NGAS Ngas Resources, Inc. (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

Information Required in Proxy Statement

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

þ		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

NGAS Resources, Inc.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)		Title of each class of securities to which transaction applies:
			Common Stock, no par value, of NGAS Resources, Inc.
	(2)		Aggregate number of securities to which transaction applies:
			78,416,385 shares of NGAS Resources, Inc. common stock.
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
			The filing fee was calculated based on the value of the transaction, which was computed by multiplying the 78,416,385 shares of NGAS Resources, Inc. common stock by $0.575 per share, that being the average of the high and low prices reported on the NASDAQ Global Select Market for such shares on January 26, 2011. In accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended, the filing fee was determined at the rate of $116.10 per million.
	(4)		Proposed maximum aggregate value of transaction:
			$45,089,421
	(5)		Total fee paid:
			$5,234.83

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

	(1)		Amount previously paid:
	(2)		Form, schedule or registration statement no.:
	(3)		Filing party:
	(4)		Date filed:

 

ARRANGEMENT PROPOSAL — YOUR VOTE IS VERY IMPORTANT

 

February [     l     ], 2011

 

Dear NGAS Resources, Inc. Shareholders:

 

On December 23, 2010, NGAS Resources, Inc. and Magnum Hunter Resources Corporation entered into an arrangement agreement that provides for NGAS Resources to become a wholly owned subsidiary of Magnum Hunter. At the meeting, you will be asked to approve an arrangement resolution adopting a statutory arrangement under section 288 of the Business Corporations Act (British Columbia) involving the acquisition by Magnum Hunter of all of the outstanding common shares of NGAS Resources. The NGAS Resources board of directors has determined that the arrangement is advisable and in the best interests of NGAS Resources and its shareholders and has recommended that shareholders vote in favor of the arrangement resolution adopting the plan of arrangement and approving the arrangement agreement and the transactions contemplated thereby.

 

If the arrangement is completed, each outstanding share of NGAS Resources common stock will be converted into the right to receive 0.0846 shares of Magnum Hunter common stock. Immediately following completion of the arrangement, it is expected that NGAS Resources shareholders will own approximately [     l     ]% of the outstanding shares of Magnum Hunter common stock, based on the number of shares of NGAS Resources and Magnum Hunter common stock outstanding, on a fully diluted basis, as of [     l     ], 2011 and assuming the conversion of portions of NGAS Resources convertible notes into the maximum number of shares of NGAS Resources common stock permissible. The common stock of NGAS Resources is traded on the Nasdaq Global Select Market under the symbol “NGAS.” The common stock of Magnum Hunter is traded on the New York Stock Exchange under the symbol “MHR.”

 

We are holding a special meeting of shareholders of NGAS Resources on March [     l     ], 2011 at 10:00 a.m., Pacific Daylight Time, at the offices of Lawson Lundell LLP, #1600-925 West Georgia Street, Vancouver, British Columbia, V6C 3L2, to obtain your vote to approve the arrangement resolution adopting a statutory plan of arrangement, the arrangement agreement and the transactions contemplated thereby. Your vote is very important. For the arrangement to become effective, the arrangement resolution must be approved by at least two-thirds of the votes cast at the special meeting by the holders of NGAS Resources common shares present in person or represented by proxy. The arrangement also requires the approval of the Supreme Court of British Columbia.

 

The NGAS Resources board of directors recommends that NGAS Resources shareholders vote “FOR” the arrangement resolution, and, therefore, the plan of arrangement, the arrangement agreement and the transactions contemplated under the arrangement agreement.

 

On behalf of the NGAS Resources board of directors, I invite you to attend the special meeting. Whether or not you expect to attend the NGAS Resources special meeting in person, we urge you to submit your proxy as promptly as possible through one of the delivery methods described in the accompanying proxy statement.

 

In addition, we urge you to read carefully the accompanying proxy statement (and the documents incorporated by reference into the accompanying proxy statement) which includes important information about the arrangement, the arrangement agreement, the arrangement resolution, NGAS Resources, Magnum Hunter and the special meeting. Please pay particular attention to the section titled “Risk Factors” beginning on page 32 of the accompanying proxy statement.

 

On behalf of the NGAS Resources board of directors, thank you for your continued support.

 

Sincerely,

 

 

William S. Daugherty

Chairman of the Board, President

and Chief Executive Officer

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the accompanying proxy statement or determined that the accompanying proxy statement is accurate or complete. Any representation to the contrary is a criminal offense.

 

The accompanying proxy statement is dated February [     l     ], 2011 and is first being mailed to the shareholders of NGAS Resources on or about February [     l     ], 2011.

 

ADDITIONAL INFORMATION

 

The accompanying document is the proxy statement of NGAS Resources, Inc. for its special meeting of shareholders. The accompanying proxy statement incorporates important business and financial information about Magnum Hunter Resources Corporation and NGAS Resources, Inc. from documents that are not included in or delivered with the accompanying proxy statement. This information is available to you without charge upon your request. You can obtain documents incorporated by reference into the accompanying proxy statement by requesting them in writing or by telephone from Magnum Hunter Resources Corporation or NGAS Resources, Inc. at the following addresses and telephone numbers:

 

 

In addition, if you have questions about the arrangement, the arrangement resolution, the arrangement agreement, the special meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need to obtain proxy cards or other information related to the proxy solicitation, please contact The Proxy Advisory Group, LLC, the proxy solicitor for NGAS Resources, Inc., toll-free at (888) 337-7699 (banks and brokers call collect at (212) 616-2180). You will not be charged for any of these documents that you request.

 

If you would like to request documents, please do so by [     l     ], 2011 in order to receive them before the special meeting.

 

See “Where You Can Find More Information” beginning on page 121 of the accompanying proxy statement for further information.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

To the shareholders of NGAS Resources, Inc.:

 

Notice is hereby given that, pursuant to an order of the Supreme Court of British Columbia dated [     l     ], 2011, a special meeting of shareholders of NGAS Resources will be held on March [     l     ], 2011 at the offices of Lawson Lundell LLP, #1600 — 925 West Georgia Street, Vancouver, British Columbia, V6C 3L2, at 10:00 a.m., local time, to consider and, if thought advisable, to pass a special resolution, the full text of which is set forth in Annex B to the accompanying proxy statement, approving an arrangement pursuant to Division 5 of Part 9 of the Business Corporations Act (British Columbia), as amended, all as more particularly described in the accompanying proxy statement, which resolution, to be effective, must be passed by an affirmative vote of at least two-thirds of the votes cast at the special meeting in person or by proxy by NGAS Resources shareholders.

 

Specific details about the arrangement proposal to be put before the special meeting are set forth in the accompanying proxy statement. Pursuant to the articles of NGAS Resources, the Chair of the special meeting may adjourn the special meeting if necessary to solicit additional proxies in the event there are insufficient shares present in person or represented by proxy to constitute a quorum for the special meeting.

 

Only shareholders of record as of the close of business on February 4, 2011 are entitled to notice of and to vote at the special meeting or at any adjournment or postponement thereof. A list of shareholders entitled to vote at the special meeting will be available in our offices located at 120 Prosperous Place, Suite 201, Lexington, Kentucky 40509, during regular business hours for a period of no less than ten days before the special meeting and at the place of the special meeting during the special meeting.

 

NGAS Resources shareholders may attend the special meeting in person or may be represented by proxy. NGAS Resources shareholders who are unable to attend the special meeting or any adjournment thereof in person are requested to date, sign and return the accompanying form of proxy for use at the special meeting or any adjournment thereof. A proxy will not be valid for use at the special meeting unless the completed form of proxy is deposited at the offices of Computershare Investor Services Inc. at 9th Floor, 100 University Avenue, Toronto, Ontario M5J 2Y1 (Attn: Computershare), not later than [     l     ] on [     l     ], 2011, or if the special meeting is adjourned, not later than 48 hours (excluding Saturdays and holidays) before the time for holding the adjourned meeting.

 

NGAS Resources shareholders who are planning to return the form of proxy are encouraged to review the accompanying proxy statement carefully before submitting the proxy form.

 

If you are an unregistered holder of NGAS Resources common shares and have received these materials through your broker or through another intermediary, please complete and return the form of proxy provided to you by your broker or other intermediary in accordance with the instructions provided therein.

 

Approval of the arrangement resolution adopting the plan of arrangement, the arrangement agreement and the transactions contemplated thereby by the NGAS Resources shareholders is a condition to the arrangement and requires the affirmative approval of two-thirds of the votes cast by the holders of NGAS Resources common stock present in person or represented by proxy at the special meeting. Therefore, your vote is very important.

 

Pursuant to an order of the Supreme Court of British Columbia dated [     l     ], 2011, registered NGAS Resources shareholders have been granted the right to dissent in respect of the arrangement resolution. If the arrangement becomes effective, a registered NGAS Resources shareholder who dissents in respect of the arrangement resolution is entitled to be paid the fair value of such dissenting NGAS Resources shareholder’s common shares, provided that such shareholder has delivered a written objection to the arrangement resolution to NGAS Resources not later than [     l     ] ([     l     ] time) on [     l     ], 2011, being the business day preceding the special meeting (or, if the special meeting is postponed or adjourned, the business day preceding the date of the postponed or adjourned special meeting) and has otherwise complied strictly with the dissent procedures described in the accompanying proxy statement, including the relevant provisions of Division 2 of Part 8 of the Business Corporations Act (British Columbia). This right is described in detail in the accompanying proxy statement under “The Arrangement — Dissenters’ Rights.” The text of Division 2 of Part 8 of the Business Corporations Act (British Columbia), which will be relevant in any dissent proceeding, is set forth in Annex D.

 

Beneficial owners of NGAS Resources common shares that are registered in the name of a broker, custodian, nominee or other intermediary who wish to dissent should be aware that only registered owners of NGAS Resources common shares are entitled to dissent.

Failure to comply strictly with the dissent procedures described in the accompanying proxy statement may result in the loss of any right of dissent.

By order of the board of directors,

 

 

D. Michael Wallen

Executive Vice President

and Secretary

 

Lexington, Kentucky

February [     l     ], 2011

 

 

YOUR VOTE IS IMPORTANT!

 

WHETHER OR NOT YOU EXPECT TO ATTEND THE NGAS RESOURCES SPECIAL MEETING IN PERSON, WE URGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE (1) THROUGH THE INTERNET, (2) BY TELEPHONE OR (3) BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before the NGAS Resources special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished to you by such record holder.

 

We urge you to read the accompanying proxy statement, including all documents incorporated by reference into the accompanying proxy statement, and its annexes carefully and in their entirety. If you have any questions concerning the arrangement, the arrangement resolution, the arrangement agreement, the special meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of NGAS Resources common stock, please contact NGAS Resources’ proxy solicitor:

 

The Proxy Advisory Group, LLC
18 East 41st Street, Suite 2000
New York, New York 10017
shareholders, call toll-free: (888) 337-7699
Banks and brokers, call collect: (212) 616-2180

TABLE OF CONTENTS

 

 

Unless stated otherwise or unless the context otherwise requires, all references in this proxy statement to NGAS, NGAS Resources, we, our, ours and us are to NGAS Resources, Inc., a British Columbia corporation, all references to Magnum Hunter are to Magnum Hunter Resources Corporation, a Delaware corporation, all references to the arrangement agreement are to the Arrangement Agreement, dated as of December 23, 2010, as it may be amended from time to time, by and between NGAS Resources and Magnum Hunter, a copy of which is attached as Annex A to this proxy statement, all references to the arrangement resolution to adopt the plan of arrangement, the arrangement agreement and the transactions contemplated thereby are to the form of arrangement resolution, a copy of which is attached as Annex B to this proxy statement, and all references to the interim order and final order are to the interim order of the Supreme Court of British Columbia, a copy of which is attached as Annex E, and the final order of the Supreme Court of British Columbia, respectively.

 

The following are some questions that you, as a shareholder of NGAS Resources, may have regarding the arrangement and the special meeting, and brief answers to those questions. You are urged to read carefully this proxy statement and the other documents incorporated by reference and referred to in this proxy statement in their entirety because this section may not provide all of the information that is important to you with respect to the arrangement and the special meeting. Additional important information is contained in the annexes to, and the documents incorporated by reference into, this proxy statement.

 

 

 

This document is being delivered to you as a proxy statement of NGAS Resources in connection with the arrangement. It is the proxy statement by which the NGAS Resources board of directors is soliciting proxies from you to vote on the approval of the arrangement resolution at the special meeting or at any adjournment or postponement of the special meeting.

 

 

 

 

 

Based on an intra-day market price of $6.50 for Magnum Hunter common stock on the NYSE Amex on December 23, 2010, the last trading day before the public announcement of the arrangement agreement, the arrangement consideration represented a value to NGAS shareholders of $0.55 per share, a 41% premium to NGAS Resources’ common stock closing price on December 23, 2010. Based on the closing price of $[     l     ] for Magnum Hunter common stock on the New York Stock Exchange on [     l     ], 2011, the most recent practicable trading day prior to the date of this proxy statement, the arrangement consideration represented approximately $[     l     ] in value for each share of NGAS Resources common stock. The exchange ratio for the transaction will not be adjusted for subsequent changes in market prices of Magnum Hunter’s or NGAS Resources’ common stock.

 

 

 

 

 

 

 

The approval of the arrangement resolution by NGAS Resources shareholders is a condition to the obligations of NGAS Resources and Magnum Hunter to complete the arrangement. The Chair of the special meeting may adjourn the special meeting if necessary to solicit additional proxies in the event there are insufficient shares present in person or represented by proxy to constitute a quorum for the special meeting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

When a shareholder submits a proxy by telephone or through the Internet, his or her proxy is recorded immediately. If you submit a proxy by telephone or through the Internet web site, please do not return your proxy card by mail.

 

If an NGAS Resources shareholder executes a proxy card without giving instructions, the shares of NGAS Resources common stock represented by that proxy card will be voted “FOR” approval of the arrangement resolution.

 

Please submit your proxy by telephone, through the Internet or by mail, whether or not you plan to attend the special meeting in person. Proxies must be received by 11:59 p.m., Eastern Time, on March [     l     ], 2011.

 

 

If you do not provide voting instructions to your broker or other nominee, your shares will not be voted on the arrangement resolution, since it is not considered a routine matter. This is referred to in this proxy statement and in general as a broker non-vote. Broker non-votes will have no effect on the outcome of the proposal to approve the arrangement resolution at the special meeting.

 

If you hold shares through a broker or other nominee and wish to vote your shares in person at the special meeting, you must obtain a proxy from your broker or other nominee and present it to the inspector of election with your ballot when you vote at the special meeting.

 

 

 

 

 

 

 

 

 

 

 

If you hold your shares through a broker or other nominee, you must follow the directions you receive from your broker in order to revoke or change your vote.

 

 

 

 

 

 

 

 

 

 

 

 

 

If the arrangement qualifies as a reorganization and Magnum Hunter’s post-arrangement restructuring activity is not integrated with the arrangement, no gain or loss will be recognized by U.S. Holders as a result of the receipt of Magnum Hunter common stock at the effective time in exchange for NGAS Resources common stock pursuant to the arrangement. If, however, the arrangement qualifies as a reorganization and Magnum Hunter’s post-arrangement restructuring activity is integrated with the arrangement, U.S. Holders will generally recognize gain (but not loss) with respect to their NGAS Resources common stock. Each U.S. Holder is advised to consult its tax advisor regarding the possible tax consequences of the arrangement if Magnum Hunter undertakes post-arrangement restructuring activity that would be integrated with the arrangement.

 

If the arrangement fails to qualify as a reorganization, the arrangement will be treated, for United States federal income tax purposes, as a taxable sale by U.S. Holders of their shares of NGAS Resources’ common stock in exchange for shares of Magnum Hunter common stock. As a result, U.S. Holders will, subject to the “passive foreign investment company” rules (as described further herein), generally recognize capital gain or loss in an amount equal to the difference, if any, between the fair market value of the shares of Magnum Hunter common stock received in the arrangement and the adjusted tax basis of NGAS Resources’ common stock exchanged for those shares.

 

A Canadian resident shareholder who exchanges NGAS Resources shares for Magnum Hunter shares under the arrangement will generally be considered to have disposed of such NGAS Resources shares for proceeds of disposition equal to the fair market value at the effective time of the arrangement of the Magnum Hunter shares acquired by such Canadian resident shareholder on the exchange, and generally will realize a capital gain (or capital loss) to the extent that such proceeds of disposition, net of any reasonable costs of the disposition, exceed (or are less than) the adjusted cost basis to the resident shareholder of such NGAS Resources shares.

 

This summary does not discuss all aspects of United States or Canadian federal income taxation which may be important to particular shareholders in light of their individual investment circumstances. Accordingly, shareholders are urged to consult their tax advisor regarding the tax consequences of the arrangement based on their particular circumstances. See “Material United States Federal Income Tax Consequences of the Arrangement” and “Material Canadian Federal Income Tax Consequences of the Arrangement” beginning on pages 77 and 80 of this proxy statement, respectively.

 

 

 

 

If you hold shares through a broker or other nominee, please instruct your broker or nominee to vote your shares by following the instructions that the broker or nominee provides to you with these materials.

 

 

 

 

 

 

 

Magnum Hunter is organized under the laws of the State of Delaware, United States. All of the directors and executive officers of Magnum Hunter and many of the experts named herein are residents of the United States. In addition, a substantial portion of the assets of Magnum Hunter and of such individuals and experts are located outside of Canada. As a result, it may be difficult or impossible for persons who become stockholders of Magnum Hunter to effect service of process upon such persons within Canada with respect to matters arising under Canadian securities laws or to enforce against them in Canadian courts judgments predicated upon the civil liability provisions of Canadian securities laws. There is some doubt as to the enforceability in the United States in original actions, or in actions for enforcement of judgments of Canadian courts, of civil liabilities predicated upon the Canadian securities laws. In addition, awards of punitive damages in actions brought in Canada or elsewhere may be unenforceable in the United States.

 

The disclosure relating to NGAS Resources and Magnum Hunter included in this proxy statement has been prepared in accordance with U.S. securities laws. Canadian shareholders of NGAS Resources should be aware that these requirements may differ from Canadian requirements. The financial statements of both NGAS Resources and Magnum Hunter included and incorporated by reference in this document have not been prepared in accordance with Canadian generally accepted accounting principles, which is referred to in this proxy statement as Canadian GAAP, and may not be comparable to financial statements prepared in accordance with Canadian GAAP.

 

Shareholders who are resident in, or citizens of, Canada are advised to review the summary under “The Arrangement — Material Canadian Federal Income Tax Consequences of the Arrangement” beginning on page 80 of this proxy statement and to consult their own tax advisors to determine the particular Canadian tax consequences to them of the arrangement in light of their particular situation, as well as any tax consequences that may arise under the laws of any other relevant foreign, state, local, or other taxing jurisdiction.

 

This summary highlights selected information from this proxy statement. It may not contain all of the information that is important to you. You are urged to read carefully the entire proxy statement and the other documents referred to in this proxy statement in order to fully understand the arrangement agreement and the arrangement. See “Where You Can Find More Information” beginning on page 121 of this proxy statement. Each item in this summary refers to the page of this proxy statement on which that subject is discussed in more detail.

 

Magnum Hunter Resources Corporation.

 

Magnum Hunter is an independent oil and gas company engaged in the acquisition, development and production of oil and natural gas, primarily in West Virginia, North Dakota, Texas and Louisiana. It is presently active in three of the most prolific shale resource plays in the United States, namely the Marcellus Shale, Eagle Ford Shale and Williston Basin/Bakken Shale. Magnum Hunter is a Delaware corporation and was incorporated in 1997. In 2005, Magnum Hunter began oil and gas operations under the name Petro Resources Corporation. In May 2009, Magnum Hunter (formerly known as Petro Resources Corporation) restructured its management team and refocused its business strategy, and in July 2009 changed its name to Magnum Hunter Resources Corporation. The restructured management team includes Gary C. Evans, as Chairman and Chief Executive Officer. Mr. Evans is the former founder, chairman and chief executive officer of Magnum Hunter Resources, Inc., a company of similar name that was sold to Cimarex Energy Corporation for $2.2 billion in June of 2005. The new management implemented a business strategy consisting of exploiting Magnum Hunter’s inventory of lower risk drilling locations and the acquisition of long-lived proved reserves with significant exploitation and development opportunities.

 

As a result of this strategy, Magnum Hunter has substantially increased its assets and production base through a combination of acquisitions and ongoing development drilling efforts, Magnum Hunter’s percentage of operated properties has increased significantly, its inventory of acreage and drilling locations in resource plays has grown and its management team has been expanded. Recently, its management team’s strategy has focused on further developing and exploiting unconventional resource plays, the acquisition of additional operated properties, and the development of associated midstream opportunities. More specifically, on January 19, 2011 Magnum Hunter entered into an arrangement agreement to acquire NuLoch Resources, Inc. (or NuLoch Resources), a Williston Basin-focused Alberta exploration and production company traded on the Toronto Stock Exchange, for approximately $327 million in order to expand its presence in the Bakken Shale play in North Dakota and Canada, which is referred to in this proxy statement as the NuLoch Resources acquisition. The NuLoch Resources acquisition requires approval of NuLoch Resources shareholders and the issuance of Magnum Hunter common stock in connection with the NuLoch Resources acquisition requires approval of Magnum Hunter’s stockholders. The NuLoch Resources acquisition is subject to customary closing conditions, and is structured as a stock-for-stock exchange pursuant to which 0.3304 share of Magnum Hunter common stock (or an exchangeable share exchangeable for Magnum Hunter common stock) would be exchanged for each share of NuLoch Resources stock. The NuLoch Resources acquisition is scheduled to close no later than May 31, 2011, although there is no assurance that the NuLoch Resources acquisition will be consummated.

 

Additionally, on December 24, 2010 Magnum Hunter agreed to purchase certain West Virginia properties from Quest Eastern Resource LLC and PostRock MidContinent Production, LLC, (or PostRock), the first phase of which closed on December 30, 2010 for approximately $28 million, the second phase of which closed on January 14, 2011 for approximately $11.7 million, with all such consideration being paid one-half in Magnum Hunter common stock and one-half in cash, and the third phase of which will close in the future for Magnum Hunter to acquire the third and smallest package of assets upon the satisfaction of certain events and conditions. The first and second completed phases of this acquisition will be collectively referred to in this proxy statement as the PostRock acquisition. For further information on these transactions, see Magnum Hunter’s Current Reports on Form 8-K filed with the Securities and Exchange Commission, which is referred to in this proxy statement as the SEC.

 

The principal trading market for Magnum Hunter common stock (NYSE: MHR) is the New York Stock Exchange.

The principal executive offices of Magnum Hunter are located at 777 Post Oak Boulevard, Suite 650, Houston, Texas 77056, its telephone number is (832) 369-6986 and its website is www.magnumhunterresources.com.

 

NGAS Resources, Inc.

 

NGAS Resources is an independent exploration and production company focused on unconventional natural gas plays in the eastern United States, principally in the southern Appalachian Basin. NGAS Resources was incorporated as a British Columbia corporation in 1979. NGAS Resources began its oil and gas operations in 1993 under the name Daugherty Resources, Inc., following the acquisition of NGAS Production Co. (formerly named Daugherty Petroleum, Inc.) from its founder, William S. Daugherty. Core assets of NGAS Resources are held by NGAS Production Co. and include over 345,000 acres with interests in approximately 1,400 wells and an extensive inventory of horizontal drilling locations. NGAS Production Co. also operates the gas gathering facilities for its core Appalachian properties, providing deliverability directly from the wellhead to the interstate pipeline, and owns a 50% interest in a gas processing plant to extract NGL from production delivered through those facilities.

 

The principal trading market for NGAS Resources common stock (NASDAQ: NGAS) is the Nasdaq Global Select Market, although it is expected that the listing for NGAS Resources common stock will move to the Nasdaq Capital Market by March 28, 2011, when the grace period for regaining compliance with the $1.00 minimum bid price requirement under the Nasdaq listing rules will expire.

 

The principal executive offices of NGAS Resources are located at 120 Prosperous Place, Suite 201, Lexington, Kentucky 40509, its telephone number is (859) 263-3948 and its website is www.ngas.com.

 

Magnum Hunter and NGAS Resources entered into the arrangement agreement on December 23, 2010. Subject to the terms and conditions of the arrangement agreement and in accordance with British Columbia law, NGAS Resources will be acquired by Magnum Hunter in a stock-for-stock transaction. Upon completion of the transactions contemplated under the plan of arrangement and the arrangement agreement, which are referred to in this proxy statement as the arrangement, NGAS Resources will be a wholly owned subsidiary of Magnum Hunter, and NGAS Resources common stock will no longer be publicly traded.

 

A copy of the arrangement agreement is attached as Annex A to this proxy statement. You should read the arrangement agreement carefully and in its entirety because it is the legal document that governs the arrangement.

 

Meeting.   The special meeting will be held at the offices of Lawson Lundell LLP, #1600 — 925 West Georgia Street, Vancouver, British Columbia, V6C 3L2, at 10:00 a.m., local time, on March [     l     ], 2011. At the special meeting, NGAS Resources shareholders will be asked to vote on the proposal to approve the arrangement resolution.

 

Record Date.   Only NGAS Resources shareholders of record at the close of business on February 4, 2011 will be entitled to receive notice of and to vote at the special meeting. As of the close of business on the record date of February 4, 2011, there were [     l     ] shares of NGAS Resources common stock outstanding and entitled to vote at the meeting. Each holder of NGAS Resources common stock is entitled to one vote for each share of common stock owned as of the record date.

 

Required Vote.   To approve the arrangement resolution, two-thirds of the votes cast by holders of NGAS Resources common stock present in person or represented by proxy at the special meeting must vote in favor of the arrangement resolution. NGAS Resources cannot complete the arrangement unless its shareholders approve the arrangement resolution. Broker non-votes and shares not in attendance at the special meeting or represented by proxy will have no effect on the outcome of the proposal.

The Chair of the special meeting may adjourn the special meeting if necessary to solicit additional proxies in the event there are insufficient shares present in person or represented by proxy to constitute a quorum for the special meeting.

 

Stock Ownership of and Voting by NGAS Resources’ Directors and Executive Officers .  At the close of business on the record date for the special meeting, NGAS Resources’ directors and executive officers and their affiliates beneficially owned and had the right to vote 2,856,849 shares of NGAS Resources common stock at the special meeting, which represent approximately [     l     ]% of the NGAS Resources common stock entitled to vote at the special meeting. NGAS Resources’ directors and executive officers will vote their shares “FOR” the approval of the arrangement resolution.

 

In connection with the arrangement agreement, each executive officer and director of NGAS Resources entered into a support agreement with Magnum Hunter pursuant to which, subject to the conditions set forth therein, they agreed, in their capacity as shareholders of NGAS Resources, (i) to vote all voting securities of NGAS Resources beneficially owned by them in favor of the arrangement resolution and (ii) to support actions necessary to consummate the arrangement. See the “Arrangement Agreement — Support Agreement” beginning on page 99 of this proxy statement for a discussion of the terms of the support agreement.

 

If the arrangement is completed, NGAS Resources shareholders will be entitled to receive in the arrangement, for each share of NGAS Resources common stock that they own, 0.0846 of a share of Magnum Hunter common stock. The number of shares of Magnum Hunter common stock delivered in respect of each share of NGAS Resources common stock in the arrangement is referred to in this proxy statement as the exchange ratio. Magnum Hunter will not issue any fractional shares of its common stock in the arrangement. Instead, the total number of shares of Magnum Hunter common stock that each NGAS Resources shareholder will receive in the arrangement will be the nearest whole number shares of Magnum Hunter common stock with fractions equal to exactly 0.5 being rounded up. No cash payment will be made to NGAS Resources shareholders in lieu of such fractional shares of Magnum Hunter common stock. The Magnum Hunter common stock received based on the exchange ratio is referred to in this proxy statement as the arrangement consideration.

 

[ Example: If you currently own 100 shares of NGAS Resources common stock, you will be entitled to receive 8 shares of Magnum Hunter common stock. ]

 

The exchange ratio of 0.0846 of a share of Magnum Hunter common stock is fixed, which means that it will not change between now and the date of the completion of the arrangement, regardless of whether the market price of either Magnum Hunter or NGAS Resources common stock changes. Therefore, the value of the arrangement consideration will depend on the market price of Magnum Hunter common stock at the time NGAS Resources shareholders receive Magnum Hunter common stock in the arrangement. Based on an intra-day market price of $6.50 for Magnum Hunter common stock on the NYSE Amex on December 23, 2010, the last trading day before the public announcement of the arrangement agreement, the arrangement consideration represented approximately $0.55 in value for each share of NGAS Resources common stock. Based on the closing price of $[     l     ] for Magnum Hunter common stock on the New York Stock Exchange on [     l     ], 2011, the most recent practicable trading day prior to the date of this proxy statement, the arrangement consideration represented approximately $[     l     ] in value for each share of NGAS Resources common stock. The market price of Magnum Hunter common stock will fluctuate prior to the completion of the arrangement, and the market price of Magnum Hunter common stock when received by NGAS Resources shareholders after the arrangement is completed could be greater or less than the current market price of Magnum Hunter common stock .

 

The issuance of the Magnum Hunter common stock to shareholders of NGAS Resources, to be delivered under the plan of arrangement, will not be registered under the Securities Act, and will be issued in reliance upon the Section 3(a)(10) exemption.

 

Any options granted under NGAS Resources’ 2001 Stock Option Plan, which is referred to in this proxy statement as the 2001 Plan, that remain outstanding immediately before completion of the arrangement will be amended and restated as options under the Magnum Hunter Stock Incentive Plan effective as of the completion of the arrangement. The amended and restated 2001 Plan options will be fully vested and exercisable options to purchase shares of Magnum Hunter common stock, with adjustments to the number of shares and the exercise price under the option adjusted as appropriate to preserve the intrinsic value of the option (i.e., the difference between the value of the underlying NGAS Resources common stock and the aggregate exercise price immediately before the completion of the arrangement). Any options granted under NGAS Resources’ 2003 Incentive Stock and Stock Option Plan, which is referred to in this proxy statement as the 2003 Plan, will be terminated effective as of the completion of the arrangement if they are not exercised before the completion of the arrangement. In the aggregate, as of [     l     ], 2011, there were [     l     ] options outstanding under the 2001 Plan with a weighted average exercise price of $1.51 and there were [     l     ] options outstanding under the 2003 Plan with a weighted average exercise price of $[     l     ].

 

The NGAS Resources board of directors unanimously (i) determined that the arrangement agreement and the arrangement are advisable and in the best interests of NGAS Resources and its shareholders, (ii) approved the arrangement agreement and the related plan of arrangement and (iii) resolved to recommend approval of the arrangement resolution to the NGAS Resources shareholders. The NGAS Resources board of directors recommends that NGAS Resources shareholders vote “FOR” the arrangement resolution.

 

For the factors considered by the NGAS Resources board of directors in reaching its decision to approve the arrangement agreement, see “The Arrangement — NGAS Resources Reasons for the Arrangement; Recommendation of the NGAS Resources Board of Directors” beginning on page 57 of this proxy statement.”

 

In connection with the arrangement, on December 23, 2010, KeyBanc Capital Markets, Inc., referred to in this proxy statement as KBCM, rendered its opinion to NGAS Resources’ board of directors that, as of that date and based on and subject to the matters described in the opinion, the consideration to be received in the arrangement by holders of our common stock was fair, from a financial point of view, to such holders. The full text of KBCM’s written opinion, which sets forth, among other things, the procedures followed, factors considered, assumptions made and qualifications and limitations of the review undertaken in rendering its opinion, is attached as Annex C to this proxy statement. The opinion was delivered to the NGAS Resources board of directors and addresses only the fairness, from a financial point of view, of the consideration to be received by the NGAS Resources shareholders in the proposed arrangement. The opinion does not address any other aspect of the arrangement nor does it constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to any matters relating to the arrangement or any other matter.

 

Based on the number of shares of NGAS Resources common stock and NGAS Resources options and warrants outstanding as of [     l     ], 2011, Magnum Hunter expects to issue approximately [     l     ] shares of its common stock to NGAS Resources shareholders pursuant to the arrangement and to reserve approximately [     l     ] additional shares of Magnum Hunter common stock for issuance upon exercise of NGAS Resources’ options and warrants that are converted into Magnum Hunter options and warrants pursuant to the arrangement. The actual number of shares of Magnum Hunter common stock to be issued and reserved for issuance pursuant to the arrangement will be determined at the completion of the arrangement based on the exchange ratio of 0.0846 and the number of shares of NGAS Resources common stock and NGAS Resources options and warrants outstanding at such time. Immediately after completion of the arrangement, it is expected that former NGAS Resources shareholders will own approximately [     l     ]% of the outstanding shares of Magnum Hunter common stock based on the number of shares of NGAS Resources and Magnum Hunter common stock outstanding, on a fully

diluted basis, as of [     l     ], 2011 and assuming the conversion of portions of NGAS Resources convertible notes into the maximum number of shares of NGAS Resources common stock permissible prior to the arrangement.

 

Based on the total number of shares of Magnum Hunter common stock to be issued to NGAS Resources shareholders in the arrangement, Magnum Hunter stockholders are not required to adopt the arrangement agreement or approve the issuance of the shares of Magnum Hunter common stock in connection with the arrangement.

 

In considering the recommendation of the NGAS Resources board of directors for the approval of the arrangement resolution, NGAS Resources shareholders should be aware that the executive officers of NGAS Resources and certain members of the NGAS Resources board of directors have interests in the transactions contemplated by the arrangement agreement that are different from, or in addition to, the interests of NGAS Resources shareholders generally. The NGAS Resources board of directors was aware of these interests, and considered them, among other matters, in evaluating and negotiating the arrangement agreement and the arrangement, and in recommending that NGAS Resources shareholders approve the arrangement resolution.

 

The directors and executive officers of NGAS Resources who hold options to purchase shares of NGAS Resources common stock will have those options vest and become exercisable by reason of the transactions contemplated by the arrangement agreement to the extent not already vested and exercisable. Those options will terminate upon closing to the extent not exercised prior to closing. The outstanding options are underwater as of the date hereof (i.e., the per share exercise price of all of the outstanding options held by directors and executive officers exceeds the trading price of NGAS Resources common stock as of the date hereof). In addition to employee stock options, each executive officer of NGAS Resources is a party to certain agreements with NGAS Resources pursuant to which he will be entitled to certain amounts if his employment is terminated after the date of the arrangement agreement without “cause” or if he resigns for “good reason.”

 

Magnum Hunter will apply to have the shares of its common stock to be issued in the arrangement approved for listing on the New York Stock Exchange, where Magnum Hunter common stock is currently traded. If the arrangement is completed, NGAS Resources shares will no longer be listed on the Nasdaq Global Select Market, and will be deregistered under the Securities Exchange Act of 1934, as amended, which is referred to in this proxy statement as the Exchange Act.

 

A registered NGAS Resources shareholder, other than an affiliate of NGAS Resources, may exercise rights of dissent under Division 2 of Part 8 of the Business Corporations Act (British Columbia) and in accordance with the plan of arrangement and the interim order and final order of the Supreme Court of British Columbia with respect to NGAS Resources common shares in connection with the arrangement. Non-registered shareholders who wish to exercise their dissent rights must arrange for the registered shareholder holding their common shares to deliver the notice of dissent. A dissenting shareholder must dissent with respect to all NGAS Resources common shares of which he or she is the registered and beneficial owner.

 

A dissenting shareholder who has complied with the provisions of the interim order of the Supreme Court of British Columbia and the relevant sections of the Business Corporations Act (British Columbia), may apply to the Court for relief, and the Court may determine the payout value of the dissenters’ common shares and make consequential orders as the court considers appropriate. The dissenting shareholder will be entitled to receive the fair value of the common shares immediately before the passing of the arrangement resolution.

 

The obligation of each of Magnum Hunter and NGAS Resources to complete the arrangement is subject to the satisfaction (or, to the extent permitted by applicable law, waiver) of a number of conditions, including the following:

 

 

The obligations of Magnum Hunter to complete the arrangement are also subject to the satisfaction (or, to the extent permitted by applicable law, waiver) of the following conditions:

 

 

 

The obligation of NGAS Resources to complete the arrangement is also subject to the satisfaction (or, to the extent permitted by applicable law, waiver) of the following conditions:

 

 

Magnum Hunter and NGAS Resources cannot be certain and can give no assurance when, or if, the conditions to the arrangement will be satisfied or waived, or that the arrangement will be completed.

 

The arrangement requires approval by the Supreme Court of British Columbia under section 288 of the Business Corporations Act (British Columbia). Any NGAS Resources shareholder who wishes to appear or be represented must present evidence or arguments and must serve and file a response to a petition as set out in the petition for the final order and satisfy any other requirements of the Supreme Court of British Columbia. The Supreme Court of British Columbia will consider, among other things, the fairness and reasonableness of the arrangement and the rights of every person affected. See “The Arrangement — Approvals Required for the Arrangement” beginning on page 73 of this proxy statement.

 

The Supreme Court of British Columbia will be advised at the hearing of the application for the final order that if the terms and conditions of the arrangement are approved by the Supreme Court of British Columbia, the common stock issued by Magnum Hunter as consideration to NGAS Resources shareholders pursuant to the arrangement will not be registered under the Securities Act of 1933, pursuant to the exemption from the registration requirements of the Securities Act provided under Section 3(a)(10) thereof. See “Registration Exemption of Magnum Hunter Common Stock Received in the Arrangement” beginning on page 74 of this proxy statement. NGAS shareholders who wish to participate in or be represented at the Supreme Court of British Columbia hearing should consult their legal advisors as to the necessary requirements.

 

The arrangement will be effective within three business days after the conditions to its completion have been satisfied or, to the extent permissible, waived, unless otherwise mutually agreed upon by the parties. As of the date of this proxy statement, the arrangement is expected to be effective not later than April 15, 2011. However, there can be no assurance as to when, or if, the arrangement will be completed.

 

Under the terms of the arrangement agreement, neither NGAS Resources nor any of its subsidiaries will, nor will NGAS Resources or any of its subsidiaries authorize or permit any of its or their officers, directors, employees

or representatives to (i) initiate, solicit or knowingly encourage inquiries or proposals with respect to a competing proposal from any third party relating to an acquisition of NGAS Resources, (ii) engage in any discussions or negotiations regarding any such proposal, or provide any confidential information or data to such third party with respect to such proposal, or knowingly take any other action with the purpose or intention of facilitating inquiries or the making of any competing proposal, or (iii) enter into an agreement relating to a competing acquisition proposal or approve or resolve to approve any competing acquisition proposal.

 

Notwithstanding these restrictions, however, the arrangement agreement provides that, under specified circumstances at any time prior to the completion of the arrangement:

 

 

 

 

 

These restrictions in the arrangement agreement were the result of negotiations between NGAS Resources and Magnum Hunter, and the NGAS Resources board of directors determined that these restrictions sought by Magnum Hunter were reasonable and acceptable in light of the overall terms of the arrangement agreement, including the economic and other terms being offered by Magnum Hunter, and the fact that these restrictions would not unduly impede the ability of a third party to make a superior bid to acquire NGAS Resources if that third party were interested in and capable of doing so. See “The Arrangement — Background of the Arrangement” and “The Arrangement — NGAS Resources Reasons for the Arrangement; Recommendation of the NGAS Resources Board of Directors” beginning on pages 45 and 57, respectively, of this proxy statement.

 

The arrangement agreement may be terminated at any time before the completion of the arrangement by mutual written consent of Magnum Hunter and NGAS Resources.

The arrangement agreement may also be terminated prior to the completion of the arrangement by either Magnum Hunter or NGAS Resources if:

 

 

The arrangement agreement may also be terminated prior to the completion of the arrangement by Magnum Hunter if:

 

 

The arrangement agreement may also be terminated prior to the completion of the arrangement by NGAS Resources in order to enter into an agreement with respect to a competing acquisition proposal that the NGAS Resources board of directors determines in good faith (after consultation with its outside legal counsel and financial advisor) constitutes a superior proposal and in accordance with the non-solicitation provision of the arrangement agreement.

 

NGAS Resources has agreed to pay a fee of $4 million to Magnum Hunter if the arrangement agreement is terminated under any of the following circumstances:

 

 

In the event of a termination of the arrangement agreement where none of the circumstances giving rise to the payment of the termination fee exists and NGAS shareholder approval has not been obtained by reason of the failure to obtain the required vote upon a final vote taken at the special meeting, then NGAS Resources will pay to Magnum Hunter its reasonable, properly documented expenses incurred in connection with the arrangement agreement, including without limitation attorneys’ fees and expenses, not to exceed the $4 million termination fee.

 

The NGAS Resources board of directors, after consultation with NGAS Resources’ legal and financial advisors, believed that, among other things, the termination fee payable by NGAS Resources in such circumstances, as a percentage of the enterprise value of the transaction, was reasonable and would not unduly impede the ability of a third party to make a superior bid to acquire NGAS Resources if such third party were interested in doing so, and was at a level consistent with the fees payable in comparable acquisition transactions. See “The Arrangement — NGAS Resources Reasons for the Arrangement; Recommendation of the NGAS Resources Board of Directors” beginning on page 57 of this proxy statement.

 

The exchange of shares of NGAS Resources common stock for shares of Magnum Hunter common stock pursuant to the arrangement may qualify, for United States federal income tax purposes, as a tax-free “reorganization” within the meaning of section 368 of the Internal Revenue Code of 1986, as amended. The arrangement could fail to qualify as a reorganization if, among other things, dissenters rights are exercised. Also, the United States federal income tax consequences of a reorganization depend on whether Magnum Hunter’s post-reorganization transactions are integrated with the arrangement. Neither NGAS Resources nor Magnum Hunter has requested, or intends to request a ruling from the Internal Revenue Service or an opinion of counsel with respect to whether the arrangement will qualify as a reorganization or whether any post-reorganization transaction will be integrated with the arrangement. Accordingly, U.S. Holders, as defined under “Material United States Federal Income Tax Consequences” beginning on page 77 of this proxy statement, are urged to consult their tax advisors as to whether the arrangement will qualify as a reorganization on the effective date.

 

U.S. Holders.   If the arrangement qualifies as a reorganization and Magnum Hunter’s post-arrangement restructuring activity is not integrated with the arrangement, no gain or loss will be recognized by U.S. Holders as a result of the receipt of Magnum Hunter common stock at the effective time in exchange for NGAS Resources common stock pursuant to the arrangement. If, however, the arrangement qualifies as a reorganization and Magnum Hunter’s post-arrangement restructuring activity is integrated with the arrangement, U.S. Holders will generally recognize gain (but not loss) with respect to its NGAS Resources common stock. Each U.S. Holder is advised to consult its tax advisor regarding the possible tax consequences of the arrangement and Magnum Hunter’s post-arrangement restructuring activity. If the arrangement fails to qualify as a reorganization, the arrangement will be treated, for United States federal income tax purposes as a taxable sale by U.S. Holders of their shares of NGAS Resources’ common stock in exchange for shares of Magnum Hunter common stock. As a result, U.S. Holders will, subject to the “passive foreign investment company” rules (as described further herein), generally recognize capital gain or loss in an amount equal to the difference, if any, between the fair market value of the shares of Magnum Hunter common stock received in the arrangement and the adjusted tax basis of NGAS Resources’ common stock exchanged for those shares.

 

Non-U.S. Holders.   Non-U.S. Holders (as defined under “Material United States Federal Income Tax Consequences” beginning on page 77 of this proxy statement) should not generally be subject to United States federal income tax in respect of the receipt of Magnum Hunter common stock at the effective time in exchange for our common stock pursuant to the arrangement. However, Non-U.S. Holders may be subject to tax consequences in other jurisdictions. Canadian resident shareholders should review “Material Canadian Federal Income Tax Consequences of the Arrangement” beginning on page 80 of this proxy statement.

 

This summary does not discuss all aspects of United States federal income taxation which may be important to particular shareholder in light of their individual investment circumstances. Accordingly, shareholders are urged to consult their tax advisor regarding the tax consequences of the arrangement to their particular circumstances. See “Material United States Federal Income Tax Consequences” beginning on page 77 of this proxy statement.

 

In accordance with accounting principles generally accepted in the United States, Magnum Hunter will account for the arrangement as an acquisition of a business.

 

 

NGAS Resources shareholders will have different rights once they become Magnum Hunter stockholders due to differences between the state and provincial corporate laws applicable to, and the organizational documents of, Magnum Hunter and NGAS Resources. These differences are described in more detail under “Comparison of Shareholder Rights” beginning on page 106 of this proxy statement.

 

 

Following the announcement of the arrangement agreement, two alleged NGAS Resources shareholders filed a putative class action against NGAS Resources, the members of the NGAS Resources board of directors and Magnum Hunter. The complaint alleges that the individual defendants violated British Columbia law by breaching their fiduciary duties and other obligations to NGAS Resources shareholders in connection with the arrangement agreement and the transactions contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed transaction arises out of a flawed process in which the individual defendants engaged in self-dealing and agreed to certain provisions in the arrangement agreement, which resulted in an unfair price for NGAS Resources shares and a failure to maximize stockholder value. The suit further alleges that NGAS Resources and Magnum Hunter aided and abetted the individual defendants’ breaches of fiduciary duties. The plaintiffs seek, among other things, an order enjoining the members of the NGAS Resources board of directors, NGAS Resources and Magnum Hunter from consummating the arrangement, rescission of the arrangement agreement, and attorneys’ fees and costs. We believe that this lawsuit is without merit and intend to defend vigorously against it. See “The Arrangement — Litigation Relating to the Arrangement” beginning on page 85 of this proxy statement for more information about the shareholder litigation challenging the arrangement.

 

The following table presents selected historical consolidated financial data of Magnum Hunter. The data as of, and for the years ended, December 31, 2009, 2008, 2007, 2006 and 2005 are derived from Magnum Hunter’s audited consolidated financial statements for those periods. The data as of, and for the nine months ended, September 30, 2010 and 2009 are derived from Magnum Hunter’s unaudited condensed consolidated financial statements for those periods. Magnum Hunter’s management believes that Magnum Hunter’s interim unaudited financial statements have been prepared on a basis consistent with its audited financial statements and include all normal and recurring adjustments necessary for a fair presentation of the results for each interim period.

 

The information in the following table is only a summary and is not indicative of the results of future operations of Magnum Hunter. You should read the following information together with Magnum Hunter’s Annual Report on Form 10-K for the year ended December 31, 2009, Magnum Hunter’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 and the other information that Magnum Hunter has filed with the SEC and incorporated by reference into this proxy statement. See “Where You Can Find More Information” beginning on page 121 of this proxy statement.

 

 

The following table presents selected historical consolidated financial data of NGAS Resources. The data as of, and for the years ended, December 31, 2009, 2008, 2007, 2006 and 2005 are derived from NGAS Resources’ audited consolidated financial statements for those periods. The data as of, and for the nine months ended, September 30, 2010 and 2009 are derived from NGAS Resources’ unaudited condensed consolidated financial statements for those periods. NGAS Resources’ management believes that NGAS Resources’ interim unaudited financial statements have been prepared on a basis consistent with its audited financial statements and include all normal and recurring adjustments necessary for a fair presentation of the results for each interim period.

 

The information in the following table is only a summary and is not indicative of the results of future operations of NGAS Resources. You should read the following information together with NGAS Resources’ Annual Report on Form 10-K for the year ended December 31, 2009, NGAS Resources’ Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 and the other information that NGAS Resources has filed with the SEC and incorporated by reference into this proxy statement. See “Where You Can Find More Information” beginning on page 121 of this proxy statement.

 

 

 

 

The following table sets forth selected historical and unaudited pro forma combined per share information of Magnum Hunter and NGAS Resources.

 

Historical Per Share Information of Magnum Hunter and NGAS Resources.   The historical per share information of each of Magnum Hunter and NGAS Resources below is derived from the audited financial statements as of, and for the year ended, December 31, 2009 and the unaudited condensed consolidated financial statements as of, and for, the nine months ended September 30, 2010 for each such company.

 

Pro Forma Combined Per Share Information of Magnum Hunter.   The unaudited pro forma combined per share information of Magnum Hunter below gives effect to the arrangement and assumes that 0.0846 of a share of Magnum Hunter common stock had been issued in exchange for each outstanding share of NGAS Resources common stock. The unaudited pro forma combined per share information of Magnum Hunter is derived from the unaudited pro forma combined income statement as of, and for the nine months ended September 30, 2010 and as of, and for the year ended, December 31, 2009 and unaudited pro forma combined balance sheet as of September 30, 2010. The unaudited pro forma combined per share information of Magnum Hunter does not purport to represent the actual results of operations that Magnum Hunter would have achieved had the companies been combined during these periods or to project the future results of operations that Magnum Hunter may achieve after the arrangement.

 

Pro Forma Combined Per Share Information of NGAS Resources.   The unaudited pro forma combined per share amounts of NGAS Resources below are calculated by multiplying the unaudited pro forma combined per share amounts of Magnum Hunter by the exchange ratio of 0.0846.

 

Generally.   You should read the following information in conjunction with the selected historical financial information included elsewhere in this proxy statement, the historical financial statements of Magnum Hunter and NGAS Resources, and the unaudited pro forma combined financial data of Magnum Hunter and related notes that are incorporated into this proxy statement by reference. See “Selected Historical Consolidated Financial Data of Magnum Hunter”, “Selected Historical Consolidated Financial Data of NGAS Resources”, “Unaudited Pro Forma Combined Financial Data” and “Where You Can Find More Information” beginning on pages 20, 21, 24 and 121, respectively, of this proxy statement.

 

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

 

The following table sets forth, for the periods indicated, the intra-day high and low sales prices per share for Magnum Hunter common stock as reported from January 1, 2008 to December 30, 2010 on the NYSE Amex and from January 3, 2011 to [     l     ] on the New York Stock Exchange and NGAS Resources common stock as reported on the Nasdaq Global Select Market.

 

 

The following table sets forth the closing sale price per share of Magnum Hunter common stock as reported from January 1, 2008 to December 30, 2010 on the NYSE Amex and from January 3, 2011 to [     l     ] on the New York Stock Exchange and NGAS Resources common stock as reported on the Nasdaq Global Select Market as of December 23, 2010, the last trading day before the public announcement of the arrangement agreement, and as of [     l     ], 2011, the most recent practicable trading day prior to the date of this proxy statement. The table also shows the implied value of the arrangement consideration proposed for each share of NGAS Resources common stock as of the same two dates. This implied value was calculated by multiplying the closing sale price of Magnum Hunter common stock on the relevant date by the exchange ratio of 0.0846.

 

 

NGAS Resources and Magnum Hunter have never paid any dividends on common stock and currently intend to retain earnings, if any, for use in their respective business.

 

The market prices of Magnum Hunter and NGAS Resources common stock will fluctuate between the date of this proxy statement and the completion of the arrangement. No assurance can be given concerning the market prices of Magnum Hunter or NGAS Resources common stock before the completion of the arrangement or Magnum Hunter common stock after the completion of the arrangement. Because the exchange ratio is fixed in the arrangement agreement, the market value of the Magnum Hunter common stock that NGAS Resources shareholders will receive in connection with the arrangement may vary significantly from the prices shown in the table above. Accordingly, NGAS Resources shareholders are advised to obtain current market quotations for Magnum Hunter and NGAS Resources common stock in deciding whether to vote for the arrangement resolution.

 

The following Unaudited Pro Forma Combined Financial Data are derived from the consolidated financial statements of Magnum Hunter and certain historical financial data in respect of various assets acquired by Magnum Hunter. The Unaudited Pro Forma Combined Balance Sheet of Magnum Hunter as of September 30, 2010 has been prepared assuming the acquisition of the PostRock assets, NGAS Resources, and NuLoch Resources and all necessary ancillary transactions had been consummated on September 30, 2010. The Unaudited Pro Forma Combined Income Statement for the year ended December 31, 2009 and the nine months ended September 30, 2010 have been prepared assuming the acquisition of the PostRock assets, NGAS Resources, and NuLoch Resources and all necessary ancillary transactions had been consummated as of January 1, 2009. We have also included for clarity unaudited pro forma combined balance sheet and unaudited pro forma combined income statements for the combination of Magnum Hunter, PostRock and NGAS Resources. The pro forma adjustments set forth on the attached Unaudited Pro Forma Combined Balance Sheet and Unaudited Pro Forma Combined Income Statements reflect the following as if they occurred on the dates hereinabove set forth:

 

(1) PostRock, NGAS Resources, and NuLoch Resources Acquisitions. The first and second completed phases of the acquisition of PostRock assets as described in the Purchase and Sale Agreement dated December 24, 2010, the NGAS Resources acquisition as described in the Arrangement Agreement dated December 23, 2010, and the NuLoch Resources acquisition as described in the Arrangement Agreement dated January 19, 2011.

 

(2) Incurrence of indebtedness under the proposed new revolving credit facility to be entered into pursuant to and as described in the commitment letter from Bank of Montreal dated January 13, 2011.

 

(3) Issuance of common stock upon the closing dates of the acquisition of the PostRock assets NGAS Resources, and NuLoch Resources.

 

(4) Payment of change of control compensation in the NGAS Resources and NuLoch Resources acquisitions.

 

The Unaudited Pro Forma Balance Sheet reflects the preliminary adjustments to record the estimated fair values of the assets and liabilities acquired in the acquisitions of the PostRock assets NGAS Resources and NuLoch Resources. The final entries, and the resulting effect on Magnum Hunter’s balance sheet as well as items in Magnum Hunter’s Income Statements, may differ based on the actual determination of the fair values of the assets acquired and liabilities assumed.

 

Transaction costs related to these acquisitions will be recorded as expenses in the periods in which these costs are incurred. These expenses are not included in the Unaudited Pro Forma Combined Income Statements.

 

The Unaudited Pro Forma Combined Financial Data should be read in conjunction with the notes thereto and with the consolidated financial statements of Magnum Hunter and the notes thereto as filed in Magnum Hunter’s Form 10-K and Form 10-Q.

 

The Unaudited Pro Forma Combined Financial Data are not indicative of the financial position or results of operations of Magnum Hunter which would actually have occurred if the transactions described above had occurred at the dates presented or which may be obtained in the future. In addition, future results may vary significantly from the results reflected in such statements due to normal oil and natural gas production declines, changes in prices paid for oil and natural gas, future acquisitions, drilling activity and other factors.

 

The Unaudited Pro Forma Combined Financial Data include financial information received from PostRock and NuLoch Resources and such financial information has been accepted and incorporated as presented without independent verification of such financial information.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of September 30, 2010