt Title: Senior Vice President MERIDIAN OFFSHORE COMPANY By /s/ GERALD J. SCHISSLER ---------------------------------- Name: Gerald J. Schissler Title: Executive Vice President -4- EX-99.3 4 (G)(2) CLASS ACTION COMPLAINT, MAY 27, 1994 1 EXHIBIT (g)(2) IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY SONEM PARTNERS, LTD., a Colorado Partnership, C. A. NO. 13532 Plaintiff, - against - DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP, MAXUS EXPLORATION COMPANY, MAXUS ENERGY CORPORATION, Defendants. Plaintiff, by its attorneys, for its complaint against defendants, alleges upon knowledge as to itself and its own acts, and upon information and belief as to all other matters, as follows: NATURE OF THE ACTION 1. Plaintiff brings this action pursuant to Rule 23 of the Rules of the Court of Chancery on its own behalf and as a class action on behalf of all limited partners, other than defendants (the "Class"), who own depository units ("units") of Diamond Shamrock Offshore Partners Limited Partnership ("Diamond Shamrock" or the "Partnership") as a consequence of defendants' breach of their fiduciary duties in connection with the sale of Diamond Shamrock by Maxus Energy Corporation ("Maxus") to Burlington Resources, Inc. ("Burlington"). 2 PARTIES 2. Plaintiff is, and at all relevant times has been, a limited partner owning units of Diamond Shamrock. 3. Defendant Diamond Shamrock is a Delaware limited partnership, which is engaged in oil and gas exploration and production activities in federal waters offshore Texas and Louisiana. The Partnership was formed in 1985 to succeed to the oil and gas exploration production businesses previously conducted by Maxus Exploration Company ("Maxus Exploration"). Diamond Shamrock is headquartered at 717 North Harwood Street, Dallas, Texas 75201-6594. 4. Defendant Maxus Exploration is a wholly owned subsidiary of Maxus. Maxus Exploration is a company organized and existing under the laws of the State of Delaware. Its principal executive offices are located at 717 North Harwood Street, Dallas, Texas 75201. On September 6, 1985, Diamond Shamrock issued to Maxus Exploration 37,500,000 units, or approximately 88.2% of all outstanding units, in the Partnership in exchange for substantially all of Maxus Exploration's productive and exploratory oil and gas properties located in federal waters offshore Texas and Louisiana. The remaining 11.8% of the Units, represented by 5,000,000 Units, were sold to the public in August 1985. Maxus Exploration serves as the managing general partner ("Managing General Partner") of the Partnership. 5. Defendant Maxus is a corporation organized and existing under the laws of the State of Delaware, with its - 2 - 3 principal executive offices located at 717 North Harwood Street, Dallas, Texas 75201. Maxus is an independent oil and gas exploration and production company. It conducts business both internationally and domestically. Maxus is the special general partner ("Special General Partner") of the Partnership. 6. At December 31, 1993, Maxus Exploration and Maxus had an aggregate ownership interest in the Partnership of 87.1%, comprised of a combined 1% general partners' interest in the Partnership and 64,163,885 units of the Partnership. 7. Diamond Shamrock has property interests in 82 offshore federal leases within 45 fields. It is the operator of 46 of these leases. 8. By virtue of their positions as Managing and Special General Partners of the Partnership and their substantial ownership interest in the Partnership, Maxus and Maxus Exploration have and at all relevant times had the power to control and influence and did control and influence the Partnership and its affairs. Maxus and Maxus Exploration owed and owe the Partnership and its public unitholders fiduciary obligations to treat them in a fair and equitable manner; refrain from abusing their positions of control; and not to favor their own interests at the expense of the Partnership and its public unitholders. CLASS ACTION ALLEGATIONS 9. Plaintiff brings this action on its own behalf and as a class action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all public unitholders of Diamond Shamrock - 3 - 4 (except the defendants herein and any person, firm, trust, corporation, or other entity related to or affiliated with any of the defendants) who are or will be threatened with injury arising from defendants' actions as more fully described herein. 10. This action is properly maintainable as a class action. 11. The class is so numerous that joinder of all members is impracticable. Diamond Shamrock has thousands of unitholders who are scattered throughout the country. 12. There are questions of law and fact common to the Class, which predominate over questions affecting only individual Class members. The common questions include, inter alia, whether: (a) the defendants have breached their fiduciary duties owed by them to plaintiff and to the other members of the Class; (b) the conduct of the defendants has prevented and is preventing plaintiff and the Class from receiving their fair share of the value of the Partnership; and (c) plaintiff and the other members of the Class will suffer irreparable harm if the wrongful acts alleged in this complaint are not enjoined. 13. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in shareholder litigation of this nature. Plaintiff's claims are typical of the claims of other members of the Class and plaintiff has the same interests as the other members of the Class. Plaintiff and his - 4 - 5 counsel will fairly and adequately represent the interests of the Class. 14. Plaintiff does not anticipate any unusual difficulties in the management of this action as a class action. 15. A class action is superior to other available methods for the fair and efficient adjudication of the controversy. CLAIM FOR RELIEF 16. On April 25, 1994, Maxus announced that it had sold all of its 87.1% interest in Diamond Shamrock to affiliates of Burlington for $291,088,000, or the equivalent of approximately $4.48 per unit. As a result of the transfer, Meridian Offshore Company, a Burlington affiliate, will succeed Maxus Exploration as Managing General Partner for the partnership. 17. According to an April 26, 1994 Business Wire, Burlington said that it would acquire through merger the remaining publicly held units, also for $4.48 in cash per unit. Holders of Diamond Shamrock units, at May 13, 1994, also would be entitled to receive a distribution of $.13 for the first quarter. 18. Simultaneously with the above-described transaction, Burlington agreed to purchase from Maxus two additional oil and gas properties in Maxus's Southern Division, purportedly for the price of $83,912,000. Unlike Diamond Shamrock, the public unitholders of the Partnership have no equity interest in these two Maxus properties. Burlington's aggregate purchase price for Maxus's - 5 - 6 partnership interest in Diamond Shamrock and the two separate Maxus properties purportedly is $375 million. 19. Notwithstanding Diamond Shamrock's recent fourth quarter reported loss, the Partnership represents a valuable asset. Diamond Shamrock produces approximately 73 million cubic feet of natural gas per day and about 4,000 barrels of oil. With the two properties, Burlington is acquiring about 375 billion cubic feet of natural gas proved and probable reserves, located on approximately 100,000 developed and 200,000 undeveloped acres of land. The properties are strategically located and are expected to generate "strong cash flow." As stated in the April 26, 1994 Business Wire: The acquisition establishes a substantial operating position in a high priority, strategic area which is close to premium natural gas markets and will generate strong cash flow. The purchased reserves have a 5 to 7 year reserve life index which compliments the longer reserve life index of [Burlington's] existing asset base. Production currently approximates 95 million cubic feet per day of natural gas and 4 thousand barrels per day of oil from 49 structures of which approximately 50% are operated. 20. In agreeing to two simultaneous transactions -- the sale of control of Diamond Shamrock purportedly priced at $291,088,000; and the two Maxus oil and gas properties purportedly priced at $83,912,000 -- defendants have failed to maximize unitholder value. Rather than seeking the maximum value for each publicly held Diamond Shamrock unit, defendants agreed to sell Maxus' control of Diamond Shamrock for an amount far below its realizable value. However, to compensate Maxus for the loss of the - 6 - 7 control premium that should have been exacted from Burlington for the benefit of public unitholders had the Diamond Shamrock properties been priced at their true, higher value, the Individual Defendants "packaged" the sale of the Diamond Shamrock properties with the sale of Maxus' two separate oil and gas properties, which were priced at an artificially inflated value, all for the benefit of Maxus and Maxus Exploration. 21. By negotiating and agreeing to the package deal with Burlington in a manner designed to enrich themselves, defendants have deprived the public unitholders of their fair portion of the value of their units. 22. The attempt by defendants to seek their own profit at the expense of the public unitholders constitutes a breach of their fiduciary duty of loyalty owed to the public unitholders. 23. The terms of the package deal with Burlington were negotiated entirely by defendants for their own selfish benefit. No independent financial advisor or legal counsel was provided to negotiate on behalf of the public unitholders to insure that the total consideration paid by Burlington in the package deal was allocated fairly to and on behalf of the public unitholders. 24. In committing the wrongs hereinabove alleged, defendants are not acting in good faith to the Class, and have breached and are breaching their fiduciary duties to the Class. 25. Because defendants dominate and control the business and affairs of Diamond Shamrock and because they are in possession of non-public information concerning Diamond Shamrock's - 7 - 8 assets, businesses and future prospects, there exists an imbalance and disparity of knowledge of economic power between defendants and the public unitholders of Diamond Shamrock. 25. The consideration to be paid to Diamond Shamrock's public unitholders in the package deal with Burlington is grossly unfair, inadequate, and substantially below the fair or inherent value of the Partnership. The intrinsic value of the equity of Diamond Shamrock is materially greater than the consideration proposed, taking into account Diamond Shamrock's asset value, liquidation value, its expected growth, the strength of its business, and its revenues, cash flow, and earnings power. 26. The package deal with Burlington is wrongful, unfair, and harmful to Diamond Shamrock's public unitholders, and will deny Class members their right to share proportionately in the true value of Diamond Shamrock's assets, profitable business, and future growth in profits and earnings, while usurping the same for the benefit of defendants at an unfair and inadequate price. 27. By reason of the foregoing acts, practices and course of conduct, the defendants have been grossly negligent in the exercise of their fiduciary obligations toward plaintiff and the other Diamond Shamrock public unitholders. 28. Unless enjoined by this Court, the defendants will continue to breach their fiduciary duties owed to plaintiff and the other members of the Class to the irreparable harm of the Class. 29. Plaintiff and the other members of the class have no adequate remedy at law. - 8 - 9 WHEREFORE, plaintiff demands judgment, as follows: (a) declaring this to be a proper class action with plaintiff as the representative of the Class; (b) preliminarily and permanently enjoining defendants and all persons acting under, in concert with, or for them, from proceeding with, consummating or closing the transactions; (c) in the event the package deal transactions are consummated, rescinding them and setting them aside; (d) ordering the defendants to account to plaintiff and the Class for all damages suffered and to be suffered by them as a result of the acts and transactions alleged herein; (e) awarding plaintiff the costs and disbursements of the action, including a reasonable allowance for attorneys' and experts' fees; and - 9 - 10 (f) granting such other and further relief as may be just and proper in the premises. Dated: May 27, 1994 ROSENTHAL MONHAIT GROSS & GODDESS, P.A. By: /s/ JOSEPH A. ROSENTHAL Joseph A. Rosenthal, Esq. First Federal Plaza, Suite 214 P.O. Box 1070 Wilmington, Delaware 19899 (302) 656-4433 Attorneys for Plaintiff Of Counsel: WECHSLER SKIRNICK HARWOOD HALEBIAN & FEFFER 555 Madison Avenue New York, New York 10022 (212) 935-7400 - 10 - -----END PRIVACY-ENHANCED MESSAGE-----