-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FnMMV3WKGTF1eoa/zVZM6/LnUUTT4L6NY0No27EbRd75tl4+7OssecB8gsH93yGC BlqZom7T4yHXLzUxaSe2Gg== 0000950129-02-001518.txt : 20020415 0000950129-02-001518.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950129-02-001518 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20020326 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ESENJAY EXPLORATION INC CENTRAL INDEX KEY: 0000901611 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731421000 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: 1934 Act SEC FILE NUMBER: 005-48068 FILM NUMBER: 02587145 BUSINESS ADDRESS: STREET 1: 500 N WATER STREET STREET 2: SUITE 1100 CITY: CORPUS CHRISTI STATE: TX ZIP: 78471 BUSINESS PHONE: 5128837464 MAIL ADDRESS: STREET 1: 500 DALLAS STREET STREET 2: SUITE 2920 CITY: HOUSTON STATE: TX ZIP: 77002 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER NATURAL GAS CORP DATE OF NAME CHANGE: 19931006 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ESENJAY EXPLORATION INC CENTRAL INDEX KEY: 0000901611 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 731421000 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 500 N WATER STREET STREET 2: SUITE 1100 CITY: CORPUS CHRISTI STATE: TX ZIP: 78471 BUSINESS PHONE: 5128837464 MAIL ADDRESS: STREET 1: 500 DALLAS STREET STREET 2: SUITE 2920 CITY: HOUSTON STATE: TX ZIP: 77002 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER NATURAL GAS CORP DATE OF NAME CHANGE: 19931006 SC 14D9 1 h95443sc14d9.txt ESENJAY EXPLORATION, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------ SCHEDULE 14D-9 (RULE 14d-101) SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 Esenjay Exploration, Inc. - -------------------------------------------------------------------------------- (Name of Subject Company) Esenjay Exploration, Inc. - -------------------------------------------------------------------------------- (Name of Person(s) Filing Statement) Common stock, par value $.01 - -------------------------------------------------------------------------------- (Title of Class of Securities) 296426109 - -------------------------------------------------------------------------------- (CUSIP Number of Class of Securities) David B. Christofferson Senior Vice President, Secretary and General Counsel One Allen Center, Suite 2920 500 Dallas Street Houston, Texas 77002 (713) 739-7100 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. ITEM 1. SUBJECT COMPANY INFORMATION. (a) Name and Address The name of the subject company is Esenjay Exploration, Inc. (the "Company"). The address of the Company's principal executive offices is 500 North Water Street, Suite 1100, Corpus Christi, Texas 78471, and its telephone number at that address is (361) 883-7464. (b) Securities The title and class of the Company's equity securities to which this Schedule 14D-9 relates is the common stock, $.01 par value per share, of the Company ("Common Stock"). As of March 1, 2002, there were 19,121,568 shares of Common Stock outstanding. In addition, as of that date, there were 3,220,086 shares of Common Stock issuable upon the exercise of outstanding options and warrants. ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON. (a) Name and Address The Company is the filing person. The Company's address and telephone number are set forth in Item 1(a) above. (b) Tender Offer This Schedule 14D-9 relates to a tender offer (the "Offer") by ECM Acquisition Company, a Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of Santos Americas and Europe Corporation, a Delaware corporation (the "Parent"), to purchase all of the outstanding shares of Common Stock not owned by the Purchaser, the Parent or their affiliates (the "Shares") at a purchase price of $2.84 net to each seller in cash ("Offer Price") or such greater consideration per share, if any, as the Purchaser may offer. The Offer is being made upon the terms and conditions set forth in the Agreement among the Parent, the Purchaser and the Company (the "Agreement") dated as of March 17, 2002. The Agreement is included as Exhibit (e)(1) to this Schedule 14D-9. The Offer is described in a Tender Offer Statement filed on Schedule TO by the Purchaser with the Securities and Exchange Commission on March 26, 2002. The Agreement provides that after satisfaction of the merger conditions set forth in the Agreement, the parties will effect a second-step merger under which the Company will be merged with the Purchaser (the "Merger"), with the Company as the surviving corporation in accordance with the provisions of the Delaware General Corporation Law (the "DGCL"). Upon consummation of the Merger: o each Share issued and outstanding immediately before the Effective Time automatically will convert into the right, and solely the right, to receive the Offer Price, less any required withholding taxes, on surrender of the certificate representing that Share; o each outstanding Option automatically will convert into the right to receive with respect to each share of Common Stock subject thereto, without interest, cash in an amount equal to the amount, if any, by which the Offer Price exceeds the exercise price payable to purchase that share under that Option; o each then outstanding Warrant will automatically convert into solely the right to receive with respect to each share subject thereto, without interest, cash in the amount, if any, equal to the 2 amount by which the Offer Price exceeds the exercise price payable to purchase that share under that Warrant; and o the Company will cause all warrants with exercise prices per share that exceed the Offer Price to be canceled without any consideration and to become of no force or effect at the Effective Time of the Merger. The Schedule TO, as filed with the SEC by the Purchaser, states that the address of the Purchaser and Parent is 1209 Orange Street, Wilmington, Delaware 19801. ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. Certain agreements, transactions and relationships between the Company and certain of its executive officers, directors or affiliates may give rise to conflicts of interest insofar as those persons may receive certain compensation and benefits as a result of the consummation of the Offer and the Merger. Except as otherwise provided in this Schedule 14D-9, information concerning these agreements, transactions and relationships and potential conflicts of interest was described in the Company's Proxy Statement distributed to the Company's stockholders on or about August 2, 2001. The relevant portions of that proxy statement are filed as Exhibit (e)(2) to this Schedule 14D-9 and are hereby incorporated by reference. Executive officers and directors who own Shares, options and/or warrants will receive the Offer Price in the Offer or Merger on the same terms and conditions as the Company's other stockholders. As of March 1, 2002, all of the executive officers and directors of the Company owned in the aggregate 463,425 Shares and will receive $1,316,127, assuming that they tender their Shares in the Offer or are acquired in the Merger. Additionally, the executive officers and directors held in the money options or warrants in the aggregate to acquire 1,813,000 Shares, with exercise prices ranging from $ 1.83 to $2.375. Randall & Dewey will receive approximately $860,000 in fees in connection with the closing of the Offer and the Merger, plus the reimbursement for related expenses. Jack Randall, who is a principal of Randall & Dewey, also is a director of the Company. Under the Company's Employee Incentive and Severance Protection plan (the "Severance Plan"), all of the Company's employees as of March 17, 2002, will be entitled to receive "Incentive Benefits" and "Severance Benefits" as a result of the Change in Control that will occur upon consummation of the Offer. Under the Severance Plan, each "Participant" will be entitled to receive a single cash payment as incentive compensation in an amount of cash equal to one-half of the Participant's base salary, to be paid on the earlier of six months after the date of the Change in Control or five days after the date the Participant becomes eligible to receive an Incentive Benefit due to the Participant's termination of employment for Good Reason or being terminated for reasons other than "Cause". In addition, each Participant shall also be entitled to receive a Severance Benefit upon the Change in Control if either (i) during the period beginning of the date on the Change in Control and ending nine months after the Change in Control, the Company terminates Participant's employment for any reason other than for Cause or (ii) if during the period beginning nine months after a Change in Control and ending eleven months after a Change in Control, the Company terminates the Participant's employment for any reason, other than for Cause, without giving the Participant 60 days' advance notice of the termination. The amount of the Severance Benefit is equal to one-quarter of the Participant's base salary. In addition to Incentive Benefits and Severance Benefits, each Participant is also entitled to receive all medical, dental, vision and health benefits and insurance coverage provided to the Participant at the time of the termination of 3 employment for a period of twelve months after the Participant's termination of employment. All terms used but not otherwise defined in this paragraph have the meanings set forth in the Severance Plan. STOCKHOLDERS AGREEMENT Esenjay Petroleum Corporation ("EPC"), Aspect Energy, LLC ("Aspect"), each of the Company's directors and David B. Christofferson, Senior Vice President and General Counsel to the Company (collectively, the "Stockholders"), who collectively own approximately 52% of the issued and outstanding Shares, have entered into a Stockholders Agreement with the Parent ("Stockholders Agreement") pursuant to which they have agreed, among other things, to tender their Shares under and in accordance with the terms of the Offer as soon as practicable after the Offer has been commenced and not to withdraw those tendered Shares unless the transactions contemplated by the Agreement are not consummated for certain reasons. In addition, each of the Stockholders also have agreed that they will duly and properly vote all of their Shares entitled to vote on the Merger in favor of adoption of the Merger, and that if any action or agreement is submitted to the stockholders of the Company which, if taken effect, reasonably could be expected to (i) result in a breach of any representation, warranty covenant or other agreement of the Company in or under the Agreement or (ii) prevent, impede, interfere with, delay or postpone the consummation of the Offer or the Merger, they will duly and properly vote all of their Shares entitled to vote on that matter against the taking of that action or of effecting that agreement. The foregoing summary of the terms of the Stockholders Agreement is qualified in its entirety by reference to the Stockholders Agreement which is filed as Exhibit (d)(2) to the Schedule TO filed by the Purchaser with the SEC on March 26, 2002, and is incorporated herein by reference. OPTION AGREEMENT Parent has entered into an Option Agreement dated as of March 17, 2002 (the "Option Agreement"), with Alex M. Cranberg, Aspect, Michael E. Johnson, EPC and David W. Berry (the "Optionors"). The shares of common stock held by the Optionors represent in the aggregate approximately 52% of the shares of Common Stock issued and outstanding. Under the terms of the Option Agreement, the Optionors have granted to Parent an irrevocable option to purchase all of the shares of each of the Optionors, as well as any other Company securities that any Optionor acquires after March 17, 2002. Parent may, at its election, exercise the options in whole, but not in part, during the "Option Exercise Period" which, if (i) Parent terminates the Agreement pursuant to Section 9.01(a)(3) of the Agreement; or (ii) the Company becomes or purports to become entitled to, and does or purportedly does, terminate the Agreement under Section 9.01(a)(4) of the Agreement, is the 30-day period beginning on the next day following the Purchaser's termination of the Offer without having purchased any shares. Each Optionor has agreed to abide by certain limitations on each of his or its competitive activity with the Company from March 17, 2002 until the close of business on March 17, 2003. Accordingly, each Optionor must not: (i) acquire or enter into an agreement to acquire any interest in the lands or minerals located within the non-competitive area the Option Agreement describes, whether by means of lease, purchase, assignment, trade, sublease, easement, farmout or any other form of acquisition, including any merger with or acquisition of stock or ownership interests in another entity; or (ii) call on or otherwise solicit any natural person who is at that time employed by the Company in a managerial capacity with the purpose or intent of attracting that person from the employ of the Company. If any Optionor should acquire any interest in the non-compete area in violation of the terms of the Option 4 Agreement, such Optionor must transfer the acquired interest to the Company within 30 days of the acquisition of the interest without receiving payment for the interest transferred. The foregoing summary of the terms of the Option Agreement is qualified in its entirety by reference to the Option Agreement, which is filed as Exhibit (d)(3) to the Schedule TO filed by the Purchaser with the SEC on March 26, 2002, and is incorporated herein by reference. INDEMNIFICATION The Agreement provides that all rights to indemnification for acts or omissions occurring before the Merger becomes effective under the DGCL (the "Effective Time") existing as of March 17, 2002 in favor of the current or former directors or officers of the Company as its certificate of incorporation and bylaws then provide, or as applicable law otherwise provides, will survive the Merger and continue in full force and effect in accordance with their terms. The Agreement also provides that, for a period of six years after the Effective Time, Parent will, unless it elects at its option in writing to guarantee performance of those indemnification obligations, maintain in effect the Company's current policy of D&O insurance covering those persons who are currently covered by the Company's D&O insurance policy; provided, however, that Parent will extend that current policy in effect to cover claims made prior to the first anniversary of the Effective Time if the premium for that additional coverage does not exceed $80,000. EFFECT OF THE MERGER ON STOCK OPTIONS AND WARRANTS The Agreement provides that with respect to then outstanding options and warrants, effective as of the Effective Time, each outstanding option or warrant, as the case may be, will convert solely into the right to receive, with respect to each Share, without interest, the excess in cash, of the Offer Price over the exercise price payable to purchase that Share under the option or warrant. ITEM 4. THE SOLICITATION OR RECOMMENDATION. (a) Solicitation or Recommendation. The Recommendation At a special meeting of the Company's board of directors held on March 16, 2002, the Board of Directors: o determined the Offer and the Merger are fair to and in the best interests of the Company and its stockholders; o approved and consented to the Agreement and the transactions it contemplates, including the Offer and the Merger, which approval and consent were sufficient to the render Section 203 Restrictions under the Delaware General Corporation Law (the "DGCL") described in more detail under Item 8 below, inapplicable to the consummation of the Offer or the Merger; o declared the advisability of the Agreement, including the agreement of merger it contains; and o resolved to recommend to the holders of Shares that they accept the Offer and adopt the Agreement, including the Agreement of Merger it contains. 5 Background o In September 2000, representatives of Randall & Dewey, Inc. ("Randall & Dewey"), a provider of transaction and advisory related services to the Company, contacted Mr. Bruce Wood, President of Santos USA to inquire about Santos USA's interest in considering a potential business alliance or transaction with the Company, including a possible sale of interests in exploration projects or stock to Santos USA or a merger with Santos USA. Between December 2000 and March 2001, the Company and Santos USA continued discussions on a possible merger or sale. o On January 25, 2001, Randall & Dewey provided an information briefing to representatives of Santos USA regarding a potential purchase of the Company. On February 6, 2001, the parties agreed to further explore a possible purchase transaction, and the Company agreed to provide Santos USA with information concerning its operations pursuant to the terms of a confidentiality agreement. Throughout the months of March, April and May 2001, Santos USA continued to evaluate the potential of an acquisition of the Company. o On June 28, 2001, there was an introductory meeting between Mr. Michael Johnson, President and Chief Executive Officer of the Company, and representatives of Santos USA and Santos Ltd. to discuss a possible purchase of interests in the Company's exploration project portfolio. On July 16, 2001, Ms. Kathleen Hogenson, President of Santos USA and successor to Mr. Wood, met with Mr. David Berry, Chairman of the Board of Directors of the Company, to discuss matters relating to a potential acquisition of the Company. o On August 29, 2001, Mr. Jack Randall, a member of the board of directors of the Company and a principal of Randall & Dewey, met with Ms. Hogenson and Mr. Peter Robinson, Chief Financial Officer of Santos USA, to continue discussions on moving forward with a purchase transaction. Mr. Randall offered suggestions for possible structures for such a transaction. o On October 10, 2001, Santos USA representatives met with Mr. Berry, Mr. Johnson and other representatives of the Company to discuss issues related to Santos USA's due diligence of the Company. Following the meeting, the Company and Santos discussed whether the parties should continue to pursue a potential acquisition transaction. o On October 24, 2001, Ms. Hogenson contacted Mr. Johnson to discuss Santos USA's potential acquisition of the Company, subject to further evaluation, review, due diligence and approval by the respective parties' boards of directors. Additionally, Mr. Johnson asked Ms. Hogenson to propose an offer to purchase the Company's interest in Runnells Field, a deep geopressured discovery within the Company's Duncan Slough 3-D seismic project in Matagorda County, Texas. Mr. Johnson indicated that if Santos USA did not purchase the Company's interest in Runnells Field, that interest would be sold to other interested buyers. o On October 24, 2001, the parties tentatively agreed that Santos USA would purchase 70% of Esenjay's interest in the Runnells Field and other surrounding acreage for $20.25 million. 6 o In mid-February, 2002, Ms. Hogenson contacted Mr. Johnson to propose that Santos USA acquire the Company for $80,000,000. A few days later, Mr. Johnson asked Ms. Hogenson to memorialize in writing the proposal prior to the Company's board of directors meeting in late February 2002, so that the Company's board of directors could consider the proposal at that meeting. o On February 26, 2002, Ms. Hogenson delivered a written proposal to Mr. Johnson in response to his request. The proposal provided that Santos USA would pay $80,000,000 in cash to purchase all of the Company's common stock, which after adjustments amounted to $2.86 per share, subject to, among other conditions, adjustments for due diligence, the negotiation and execution of a mutually acceptable definitive merger agreement and approval of that agreement by both parties' boards of directors. o On March 5, 2002, Ms. Hogenson contacted Mr. Johnson to inform him of Santos USA's revised proposal following Santos USA's additional due diligence. Following discussions, the parties agreed on a purchase price of $2.84 per share of the Company, at an enterprise value of $80.0 million, and conditioned upon the execution of the Stockholders Agreement and Option Agreement. o On March 7, 2002, the Company executed a confidentiality agreement with respect to the terms of the proposal and their respective counsel held discussion that led to the negotiation of a definitive acquisition agreement. o On March 17, 2002, the Purchaser, Santos and the Company executed and delivered the acquisition agreement and Santos Ltd. and the Company issued a press release announcing the execution and delivery of the acquisition agreement. (b) Reasons. The Board of Directors of the Company adopted the Agreement and resolved to recommend to the holders of Shares that they accept the Offer for a combination of reasons. The primary ones are as set forth below: o As a small-cap oil and gas exploration entity, the Company has a limited amount of capital to fund exploration and development drilling. This fact is coupled with what the Company believes to be an expansive oil and gas prospect inventory and proprietary 3-D seismic database more typically associated with exploration companies of much larger size. While the opportunities presented by its inventory remain the Company's greatest strength, it does not have access to cost effective capital resources with which to maximize the expansive drilling and development opportunities it controls. Management of its expansive project inventory also results in increased administrative costs for the Company, which costs further limit drilling and development capital resources. It has historically supplemented exploration and development capital generated from operating cash flow with mezzanine debt and sales of promoted project interests to industry partners. These supplemental sources serve to constrain growth of proven reserves. Although the Company believes that over time it would continue to increase its net oil and gas production and its proven reserves following the same business model it has for the past three years, it also believes that by accepting a reasonable valuation for its project inventory, as it believes is contained in the Offer, it can deliver current value to its shareholders without incurring the risks inherent in exploration on and development of its inventory. o The decline in market price of natural gas throughout much of 2001 further reduced the Company's gas and oil revenue and thereby has further restricted the capital resources available 7 for the Company to deploy in exploration and development in 2002. This factor can limit exploration and development drilling expenditures and therefore potential reserve growth in 2002. Accordingly, the opportunity to deliver current value to its shareholders by acceptance of the Offer is made more attractive. o Beginning in the fall of 2000 and throughout much of 2001 the Company engaged in a process to seek a transaction to better realize the value of its project inventory through various alternatives such as selling the Company for cash, merger, stock trade or acquisition; it utilized the services of the firm of Randall & Dewey, Inc. to manage much of this process. Pursuant to this process Randall & Dewey, Inc. made overview presentations to over sixty companies, thirteen of which performed a thorough evaluation. As a result of these efforts, management and the Board of Directors developed a greater understanding of the current market thereby positioning it to better evaluate the Offer. o The Board of Directors has also been able to analyze information regarding the market- place and comparable sales as provided by both its financial advisor, Hibernia Southcoast Capital, Inc., and by Randall & Dewey which knowledge provided an integral component towards making an informed decision regarding the analysis of this Offer. o The receipt of a fairness opinion from Hibernia Southcoast Capital, Inc. indicating to the Board of Directors that the consideration to be paid pursuant to the Offer was fair from a financial point of view. At a special meeting of the Company's board of directors held on March 25, 2002, the Board of Directors approved and consented to the Option Agreement and the transactions contemplated thereby, which approval and consent were sufficient to the render Section 203 Restrictions under the Delaware General Corporation Law (the "DGCL") described in more detail under Item 8 below, inapplicable to the consummation of the Option Agreement. Based upon all of the foregoing and other factors, the Board of Directors of the Company concluded that the Offer is not only fair but is in the best interests of all shareholders. (c) Intent to Tender. All of the Company's executive officers, directors and Aspect and EPC will tender all of their Shares in the Offer, which represents approximately 52% of the issued and outstanding Common Stock of the Company. As of March 1, 2002, EPC owns 4,896,415 shares of Common Stock, constituting approximately 25.6% of the issued and outstanding Common Stock, and Aspect owns 4,729,456 shares of Common Stock, which constitutes approximately 24.7% of the issued and outstanding Common Stock. Michael E. Johnson owns substantially all of the common stock of EPC and Alex M. Cranberg owns a controlling interest in Aspect. Mr. Johnson and Mr. Cranberg are directors of the Company. Additionally, Mr. Johnson owns 132,754 shares of Common Stock and Mr. Cranberg owns 12,000 shares of Common Stock which represents .60% and .06% shares of the issued and outstanding Common Stock, respectively. EPC, Aspect and the Stockholders have entered into the Stockholders Agreement with the Parent pursuant to which they have agreed, among other things, to tender their Shares under and in accordance with the terms of the Offer as soon as practicable after the Offer has been commenced and not to withdraw those tendered Shares unless the transactions contemplated by the Agreement are not consummated for certain reasons. In addition, each of the Stockholders has agreed that he or it will duly and properly vote all of their Shares entitled to vote on the Merger in favor of adoption of the Merger, and that if any action or agreement is submitted to the stockholders of the Company which, if taken effect, reasonably could be expected to (i) result in a breach of any representation, warranty covenant or other 8 agreement of the Company in or under the Agreement or (ii) prevent, impede, interfere with, delay or postpone the consummation of the Offer or the Merger, they will duly and properly vote all of their Shares entitled to vote on that matter against the taking of that action or of effecting that Agreement. The foregoing summary of the terms of the Stockholders Agreement is qualified in its entirety by reference to the Stockholders Agreement, which is filed as Exhibit (d)(2) to the Schedule TO filed by the Purchaser with the SEC on March 26, 2002, and is incorporated herein by reference. Parent has entered into an Option Agreement with the Optionors. The shares of common stock held by the Optionors represent in the aggregate approximately 52% of the shares of common stock issued and outstanding. Under the terms of the Option Agreement, the Optionors have granted to Parent an irrevocable option to purchase all of the shares of each of the Optionors, as well as any other Company securities that any Optionor acquires after March 17, 2002. Parent may, at its election, exercise the options in whole, but not in part, during the "Option Exercise Period" which, if (i) Parent terminates the Agreement pursuant to Section 9.01(a)(3) of the Agreement; (ii) the Company becomes or purports to become entitled to, and does or purportedly does, terminate the Agreement under Section 9.01(a)(4) of the Agreement, is the 30-day period beginning on the next day following the Purchaser's termination of the Offer without having purchased any shares. Each Optionor has agreed to abide by certain limitations on each of his or its competitive activity with the Company from March 17, 2002 until the close of business on March 17, 2003. Accordingly, each Optionor must not: (i) acquire or enter into an agreement to acquire any interest in the lands or minerals located within the non-competitive area the Option Agreement describes, whether by means of lease, purchase, assignment, trade, sublease, easement, farmout or any other form of acquisition, including any merger with or acquisition of stock or ownership interests in another entity; or (ii) call on or otherwise solicit any natural person who is at that time employed by the Company in a managerial capacity with the purpose or intent of attracting that person from the employ of the Company. If any Optionor should acquire any interest in the non-compete area in violation of the terms of the Option Agreement, such Optionor must transfer the acquired interest to the Company within 30 days of the acquisition of the interest without receiving payment for the interest transferred. The foregoing summary of the terms of the Option Agreement is qualified in its entirety by reference to the Option Agreement which is filed as Exhibit (d)(3) to the Schedule TO filed by the Purchaser with the SEC on March 26, 2002, and is incorporated herein by reference. ITEM 5. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. (a) Solicitations or Recommendations. Beginning in 2000, the Company retained the firm of Randall & Dewey to initiate, analyze and manage potential transactions that may better maximize stockholder value. In 2000, the Company paid Randall & Dewey an advisory fee of $150,000. In 2001, the Company did not pay Randall & Dewey any fee and in 2002, the Company will pay Randall & Dewey approximately $860,000 in connection with the closing of the Offer and Merger, plus the reimbursement for related expenses. The Company retained Hibernia Southcoast Capital, Inc. ("Southcoast") under an engagement letter dated March 14, 2002 to act as the Company's financial advisor in connection with the Offer and to render a fairness opinion with respect to the Offer and the Merger. The Company is to pay Southcoast $200,000 as a fixed fee. In addition, the Company agreed to reimburse Southcoast for reasonable out-of-pocket expenses and to indemnify Southcoast against certain liabilities including liabilities in the federal 9 securities laws relating to or arising out of or in connection with its engagement. No portion of the fee or expenses paid to Southcoast was contingent upon the conclusion reached in its fairness opinion. Neither the Company nor any person acting on its behalf has employed, retained or compensated any other person to make solicitations or recommendations to the Company's stockholders on the Company's behalf concerning the Offer. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. No transactions in the Common Stock have been effected during the past 60 days by the Company or any executive officer, director, affiliate or subsidiary of the Company except for the Stockholders Agreement, the Option Agreement and the following: o The sale by Alex Campbell of 12,714 Shares on February 26, 2002. Mr. Campbell sold 500 Shares at $2.50 per share and 12,214 Shares at $2.53 per share in a broker transaction. o Transactions pursuant to the Company's 401(k) plan and stock option plans. ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. Except as set forth in this Schedule 14D-9, the Company is not currently undertaking or engaged in any negotiations or discussions in response to the Offer that relate to or would result in (i) a tender offer or other acquisition of the Company's securities by the Company, its subsidiaries, or any other person; (ii) any extraordinary transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (iii) any purchase, sale or transfer of a material amount of assets of the Company or any of its subsidiaries; or (iv) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Company. ITEM 8. ADDITIONAL INFORMATION. APPRAISAL RIGHTS. No appraisal rights are available in connection with the Offer; however, if the Merger is consummated, Company stockholders who have not tendered their Shares will have certain rights under the DGCL to dissent and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Stockholders who perfect their approved rights by complying with the procedures set forth in the DGCL will have the fair value of their Shares determined by a Delaware court and will be entitled to receive a cash payment equal to that fair value from the Company, as the surviving entity in the Merger. In addition, dissenting stockholders would be entitled to receive payment of a fair rate of interest from the date of consummation of the Merger on the amount determined to be the fair value of their Shares. The DGCL defines "fair value" as the value of the Common Stock immediately before consummation of the Merger, excluding any appreciation or depreciation in anticipation of the Merger unless exclusion would be inequitable, but does not prescribe a method for determining fair value. In determining the fair value of the Common Stock, the court may hire one or more appraisers. Accordingly, the determination of the fair value of the Common Stock could be based upon considerations other than, or in addition to, the Price per share to be paid in the merger or the market value of the Common Stock, including, among other things, asset values and earning capacity. The court's valuation of the Common Stock may be equal to, more than, or less than the Offer Price. DELAWARE BUSINESS COMBINATION STATUTE. Section 203 of the DGCL limits the ability of a Delaware corporation to engage in business combinations with "interested stockholders" (defined generally as any beneficial owner of 15% or more of the outstanding voting stock of the corporation) unless, among other things, the corporation's board of directors has given its prior approval to either the 10 business combination or the transaction that resulted in the stockholder becoming an "interested stockholder." The Company's board of directors has approved the Offer, the Merger and the other transactions contemplated by the Agreement, including the transactions contemplated by the Option Agreement, so as to render Section 203 of the DGCL inapplicable to the Offer, the Merger and the Option Agreement. SHORT FORM MERGER. If, after consummation of the Offer, the Purchaser at least 90% of the Shares then outstanding, Parent and Purchaser believe that they will be able to cause the Merger to occur without a vote of the Company's stockholders. If, however, after consummation of the Offer, the Purchaser owns less than 90% of the Shares then outstanding, a meeting of the Company's stockholders will be required under the DGCL to approve the Merger. In such event, however, the Purchaser would own, as a result of successful completion of the Offer, enough Shares to approve the Merger in accordance with the DGCL and the Company's certificate of incorporation without the vote of any other stockholder. REGULATORY APPROVALS. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules that have been promulgated under that act by the Federal Trade Commission, certain mergers and acquisitions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice and the Federal Trade Commission and certain waiting period requirements have been satisfied. The Offer and the Merger are not subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. ITEM 9. EXHIBITS. (a)(1) Offer to Purchase dated as of March 26, 2002 (incorporated herein by reference to Exhibit (a)(1)(A) to the Schedule TO filed by the Purchaser with the Securities and Exchange Commission on March 26, 2002). (a)(2) Letter of Transmittal (incorporated herein by reference to Exhibit (a)(1)(B) to the Schedule TO filed by the Purchaser with the Securities and Exchange Commission on March 26, 2002). (a)(3) Press Release issued by the Company, dated March 18, 2002 (incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2002). (a)(4) Letter from Esenjay Exploration, Inc. to Stockholders of the Company, dated March 26, 2002. (a)(5) Fairness Opinion dated March 16, 2002 of Hibernia Southcoast Capital, Inc. (a)(6) Engagement letter dated October 3, 2000 between the Company and Randall & Dewey, Inc. (e)(1) Agreement between Santos Americas and Europe Corporation, ECM Acquisition Company and Esenjay Exploration, Inc., dated as of March 17, 2002 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2002). (e)(2) Stockholders Agreement dated March 17, 2002, between the Stockholders and Santos Americas and Europe Corporation (incorporated herein by reference to Exhibit (d)(2) to the Schedule TO filed by the Purchaser with the Securities and Exchange Commission on March 26, 2002). 11 (e)(3) Option Agreement dated March 17, 2002, among the Optionors and Santos Americas and Europe Corporation (incorporated herein by reference to Exhibit (d)(3) to the Schedule TO filed by the Purchaser with the Securities and Exchange Commission on March 26, 2002). (e)(4) Items 9 through 12 of the Company's Proxy Statement as filed with the Securities and Exchange Commission on August 1, 2001. 12 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. /s/ MICHAEL E. JOHNSON ---------------------------------- Michael E. Johnson President and Chief Executive Officer March 26, 2002 13 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- (a)(1) Offer to Purchase dated as of March 26, 2002 (incorporated herein by reference to Exhibit (a)(1)(A) to the Schedule TO filed by the Purchaser with the Securities and Exchange Commission on March 26, 2002). (a)(2) Letter of Transmittal (incorporated herein by reference to Exhibit (a)(1)(B) to the Schedule TO filed by the Purchaser with the Securities and Exchange Commission on March 26, 2002). (a)(3) Press Release issued by the Company, dated March 18, 2002 (incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2002). (a)(4) Letter from Esenjay Exploration, Inc. to Stockholders of the Company, dated March 26, 2002. (a)(5) Fairness Opinion dated March 16, 2002 of Hibernia Southcoast Capital, Inc. (a)(6) Engagement letter dated October 3, 2000 between the Company and Randall & Dewey, Inc. (e)(1) Agreement between Santos Americas and Europe Corporation, ECM Acquisition Company and Esenjay Exploration, Inc., dated as of March 17, 2002 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on March 21, 2002). (e)(2) Stockholders Agreement dated March 17, 2002, between the Stockholders and Santos Americas and Europe Corporation (incorporated herein by reference to Exhibit (d)(2) to the Schedule TO filed by the Purchaser with the Securities and Exchange Commission on March 26, 2002). (e)(3) Option Agreement dated March 17, 2002, among the Optionors and Santos Americas and Europe Corporation (incorporated herein by reference to Exhibit (d)(3) to the Schedule TO filed by the Purchaser with the Securities and Exchange Commission on March 26, 2002). (e)(4) Items 9 through 12 of the Company's Proxy Statement as filed with the Securities and Exchange Commission on August 1, 2001. EX-99.A4 3 h95443ex99-a4.txt LETTER FROM ESENJAY EXPLORATION TO STOCKHOLDERS EXHIBIT (a)(4) [Esenjay Letterhead] To Esenjay Exploration, Inc. We are pleased to inform you that on March 17, 2002, Esenjay Exploration, Inc. ("ESENJAY") entered into an agreement with Santos Americas and Europe Corporation ("SANTOS") and ECM Acquisition Company, a wholly-owned subsidiary of Santos ("PURCHASER"), pursuant to which Purchaser has today commended a cash tender offer to purchase all of the outstanding shares of Esenjay common stock (the "SHARES") for $2.84 per share in cash. The tender offer is conditioned on the minimum tender of a majority of the Shares as well as other conditions described in the offering materials enclosed with this letter. Those materials also describe Santos' commitment to complete its acquisition of Esenjay, once the tender offer is successfully consummated, through a merger in which all Shares not purchased in the tender offer will be converted into the same net price as is paid in the tender offer. Current directors, executive officers and certain other stockholders of Esenjay have individually agreed to tender their Shares pursuant to a Stockholders Agreement dated March 17, 2002. These Shares, in total, represent approximately 52% of the outstanding Shares. YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY DETERMINED THAT THE TERMS OF SANTOS' TENDER OFFER ARE FAIR TO, AND IN THE BEST INTERESTS OF, ESENJAY'S STOCKHOLDERS AND RECOMMEND THAT YOU ACCEPT THE SANTOS OFFER BY TENDERING ALL OF YOUR SHARES PURSUANT TO THE OFFER. Enclosed with this letter is a Solicitation/Recommendation Statement on Schedule 14D-9 containing the Esenjay recommendation and explaining the reasons behind it, as well as the background to the transaction and other important information. Included as Exhibit (a)(5) to our Schedule 14D-9 is the written opinion, dated March 16, 2002, of Hibernia Southcoast Capital, Inc., Esenjay's financial advisor, to the effect that, as of that date and based on and subject to the matters stated in the opinion, the $2.84 per share cash consideration to be received by the Esenjay's stockholders in the tender offer and the merger is fair, from a financial point of view, to Esenjay's stockholders. Please give all of the enclosed tender offer materials, which are being filed today with the Securities and Exchange Commission, your careful consideration. Sincerely, /s/ MICHAEL E. JOHNSON Michael E. Johnson President and Chief Executive Officer EX-99.A5 4 h95443ex99-a5.txt FAIRNESS OPINION OF HIBERNIA SOUTHCOAST CAPITAL EXHIBIT (a)(5) [HIBERNIA SOUTHCOAST CAPITAL LOGO] March 16, 2002 The Board of Directors Esenjay Exploration, Inc. 500 N. Water Street, Suite 1100 Corpus Christi, TX 77002 Gentlemen: The Board of Directors of Esenjay Exploration, Inc. ("Esenjay" or the "Company") has asked Hibernia Southcoast Capital, Inc. ("Southcoast", "we", "us", or "our") to advise it with respect to the fairness, from a financial point of view, of a proposed transaction (the "Transaction") involving the total consideration to be received by the holders of Esenjay's common stock (the "Common Stock") through a tender offer by Santos Americas and Europe Corporation ("Santos" or the "Offerer") as described in the Agreement among Santos Americas and Europe Corporation, ECM Acquisition Company and Esenjay Exploration, Inc. dated as of March 17, 2002 (the "Acquisition Agreement"), pursuant to which the Offerer will make an offer (the "Offer") to purchase all the Common Stock (including all common shares which may become outstanding on the exercise of Company options) at a price of $2.84 in cash per share of Common Stock (the "Consideration"), to be followed by a second step merger involving a de facto assumption of liabilities of the Company for an aggregate total consideration of approximately $80 million. We understand also that: i) the Acquisition Agreement requires Santos, as soon as practicable after the date of the Acquisition Agreement and in any event during the period of seven business days beginning on the day of the first public announcement of the Acquisition Agreement, to commence the Offer; ii) Offeror's obligation to take and pay for common shares tendered under the Offer will be subject to, among other things, there being tendered and not withdrawn prior to the expiration of the Offer not less than a majority of all outstanding Common Stock; iii) the Acquisition Agreement further requires that the Board of Directors, affiliated entities, and David B. Christofferson tender and not withdraw all of their collective Common Stock representing 53% of the outstanding Common Shares; and iv) the Acquisition Agreement requires that Michael E. Johnson, Esenjay Petroleum Corporation, Alex M. Cranberg, Aspect Energy, LLC (successor in interest to shares held previously by Aspect Resources, LLC), and David W. Berry further agree as part of an Option Agreement, to a non-compete agreement for a period of one year from the date of the agreement which limits their individual and collective ability to acquire interests directly or indirectly in oil and gas properties within mutually agreed upon areas where the Company has interests. The Option Agreement allows for the Offeror to purchase all Common Stock owned by these parties at the Offer price for a period 30 days following the termination of the Offer. HIBERNIA SOUTHCOAST CAPITAL'S ENGAGEMENT The Board of Directors has requested that Southcoast provide our opinion ("Opinion") as to the fairness, from a financial point of view, of the Consideration to be offered to the shareholders of Esenjay pursuant to the Offer. We will be paid a fee, plus reasonable out-of-pocket expenses, for rendering our Opinion. The fee was negotiated by the parties and was not contingent upon the consummation of the Transaction. The Company has agreed to indemnify Southcoast in respect of certain liabilities that might arise out of its engagement. We have not been engaged to prepare, and have not prepared a formal valuation or appraisal of any of the assets, liabilities or equity instruments of Esenjay and our Opinion should not be construed as such. However, Southcoast conducted independent financial analyses, which we considered to be appropriate and necessary to support the conclusions reached in this Opinion. CREDENTIALS OF HIBERNIA SOUTHCOAST CAPITAL Southcoast is a New Orleans-based equity boutique that provides a full range of corporate finance services including mergers and acquisitions, capital formation, institutional equity sales and trading, and investment research. The firm specializes in a limited number of industry sectors including telecommunications, specialty retail, leisure and gaming, and all facets of the energy industry. The Opinion expressed herein is the opinion of Southcoast and the form and content hereof have been approved for release by Hibernia Southcoast Capital under the direction of the managing director of the corporate finance department. CORPORATE REVIEW AND ANALYSIS In connection with rendering our Opinion, we have done the following and reviewed and relied upon, among other things, the following information and documents: (i) the proposal letter dated February 26, 2002, from Santos USA Corp. to Mr. Michael E. Johnson, President and Chief Executive Officer; (ii) drafts of the Acquisition Agreement and the Shareholders' Agreement, by and between Santos and Esenjay; (iii) the audited financial statements, annual reports, 10-K filings, annual information forms and proxy statements of Esenjay for the years ended December 31, 1998, 1999 and 2000; (iv) the unaudited financial statements of Esenjay for the quarters ended March 31, 2001; June 30, 2001; September 30, 2001 and the preliminary unaudited financial statements for the year ended December 31, 2001; (v) Esenjay's preliminary reserve reports as prepared by Ryder Scott Company dated February 19, 2002 and February 22, 2002, concerning the Company's oil and natural gas interests effective December 31, 2001; (vi) Esenjay's internal estimates of the incremental oil and natural gas reserve value and growth potential in addition to the Ryder Scott reserve estimates; (vii) the detailed preliminary operating and capital budgets, production forecast, revenue forecast, drilling schedule, and general and administrative budget of the Company for 2002 as prepared by the management of Esenjay; (viii) the information memorandum dated October 2000 prepared by Randall and Dewey to assist parties with their analysis in acquiring or merging with the Company; (ix) the strategic review of Esenjay prepared by Randall and Dewey for the Board of Directors on February 27, 2002; (x) certain publicly available information relating to the business, operations, financial performance and stock trading history of Esenjay and other selected public oil and gas companies considered to be relevant; (xi) certain internal financial, operational, legal, corporate and other information provided by Esenjay's management; (xii) conducted discussions with members of senior management of Esenjay concerning the historical, current and estimated financial position and results of operations of its business; (xiii) compared the results of operations of Esenjay with comparable public companies; (xiv) certain publicly available information concerning the nature and terms of certain selected comparable transactions involving different companies that we considered relevant to our inquiry; and (xv) made such other financial studies, analyses and examinations, performed such other investigations and took into account such other matters as Southcoast deemed necessary or appropriate. ASSUMPTIONS AND LIMITATIONS In our review and analysis and in arriving at our Opinion, we have relied upon, and assumed the completeness, accuracy and fair presentation of all financial, oil and gas reserve estimates, and other information, data, advice, opinions and representations obtained by us from public sources or provided to us by Esenjay or advisors, or otherwise procured pursuant to our engagement, and our Opinion is conditional upon such completeness, accuracy and fair presentation. Subject to the exercise of professional judgement and except as expressly described herein, we have not attempted to verify independently the accuracy or completeness of any such information, data, advice, opinions and representations. In addition, we did not conduct a physical inspection of any of the oil and gas properties or other assets of Esenjay, nor did we obtain or consider any independent evaluations or appraisals of such properties or assets other than a review of the oil and gas reserve information prepared by Esenjay and the oil and gas reserve information of Esenjay prepared by Ryder Scott upon which we relied without further investigation. Senior management of Esenjay have represented to us, in a letter dated March 13, 2002 (the "Agreement"), among other things, that the information, data, opinions and other material (the "Information") provided to us by or on behalf of Esenjay are complete and correct on the date the Information was so provided. Our Opinion is based upon conditions in the securities markets, the oil and natural gas markets, and the general economic and financial conditions prevailing as the date hereof, and the financial condition and prospects of Esenjay as they were reflected in the information and documents reviewed by us and as they were represented to us in our discussions with management of Esenjay and its advisors, auditors and consultants. The Opinion is given as of the date hereof and Southcoast disclaims any undertaking or obligation to advise any person of any change in any fact or any matter affecting the Opinion which may come or be brought to the attention of Southcoast after the date hereof. Without limiting the foregoing, in the event that there is any material change in any fact or matter affecting the Opinion after the date hereof, Southcoast reserves the right to change, modify or withdraw the Opinion. In our analyses and in connection with the preparation of this Opinion, we made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Offer. This Opinion is for the information of and the sole benefit of the Board of Directors only in considering the terms of the proposed Transaction. Our Opinion is not to be construed as a recommendation to any shareholder of the Company as to whether to tender Common Stock in acceptance of the Offer. Our Opinion may not be relied upon, quoted or referred to in whole or in part by any other person, except that in the event of reproduction of the Opinion in any proxy statement or registration statement prepared in connection with the proposed Transaction, Esenjay may also include references to the Opinion and to Southcoast and its relationships with Esenjay (in each case in such form as Southcoast reasonably shall approve) in such documents. Esenjay also may refer to the Opinion in other public disclosures concerning the Transaction; provided that, to the extent reference is made to Southcoast's Opinion, such form of disclosure shall be first approved by Southcoast unless such disclosure only references the existence of a fairness opinion without naming Southcoast or the matters expressly contained in such fairness opinion. Other than as contemplated above, neither the Opinion, nor any other opinion or advice (written or oral) of Southcoast shall be used, reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose, nor shall public reference be made to Southcoast, except with Southcoast's prior written consent. RATIONALE In connection with the evaluation of the Transaction, Southcoast has performed an analysis of Esenjay based upon: (I) selected recent oil and gas property and company transactions that are comparable to Esenjay's assets and (II) the public market valuations of comparable exploration and production companies within the Southcoast coverage list. In case I, we used selected comparable recent property and company transactions from the Southcoast exploration and production mergers and acquisitions database. For transactions that occurred during the year 2001, the average purchase price per thousand cubic feet of equivalent proved reserves (Mcfe) was $1.17. By extracting relevant comparable transactions for reserve location and size that have occurred since mid-2001, the mean purchase price per Mcfe of proved reserves increased to $1.72. This compares to the $80 million offer for Esenjay, which suggests $4.37 per Mcfe of proved reserves. This valuation is significantly higher than the highest acquisition price of $2.55 per Mcfe. In case II, a $2.84 cash offer per share valuation of Esenjay's assets implies a common stock price-to-net asset value per share of 178% based on Southcoast's published estimated year-end 2001 net asset value of $1.60 per share and 105% of Southcoast's published estimated year-end 2002 net asset value of $2.70 per share. As of the March 15, 2002, the date of Southcoast's latest published industry numbers, the average price-to-net asset value of the Southcoast coverage list was 109% and 94% of year-end 2001 and year-end 2002 net asset value per share, respectively. Because the reasons for, and circumstances surrounding each of the selected comparable transactions that Southcoast deemed relevant were so diverse, and because of the inherent differences between the businesses, operations and corporate structures of Esenjay and each of the selected companies involved in such comparable transactions, Southcoast believes that a purely quantitative comparable transaction analysis would not be particularly meaningful in the context of the Transaction. Southcoast believes that an appropriate use of a comparable transaction analysis in this instance would involve qualitative judgments concerning differences between the characteristics of these transactions and those of the Transaction, which judgments are reflected in Southcoast's opinion. CONCLUSION Based upon and subject to the foregoing and such other matters as we considered relevant, Hibernia Southcoast Capital is of the opinion that, as of the date hereof, the Consideration to be received pursuant to the Offer is fair, from a financial point of view, to the shareholders of Esenjay. Very truly yours, Hibernia Southcoast Capital, Inc. By: /s/ STANLEY E. ELLINGTON, JR. ------------------------------ Stanley E. Ellington, Jr. Managing Director EX-99.A6 5 h95443ex99-a6.txt EXHIBIT (A)(6) EXHIBIT (a)(6) October 3, 2000 Mr. David Berry Chairman Esenjay Exploration Company, Inc. 500 Dallas Street. One Allen Center, Suite 2920 Houston, Texas 77002 Dear Mr. Berry: This agreement sets forth our mutual understanding concerning technical and transaction services to be provided by Randall & Dewey, Inc. ("R&D") in connection with the strategic initiative of Esenjay Exploration Company, Inc. ("Esenjay"). 1. Scope of Work. R&D will provide technical and transaction advisory services to assist Esenjay in generating, evaluating, negotiating and concluding opportunities involving the sale, exchange or merger of the common stock or assets of Esenjay (the "Properties"), or the acquisition of strategic-scale oil and gas assets or companies. For purposes of this Agreement, a Strategic Transaction will include any transaction involving the Properties, or an acquisition of oil and gas assets or companies valued at $20 million or greater. Any transaction resulting from an agreement or letter of intent with Brigham Exploration Company, Carrizo Oil & Gas, Inc. or Edge Petroleum Corporation, however, will not be a Strategic Transaction. Such a transaction, plus acquisitions of oil and gas assets or companies valued at less than $20 million, will be considered Excluded Transactions. 2. Services. a) Technical - R&D will provide technical services that are specifically approved in writing by Esenjay. R&D will review and organize Esenjay's pertinent files for inspection by prospective purchasers. R&D will prepare geologic, engineering, commercial, operations and economic evaluations of the Properties for use in estimating market values. R&D will prepare pertinent data summaries for inclusion in confidential offering materials and will assemble supplemental data sets encompassing detailed accounting, contractual and technical information to be furnished to prospective purchasers, the form and content of which will be subject to Esenjay's approval. R&D will assist in operating a data room to accommodate prospective purchasers will provide geologic, engineering or other manpower support to assist these entities in reviewing and evaluating the data provided. As pertinent updated data becomes available, R&D will summarize it and distribute it to process participants. R&D will provide similar technical evaluations and market value estimates of merger candidates or oil and gas assets to assist Esenjay in concluding Strategic or Excluded Transactions. b) Marketing - R&D will assess the marketability of the Properties, make specific packaging recommendations, develop a marketing strategy and propose a competitive process. R&D will prepare confidential offering materials, the form and content of which will be subject to Esenjay's approval. As requested by Esenjay, R&D will review Esenjay's draft confidentiality and purchase and sale agreements. R&D will identify prospective purchasers and screen interested buyers. R&D will arrange and conduct executive level meetings to determine buyer interest. R&D will distribute offering materials, schedule data room visits, respond to purchaser information requests, maintain contact with prospective purchasers and establish and maintain an appropriate competitive atmosphere. As requested by Esenjay, R&D will evaluate offers received, assist in negotiating preliminary and definitive agreements and help Esenjay resolve due diligence issues. 3. Term. The Initial Term of this Agreement shall be for three (3) months from October 1, 2000 through December 31, 2001. Thereafter it will be extended month-to-month unless and until either party notifies the other in writing of its cancellation. 4. Cost Reimbursement. Esenjay will reimburse R&D upon submission of invoices supported by appropriate documentation, for its reasonable out-of-pocket expenses, exclusive of overhead and salaries, specifically and directly incurred on Esenjay's behalf. 5. Compensation. a) Advisory Fee - Esenjay will pay R&D an advisory fee of one hundred fifty thousand dollars ($150,000) upon the execution of this agreement. b) Transaction Fee - Esenjay will pay R&D a Transaction Fee, if during the Term of this Agreement, or within six (6) months following the termination hereof, Esenjay enters into an agreement or letter of intent with any company executing a confidentiality agreement related to scope of work contemplated by this Agreement. Esenjay shall, upon the closing of such sale, exchange or merger transaction pay to R&D in cash in accordance with the table below. Transaction Incremental Value Transaction Fee ----------- --------------- Up to $56.7MM............. 0.75 percent More than $56.7MM......... 0.75 percent of the entire amount plus three fourths of 1.5 percent of the amount over $56.7MM For the purposes of illustration, a Transaction Fee for a transaction with a "Transaction Value" of $95MM would be calculated as follows: (0.0075*95MM)+[0.015*0.75*(95MM-56.7MM)]=$712,500+$430,875=$1,143,375. Transaction Value is defined as the sale price, exchange value or merger value presented to and approved by the Esenjay Board of Directors for the Properties sold, exchanged or merged under this agreement. Esenjay will pay R&D two hundred thousand dollars ($200,000) in addition to the advisory stated in paragraph 5a), if during the Term of this Agreement, or within six (6) months following the termination hereof, Esenjay enters into an agreement or letter of intent with any company not executing a confidentiality agreement related to scope of work contemplated by this Agreement but that was contacted by R&D or received marketing material prepared by R&D or marketing material on whose preparation R&D advised. This payment will be made when the contemplated transaction is closed. Esenjay will approve in writing the companies that R&D contacts. This approval will not be unreasonably withheld. If Esenjay does not approve the company contact and concludes a transaction under conditions not described in the above paragraph, Esenjay will pay no transaction fee. c) Technical Fees - Technical Fees for services provided by R&D to Esenjay will be accumulated for the actual hours spent on such activities according to the following schedule. $/Hour Project Vice President 100 Engineer hours 90 Geologist hours 90 Operations Specialist hours 65 Commercial Analyst/Technician hours 45 Data Room Manager hours 20 Such charges will be based solely on professional and technical hours required for the task and requested by Esenjay. There will be no hourly charges for supervisory or secretarial time. R&D will maintain accurate records of technical fees and submit a monthly informational invoice to Esenjay. Technical fees will not exceed one hundred thousand dollars ($100,000.00) without the prior permission of Esenjay. Technical Fees will be payable by Esenjay to R&D in cash if (i) Esenjay concludes its strategic initiative through one or more Excluded Transactions, or (ii) Esenjay terminates its strategic initiative without concluding any Strategic Transaction. 6. Indemnification. The parties acknowledge that the data used by R&D has been provided by Esenjay to perform technical and marketing services with the understanding that (i) R&D will disclaim all warranties, both express and implied, to the prospective purchasers reviewing the data, and (ii) although R&D will use reasonable efforts to assemble the data in an appropriate form for independent evaluation by the prospective purchasers, consistent with industry custom and standards, R&D cannot guarantee the sufficiency or accuracy of the data, and (iii) because R&D has not been engaged to verify the accuracy of the data or the Properties that the data represents due to the voluminous amounts of information required to do so within the schedule agreed upon by the parties, R&D's responsibilities for the data are limited as further expressed in the indemnities below. In consideration of the engagement of R&D pursuant to this Agreement (hereinafter referred to as "Engagement"), Esenjay agrees to defend, indemnify and hold harmless R&D and its affiliates, officers, directors, employees, consultants and agents (hereinafter referred to collectively as "R&D") from and against any and all claims, losses, damages, causes of action, suits and liability of every kind, including reasonable attorneys' fees and other costs of litigation (hereinafter referred to collectively as "Claims") arising out of such Engagement. However, Esenjay will not be liable for any Claims that result directly from R&D's gross negligence, willful misconduct or intentional misrepresentation, in which case R&D will defend, indemnify and hold harmless Esenjay and its affiliates, officers, directors, employees, consultants and agents (hereinafter referred to collectively as "Esenjay") from and against any and all claims, losses, damages, causes of action, suits and liability of every kind, including reasonable attorneys' fees and other costs of litigation (hereinafter referred to collectively as "Claims") arising out of such Engagement. 7. Publicity. The parties agree that should Esenjay sell the Properties as a result of the efforts of R&D pursuant to this Agreement, R&D may advertise the services in a form agreed to by Esenjay. 8. Governing Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of Texas. If this Agreement accurately represents your understanding of the terms and conditions of these services, please execute below, keeping one original for your files and returning the second to R&D. Very truly yours, /s/ KENNETH W. DEWEY Kenneth W. Dewey Agreed and Accepted this 9th day of October, 2000 by Esenjay Exploration Company, Inc. /s/ DAVID W. BERRY (Signature) - ------------------------------------------ David W. Berry (Name) - ------------------------------------------ Chairman (Title) - ------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----