Exhibit 10.1
AGREEMENT AND PLAN OF MERGER
By and Among
PLAINS EXPLORATION & PRODUCTION COMPANY,
PXP GULF COAST INC.
and
3TEC ENERGY CORPORATION
Dated as of February 2, 2003
TABLE OF CONTENTS
ARTICLE I THE MERGER......................................................... 1
1.1 The Merger........................................................ 1
1.2 Effective Time of the Merger...................................... 1
1.3 Tax Treatment..................................................... 2
ARTICLE II THE SURVIVING CORPORATION......................................... 2
2.1 Certificate of Incorporation...................................... 2
2.2 Bylaws............................................................ 2
2.3 Directors and Officers............................................ 2
ARTICLE III CONVERSION OF SHARES............................................. 2
3.1 Conversion of Capital Stock....................................... 2
3.2 Surrender and Payment............................................. 5
3.3 Stock Options; Warrants; Restricted Stock......................... 6
3.4 No Fractional Shares.............................................. 7
3.5 Dissenter's Rights................................................ 7
3.6 Closing........................................................... 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TARGET.......................... 8
4.1 Organization and Qualification.................................... 8
4.2 Capitalization.................................................... 8
4.3 Authority......................................................... 9
4.4 Consents and Approvals; No Violation.............................. 9
4.5 Target SEC Reports................................................ 10
4.6 Financial Statements.............................................. 11
4.7 Absence of Undisclosed Liabilities; Liabilities as of Year End.... 11
4.8 Absence of Certain Changes........................................ 11
4.9 Taxes............................................................. 11
4.10 Litigation........................................................ 13
4.11 Employee Benefit Plans; ERISA..................................... 13
4.12 Environmental Liability........................................... 15
4.13 Compliance with Applicable Laws................................... 16
4.14 Insurance......................................................... 16
4.15 Labor Matters; Employees.......................................... 16
4.16 Reserve Reports................................................... 17
4.17 Permits........................................................... 18
4.18 Material Contracts................................................ 18
4.19 Required Stockholder Vote or Consent.............................. 18
4.20 Proxy/Prospectus; Registration Statement.......................... 19
4.21 Intellectual Property............................................. 19
4.22 Hedging........................................................... 19
4.23 Brokers........................................................... 19
4.24 Tax-Free Reorganization........................................... 20
4.25 Fairness Opinion.................................................. 23
4.26 Takeover Laws..................................................... 23
i
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............ 23
5.1 Organization and Qualification.................................... 23
5.2 Capitalization.................................................... 24
5.3 Authority......................................................... 25
5.4 Consents and Approvals; No Violation.............................. 25
5.5 Parent SEC Reports................................................ 26
5.6 Parent Financial Statements....................................... 26
5.7 Absence of Undisclosed Liabilities................................ 27
5.8 Absence of Certain Changes........................................ 27
5.9 Taxes............................................................. 27
5.10 Litigation........................................................ 28
5.11 Employee Benefit Plans; ERISA..................................... 29
5.12 Environmental Liability........................................... 30
5.13 Compliance with Laws and Parent Material Contracts................ 31
5.14 Insurance......................................................... 32
5.15 Labor Matters; Employees.......................................... 32
5.16 Reserve Reports................................................... 33
5.17 Permits........................................................... 33
5.18 Required Stockholder Vote or Consent.............................. 33
5.19 Proxy/Prospectus; Registration Statement.......................... 33
5.20 Intellectual Property............................................. 34
5.21 Hedging........................................................... 34
5.22 Brokers........................................................... 34
5.23 Tax Matters....................................................... 34
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER............................ 38
6.1 Conduct of Business by Target Pending the Merger.................. 38
6.2 Conduct of Business by Parent Pending the Merger.................. 40
ARTICLE VII ADDITIONAL AGREEMENTS............................................ 42
7.1 Access and Information............................................ 42
7.2 Acquisition Proposals............................................. 42
7.3 Directors' and Officers' Indemnification and Insurance............ 43
7.4 Further Assurances................................................ 44
7.5 Expenses.......................................................... 45
7.6 Cooperation....................................................... 45
7.7 Publicity......................................................... 45
7.8 Additional Actions................................................ 45
7.9 Filings........................................................... 46
7.10 Consents.......................................................... 46
7.11 Employee Matters; Benefit Plans................................... 46
7.12 Board, Committees and Executive Officers.......................... 46
7.13 Stockholders' Meetings............................................ 46
7.14 Preparation of the Proxy/Prospectus and Registration Statement.... 47
7.15 Stock Exchange Listing............................................ 48
7.16 Notice of Certain Events.......................................... 48
ii
7.17 Site Inspections.................................................. 49
7.18 Affiliate Agreements; Tax Treatment............................... 49
7.19 Stockholder Litigation............................................ 50
7.20 Certain Parent Board Approvals.................................... 50
7.21 Optional Redemption or Liquidation of Target D Preferred Shares... 50
ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER........................ 50
8.1 Conditions to the Obligation of Each Party........................ 50
8.2 Conditions to the Obligations of Parent........................... 51
8.3 Conditions to the Obligations of Target........................... 52
ARTICLE IX SURVIVAL.......................................................... 53
9.1 Survival of Representations and Warranties........................ 53
9.2 Survival of Covenants and Agreements.............................. 53
ARTICLE X TERMINATION, AMENDMENT AND WAIVER.................................. 53
10.1 Termination....................................................... 53
10.2 Effect of Termination............................................. 54
ARTICLE XI MISCELLANEOUS..................................................... 55
11.1 Notices........................................................... 55
11.2 Severability...................................................... 57
11.3 Assignment........................................................ 57
11.4 Interpretation.................................................... 57
11.5 Counterparts...................................................... 57
11.6 Entire Agreement.................................................. 57
11.7 Governing Law..................................................... 57
11.8 Submission to Jurisdiction........................................ 57
11.9 Attorneys' Fees................................................... 57
11.10 No Third Party Beneficiaries...................................... 57
11.11 Disclosure Schedules.............................................. 57
11.12 Amendments and Supplements........................................ 58
11.13 Extensions, Waivers, Etc.......................................... 58
iii
INDEX OF DEFINED TERMS
Term Section
Additional Cash 3.1(b)(i)
Affiliated Group 4.24(y)(ii)
Agreement Preamble
Ancillary Agreements 4.3
Assessment 7.17
Audit 4.9(f)
Cash Consideration 3.1(b)(i)
Closing 3.6
Closing Date 3.6
Code Preamble
Common Conversion Consideration 3.1(b)(i)
Common Stock Certificate 3.1(b)(i)
Common Stock Merger Consideration 3.1(b)(i)
Confidentiality Agreements 7.1
Contract Employees 4.11(e)
Customary Post-Closing Consents 4.4(b)
D&O Insurance 7.3(c)
de minimis Shares 3.1(b)(i)
DGCL 1.1
Director Nominees 7.12
Dissenting Shares 3.5
Dissenting Stockholder 3.5
Effective Time 1.2
Enforceability Exception 4.3
Environmental Laws 4.12(a)
ERISA 4.11(a)
Exchange Act 4.4(b)
Exchange Agent 3.2(a)
Exchange Fund 3.2(a)
Exchange Instructions 3.2(b)
Exchange Ratio 3.1(b)(i)
Expense Cap 10.2(b)(i)
Expenses 7.5(b)
GAAP 4.6
Governmental Authority 3.2(c)
Hazardous Substances 4.12(b)
Hydrocarbons 4.16(a)
Indemnified Liabilities 7.3(a)
Indemnified Party 7.3(a)
Inspected Party 7.17
Inspecting Party 7.17
Intellectual Property 4.21
Liens 4.4(e)
Market Price 3.1(b)(iii)
Merger Preamble
Merger Consideration 3.1(a)
Merger Sub Preamble
Minimum Market Price 3.1(b)(iii)
Oil and Gas Interests 4.16(a)
Parent Preamble
Parent Benefit Plans 5.11(a)
Parent Common Shares 3.1(b)(i)(y)
Parent Disclosure Schedule 5.1(a), 5.2(b)
Parent Engagement Letters 5.22
Parent ERISA Affiliate 5.11(a)
Parent Incentive Plan 7.13(b)
Parent Material Adverse Effect 5.1(c)
Parent Material Contract 5.13
Parent Parties Preamble
Parent Reserve Report 5.16(a)
Parent SEC Reports 5.5
Parent Share Issuance Approval 5.18
Parent Special Meeting 7.13(b)
Parent Stockholders' Approval 7.13(b)
Parent Tax Certificate 8.3(c)
PBGC 4.11(b), 5.11(b)
PCBs 4.12(e)
Permits 4.17
Person 3.2(c)
Preferred Conversion Consideration 3.1(c)
Preferred Stock Certificate 3.1(c)
Preferred Stock Merger Consideration 3.1(c)
proceeding 7.3(a)
Proxy/Prospectus 4.20
Registration Statement 4.20
Related Person 4.24
SEC 4.5
Securities Act 4.4(b)
Severance Package Table 4.11(e)
Stock Certificates 3.1(c)
Stock Consideration 3.1(b)(i)
Subsidiary 4.1(c)
Surviving Corporation 1.1
Target Preamble
Target Acquisition Proposal 7.2
Target B Preferred Shares 4.2
Target Benefit Plans 4.11(a)
Target Breach 10.1(d)
Target Common Shares 3.1(a)
Target D Preferred Shares 3.1(c)
Target Disclosure Schedule 4.1(a)
Target Employee Agreement 4.11(a)
Target Employees 4.11(e)
Target Engagement Letter 4.23
Target ERISA Affiliate 4.11(a)
Target Material Adverse Effect 4.1(c)
Target Material Contracts 4.18(a)
Target Reserve Report 4.16(a)
Target Restricted Stock 3.3(c)
Target SEC Reports 4.5
Target Severance Policy 4.11(e)
Target Special Meeting 7.13(a)
iv
Term Section
Target Stock Options 3.3(a)(i)
Target Stockholders' Approval 4.19
Target Superior Proposal 10.1(h)
Target Tax Certificate 8.2(c)
Target Wararnts 4.24(d)
Tax Authority 4.9(f)
Tax Returns 4.9(f)
Taxes 4.9(f)
Termination Date 10.1(b)
$3.00 Warrant Consideration 3.3(b)
Termination Fee 10.2(b)(i)
Transactions 3.6
Voting Agreements Preamble
WARN Act 4.15(b)
Exhibits
7.13(b) Parent Incentive Plan
7.18 Affiliate Agreement
8.2(c) Target Tax Certificate
8.3(c) Parent and Merger Sub Tax
Certificate
v
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated February 2,
2003, by and among Plains Exploration & Production Company, a Delaware
corporation ("Parent"), PXP Gulf Coast Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub," and, together with Parent, the
"Parent Parties") and 3TEC Energy Corporation, a Delaware corporation
("Target").
WHEREAS, the respective Boards of Directors of the Parent Parties and
Target deem it advisable and in the best interests of their respective
corporations and stockholders that Target merge with and into Merger Sub (the
"Merger") upon the terms and subject to the conditions set forth herein, and
such Boards of Directors have approved the Merger; and
WHEREAS, concurrently with the execution and delivery of this
Agreement, (i) with the approval of Target's Board of Directors, Parent has
entered into voting agreements with each of EnCap Energy Capital Fund III, L.P.,
EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., ECIC
Corporation, Floyd C. Wilson, R. A. Walker, and Stephen W. Herod under which
such parties have among other things agreed to support the Merger upon the terms
and conditions set forth therein, and (ii) with the approval of Parent's Board
of Directors, Target has entered into voting agreements with each of EnCap
Energy Capital Fund III, L.P., EnCap Energy Capital Fund III-B, L.P., BOCP
Energy Partners, L.P., Energy Capital Investment Company PLC, Sable Management,
L.P., and James C. Flores, under which such parties have among other things
agreed to support the Merger upon the terms and conditions set forth therein
(collectively, the "Voting Agreements"); and
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, at
the Effective Time Target shall merge with and into Merger Sub and the separate
corporate existence of Target shall thereupon cease and Merger Sub shall be the
surviving corporation in the Merger (sometimes referred to herein as the
"Surviving Corporation") as a wholly-owned subsidiary of Parent. The Merger
shall have the effects set forth in Section 259 of the Delaware General
Corporation Law (the "DGCL"), including the Surviving Corporation's succession
to and assumption of all rights and obligations of Merger Sub and Target
1.2 Effective Time of the Merger. The Merger shall become effective
(the "Effective Time") upon the later of (i) the date of filing of a properly
executed Certificate of Merger relating to the Merger with the Secretary of
State of Delaware in accordance with the DGCL, and (ii) at such later time as
the parties shall agree and set forth in such Certificate of Merger. The
1
filing of the Certificate of Merger referred to above shall be made as soon as
practicable on the Closing Date set forth in Section 3.6.
1.3 Tax Treatment. It is intended that the Merger shall constitute a
reorganization under Section 368(a) of the Code.
ARTICLE II
THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Merger Sub in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation at and after the
Effective Time until thereafter amended in accordance with the terms thereof and
the DGCL.
2.2 Bylaws. The bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation at and after
the Effective Time, and thereafter may be amended in accordance with their terms
and as provided by the Surviving Corporation's Certificate of Incorporation and
bylaws and the DGCL.
2.3 Directors and Officers. At and after the Effective Time, the
directors and officers of Merger Sub shall be the directors and officer of the
Surviving Corporation until their respective successors have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation and
bylaws and the DGCL.
ARTICLE III
CONVERSION OF SHARES
3.1 Conversion of Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any capital
stock described below:
(a) All shares of Common Stock of Target, par value $.02 ("Target
Common Shares"), that are held in Target's treasury shall be canceled and cease
to exist and no cash, Parent capital stock or other consideration shall be
delivered in exchange therefor.
(b) Conversion of Target Common Shares.
(i) Subject to Sections 3.4 and 3.5, each issued and
outstanding Target Common Share (other than Target Common Shares
treated in accordance with Section 3.1(a) or Dissenting Shares)
shall be converted into the right to receive (x) $8.50 in cash
plus, if applicable, the Additional Cash (collectively the "Cash
Consideration") and (y) the number of shares of common stock, par
value $.01 per share, of Parent (the "Parent Common Shares") equal
to the Exchange Ratio (the "Stock Consideration" and, together with
the Cash Consideration, the "Common Conversion Consideration"). All
such Target Common Shares, when so converted, shall be retired,
shall cease to be outstanding and shall automatically
2
be cancelled, and the holder of a certificate ("Common Stock
Certificate") that, immediately prior to the Effective Time
represented such Target Common Shares shall cease to have any
rights with respect thereto, except the right to receive, upon the
surrender of such Common Stock Certificate in accordance with
Section 3.2: (A) the Common Conversion Consideration, (B) certain
dividends and other distributions under Section 3.1(f), and (C)
cash in lieu of fractional Parent Common Shares under Section 3.4
(the "de minimis Shares"), in each case without interest
(collectively, the "Common Stock Merger Consideration").
Notwithstanding the foregoing, if between the date hereof and the
Effective Time the Parent Common Shares or Target Common Shares are
changed into a different number of shares or a different class,
because of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the
Exchange Ratio and, with respect to the changes in the outstanding
Target Common Shares, the Cash Consideration, shall be
correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination
or exchange of shares.
(ii) If the Market Price is less than the Minimum Market
Price, Parent may either terminate this Agreement under Section
10.1(i) or pay the Additional Cash under Section 3.1(b)(i).
(iii) Additional Definitions
"Additional Cash" means an amount in cash equal to the product
of (i) the Minimum Market Price minus the Market Price and (ii) the
Exchange Ratio.
"Exchange Ratio" means 0.85 provided that if the Market Price
of the Parent Common Shares is:
. greater than $12.35, then the Exchange Ratio shall
equal the quotient of (A) $10.50 divided by (B) the Market
Price.
. less than $7.65, then the Exchange Ratio shall equal
the quotient of (A) $6.50 divided by (B) the Market Price. If
the Market Price, is less than the Minimum Market Price the
Market Price in the preceding sentence shall be deemed to be
the Minimum Market Price.
"Market Price" means the average of the closing prices of a
Parent Common Share on the New York Stock Exchange, as reported in
The Wall Street Journal, for the 20 consecutive trading days
immediately preceding the third trading day before the Closing.
"Minimum Market Price" means $6.25.
(c) Each share of Series D Preferred Stock of Target, par value
$.02 per share (the "Target D Preferred Shares"), issued and outstanding
immediately prior to the Effective Time, other than those Target D Preferred
Shares held by a Dissenting Stockholder, shall be converted into the right to
receive the amount of cash that would be required to redeem such
3
share pursuant to the Certificate of Designation filed with the Secretary of
State of Delaware with respect thereto as of the Effective Time (the "Preferred
Conversion Consideration"). All such Target D Preferred Shares, when so
converted, shall no longer be outstanding and shall automatically be cancelled
and shall cease to exist, and the holder of a certificate ("Preferred Stock
Certificate" and, together with the Common Stock Certificates, the "Stock
Certificates") that, immediately prior to the Effective Time, represented
outstanding Target D Preferred Stock shall cease to have any rights with respect
thereto, except the right to receive, upon the surrender of such Preferred Stock
Certificate, the Preferred Conversion Consideration without interest
(collectively, the "Preferred Stock Merger Consideration," and, together with
the Common Stock Merger Consideration, the "Merger Consideration").
(d) The Merger shall not affect any common stock, par value $0.01
per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time, which will remain outstanding and which will represent all of
the issued and outstanding capital stock of the Surviving Corporation.
(e) The Merger shall not affect any Parent Common Share issued and
outstanding immediately prior to the Effective Time.
(f) No dividends or other distributions declared or made after the
Effective Time with a record date after the Effective Time shall be paid to the
holder of any un-surrendered Common Stock Certificate with respect to the
applicable Common Stock Merger Consideration represented thereby until the
holder of record of such Common Stock Certificate has surrendered such Common
Stock Certificate in accordance with Section 3.2. Subject to the effect of
applicable laws (including escheat and abandoned property laws), following
surrender of any such Common Stock Certificate, the record holder of the
certificate or certificates representing the Common Stock Merger Consideration
issued in exchange therefor shall be paid without interest, (i) the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to Common Stock Merger Consideration, and (ii)
if the payment date for any dividend or distribution payable with respect to
Common Stock Merger Consideration has not occurred prior to the surrender of
such Common Stock Certificate, at the appropriate payment date therefor, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to the surrender of such Common Stock Certificate and a
payment date subsequent to the surrender of such Common Stock Certificate.
(g) All Merger Consideration issued upon the surrender of Stock
Certificates in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Stock Certificates
and the Target Common Shares or Target D Preferred Shares formerly represented
thereby, and from and after the Effective Time there shall be no further
registration of transfers effected on the stock transfer books of the Surviving
Corporation of Target Common Shares, or Target D Preferred Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Stock Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article III.
4
3.2 Surrender and Payment.
(a) Parent shall authorize one or more transfer agent(s)
reasonably acceptable to Target to act as Exchange Agent hereunder (the
"Exchange Agent") with respect to the Merger. At or prior to the Effective Time,
Parent shall deposit with the Exchange Agent for the benefit of the holders of
Target Common Shares and Target D Preferred Shares, for exchange in accordance
with this Section 3.2 through the Exchange Agent, the aggregate amount of Merger
Consideration payable in connection with the Merger (collectively, the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions, deliver
the applicable Merger Consideration in exchange for surrendered Stock
Certificates pursuant to Section 3.1 out of the Exchange Fund. Except as
contemplated by Section 3.2(d), the Exchange Fund shall not be used for any
other purpose.
(b) Promptly after the Effective Time, Parent shall cause the
Exchange Agent to send to each holder of record of Stock Certificates a letter
of transmittal for use in such exchange (which shall specify that the delivery
shall be effected, and risk of loss and title with respect to the Stock
Certificates shall pass, only upon proper delivery of the Stock Certificates to
the Exchange Agent, and which shall be in a form reasonably acceptable to
Target), and instructions for use in effecting the surrender of Stock
Certificates for payment therefor in accordance herewith (together, the
"Exchange Instructions").
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of Target Common Shares or Target D
Preferred Shares, as applicable, represented by the Stock Certificate(s)
surrendered in exchange therefor, no such issuance or payment shall be made
unless (i) the Stock Certificate(s) so surrendered have been properly endorsed
or otherwise be in proper form for transfer and (ii) the Person requesting such
issuance has paid to the Exchange Agent any transfer or other taxes required as
a result of such issuance to a Person other than the registered holder or
establish to the Exchange Agent's satisfaction that such tax has been paid or is
not applicable. For this Agreement, "Person" means an individual, a corporation,
a limited liability company, a partnership, an association, a trust or any other
entity or organization, including any governmental or regulatory authority or
agency (a "Governmental Authority").
(d) Any portion of the Exchange Fund that remains unclaimed by the
holders of Target Common Shares or Target D Preferred Shares one year after the
Effective Time shall be returned to Parent, upon demand, and any such holder who
has not exchanged such holder's Stock Certificates in accordance with this
Section 3.2 prior to that time shall thereafter look only to Parent, as a
general creditor thereof, to exchange such Stock Certificates or to pay amounts
to which such holder is entitled pursuant to Section 3.1. If outstanding Stock
Certificates are not surrendered prior to six years after the Effective Time
(or, in any particular case, prior to such earlier date on which any Merger
Consideration issuable or payable upon the surrender of such Stock Certificates
would otherwise escheat to or become the property of any governmental unit or
agency), the Merger Consideration issuable or payable upon the surrender of such
Stock Certificates shall, to the extent permitted by applicable law, become the
property of Parent, free and clear of all claims or interest of any Person
previously entitled thereto. Notwithstanding the foregoing, none of Parent,
Target or the Surviving Corporation shall be liable to any holder of
5
Stock Certificates for any amount paid, or Merger Consideration delivered, to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(e) If any Stock Certificate is lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Stock
Certificate is lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such Person of a bond in such reasonable amount as
Parent may direct as indemnity against any claim that may be made against it
with respect to such Stock Certificate, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Stock Certificate the Merger
Consideration in respect thereof pursuant to this Agreement.
3.3 Stock Options; Warrants; Restricted Stock.
(a) Target Options.
(i) Prior to the Effective Time, Target shall cause all stock
options ("Target Stock Options") issued pursuant to the Target
Benefit Plans listed on Section 4.11(a)(1) of the Target Disclosure
Schedule to be vested and shall cause such holders to exercise such
Target Stock Options prior to the Effective Time for consideration
equal to that number of Target Common Shares equal to the quotient
of (X) the difference between (1) the product of (I) $17.00 times
(II) the number of Target Common Shares issuable upon exercise of
such Target Stock Option minus (2) the aggregate exercise price of
such Stock Option divided by (Y) $17.00, and if such Target Stock
Options are not exercised prior to the Effective Time, such options
shall terminate as of the Effective Time.
(ii) Target shall use its reasonable best efforts to cause its
Board of Directors or any committee thereof responsible for the
administration of Target's option plans to take any and all action
necessary to effectuate the matters described in this Section
3.3(a) on or before the Effective Time.
(b) Target Warrants. Target shall use its reasonable best efforts
to cause each warrant to purchase Target Common Shares for $3.00 per share
listed on Section 3.3(b)(i) of the Target Disclosure Schedule to be
automatically exchanged for consideration equal to that Common Stock Merger
Consideration that would have been received by the holder of such warrant had
such warrant been exercised prior to the Effective Time and as a result of such
exercise such holder received Target Common shares equal to the quotient of (X)
the difference between (1) the product of (I) $17.00 times (II) the number of
Target Common Shares issuable upon exercise of such warrant minus (2) the
aggregate exercise price of such warrant divided by (Y) $17.00 (the "$3.00
Warrant Consideration").
(c) Restricted Stock. At the Effective Time, all remaining
restrictions with respect to the Target Restricted Stock shall expire and the
Target Restricted Stock shall be treated as Target Common Shares in accordance
with Section 3.1(b). "Target Restricted Stock" means the shares of Target
restricted stock issued pursuant to the Target Benefit Plans.
(d) Taxes and Interest. Any amounts payable pursuant to this
Section 3.3 shall be subject to any required withholding of taxes and shall be
paid without interest.
6
3.4 No Fractional Shares. No de minimis Shares shall be issued in the
Merger and fractional share interests shall not entitle the owner thereof to
vote or to any rights of a stockholder of Parent. All holders of de minimis
Shares shall be entitled to receive, in lieu thereof, an amount in cash equal to
such fraction times twice the Cash Consideration (but one times the Additional
Cash).
3.5 Dissenter's Rights. Notwithstanding anything in this agreement to the
contrary, Target Common Shares and Target D Preferred Shares, if any, issued and
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger and who has delivered a written demand for
appraisal for such shares in accordance with Section 262 the DGCL (a "Dissenting
Stockholder") shall not be converted into the right to receive the Common Stock
Merger Consideration or the Preferred Stock Merger Consideration, as applicable,
as provided in Section 3.1, unless and until such holder fails to perfect or
effectively withdraws or otherwise loses such holder's right to appraisal under
the DGCL. A Dissenting Stockholder may receive payment of the fair value of the
Target Common Shares or the Target D Preferred Shares, as applicable, issued and
outstanding immediately prior to the Effective Time and held by such Dissenting
Stockholder ("Dissenting Shares") in accordance with the provisions of the DGCL,
provided that such Dissenting Stockholder complies with Section 262 of the DGCL.
At the Effective Time, all Dissenting Shares shall be cancelled and cease to
exist and shall represent only the right to receive the fair value thereof in
accordance with the DGCL. If, after the Effective Time, any Dissenting
Stockholder fails to perfect or effectively withdraws or otherwise loses such
Dissenting Stockholder's right to appraisal, such Dissenting Stockholder's
Dissenting Shares shall thereupon be treated as if they had been converted, as
of the Effective Time, into the right to receive the Common Stock Merger
Consideration or the Preferred Stock Merger Consideration, as applicable. Target
shall give Parent (a) prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other instruments served under the
DGCL, and (b) the opportunity to participate in and direct all negotiations,
proceedings or settlements with respect to demands for appraisal under the DGCL.
Target shall not voluntarily make any payment with respect to any appraisal
demands for appraisal and shall not, except with Parent's prior written consent,
settle or offer to settle any such demands.
3.6 Closing. The closing (the "Closing") of the transactions contemplated
by this Agreement (the "Transactions") shall take place at 10:00 a.m., local
time, on the business day (the "Closing Date") on which all of the conditions
set forth in Article VIII are satisfied or waived, at the offices of Akin Gump
Strauss Hauer & Feld LLP, 1900 Pennzoil Place, South Tower, 711 Louisiana
Street, Houston, Texas 77002, or at such other date and time as Parent and
Target shall agree.
7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to the Parent Parties as follows:
4.1 Organization and Qualification.
(a) Target is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, is duly qualified to do
business as a foreign corporation and is in good standing in the jurisdictions
set forth in Section 4.1(a) of the disclosure letter delivered by Target to
Parent contemporaneously with the execution hereof (the "Target Disclosure
Schedule"), which include each jurisdiction in which the character of Target's
properties or the nature of its business makes such qualification necessary,
except in jurisdictions, if any, where the failure to be so qualified would not
result in a Target Material Adverse Effect (as defined below). Target has all
requisite corporate power and authority to own, use or lease its properties and
to carry on its business as it is now being conducted. Target has made available
to Parent a complete and correct copy of its certificate of incorporation and
bylaws, each as amended to date, and Target's certificate of incorporation and
bylaws as so delivered are in full force and effect. Target is not in default in
any respect in the performance, observation or fulfillment of any provision of
its certificate of incorporation or bylaws.
(b) Target has no Subsidiaries and has had no Subsidiaries since
August 6, 2002.
(c) For this Agreement, (i) a "Target Material Adverse Effect"
means any event, circumstance, condition, development or occurrence causing,
resulting in or having (or with the passage of time likely to cause, result in
or have) a material adverse effect on the financial condition, business, assets,
properties, prospects or results of operations of Target; provided that in no
event shall any of the following be deemed to constitute or be taken into
account in determining a Target Material Adverse Effect: any event,
circumstance, change or effect that results from (A) changes affecting the
economy generally, (B) changes in the market price of oil or natural gas, (C)
the public announcement or pending nature of the Transactions, (D) compliance
with the terms of this Agreement, or (E) change in the price of the Target
Common Shares or the Parent Common Shares and (ii) "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (x) at least a majority of the
securities or other interests having by their terms voting power to elect a
majority of the Board of Directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
beneficially owned or controlled by such party or by any one or more of its
subsidiaries, or by such party and one or more of its subsidiaries, or (y) such
party or any Subsidiary of such party is a general partner of a partnership or a
manager of a limited liability company.
4.2 Capitalization. The authorized capital stock of Target consists of
60,000,000 Target Common Shares and 20,000,000 shares of preferred stock, par
value $.02 per share, of which 266,667 shares have been designated Series B
Preferred Stock (the "Target B Preferred Shares"), and 725,167 shares have been
designated as Target D Preferred Shares. As of the date
8
hereof, (i) 16,780,776 (which includes 62,500 restricted shares for which
restrictions have not lapsed and which will be cancelled at the Effective Time)
Target Common Shares were issued and outstanding, (ii) no Target B Preferred
Shares were issued and outstanding, (iii) 613,919 Target D Preferred Shares were
issued and outstanding, (iv) stock options to acquire 3,358,181 Target Common
Shares were outstanding under all stock option plans and agreements of Target,
and (v) warrants to acquire 1,515,000 Target Common Shares were outstanding
under all warrant agreements of Target. All of the outstanding Target Common
Shares and Target D Preferred Shares are validly issued, fully paid and
nonassessable, and free of preemptive rights. Except as set forth above, and
other than this Agreement, there are no outstanding subscriptions, options,
rights, warrants, convertible securities, stock appreciation rights, phantom
equity, or other agreements or commitments (including "rights plans" or "poison
pills") obligating Target to issue, transfer, sell, redeem, repurchase or
otherwise acquire any shares of its capital stock of any class. Except as
contemplated by the Voting Agreement, there are no agreements, arrangements or
other understandings with respect to the right to vote any shares of capital
stock of Target.
4.3 Authority. Target has full corporate power and authority to execute
and deliver this Agreement and any ancillary agreements to which Target is or
will be a party (the "Ancillary Agreements") and, subject to obtaining the
Target Stockholders' Approval, to consummate the Transactions. The execution,
delivery and performance of this Agreement and the Ancillary Agreements to which
Target is or will be a party and the consummation of the Transactions have been
duly and validly authorized by Target's Board of Directors, and no other
corporate proceedings on the part of Target are necessary to authorize this
Agreement and the Ancillary Agreements to which Target is or will be a party or
to consummate the Transactions, other than the Target Stockholders' Approval.
This Agreement has been, and the Ancillary Agreements to which Target is or will
be a party are, or upon execution will be, duly and validly executed and
delivered by Target and, assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto, constitutes, or upon
execution will constitute, valid and binding obligations of Target enforceable
against Target in accordance with their respective terms, except as such
enforceability may be subject to the effects of bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting the rights of
creditors and of general principles of equity (the "Enforceability Exception").
4.4 Consents and Approvals; No Violation. The execution and delivery of
this Agreement, the consummation of the Transactions and the performance by
Target of its obligations hereunder will not:
(a) subject to receipt of the Target Stockholders' Approval,
conflict with any provision of Target's certificate of incorporation or bylaws,
as amended;
(b) subject to obtaining the Target Stockholders' Approval and
filing of the Certificate of Merger with the Secretary of State of Delaware,
require any consent, waiver, approval, order, authorization or permit of, or
registration, filing with or notification to, (i) any Governmental Authority,
except for applicable requirements of the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934 (the "Exchange
Act"), state laws relating to takeovers, if applicable, state securities or blue
sky laws, except as set forth in Section 4.4(b) of the Target Disclosure
Schedule and except for approvals that are ministerial in nature and are
customarily obtained from Governmental Authorities after the Effective Time
9
in connection with transactions of the same nature as are contemplated hereby
("Customary Post-Closing Consents") or (ii) except as set forth in Section
4.4(b) of the Target Disclosure Schedule, any third party other than a
Governmental Authority, other than such non-Governmental Authority third party
consents, waivers, approvals, orders, authorizations and permits that would not
(i) result in a Target Material Adverse Effect, (ii) materially impair the
ability of Target, to perform its obligations under this Agreement or any
Ancillary Agreement or (iii) prevent the consummation of any of the
Transactions;
(c) except as set forth in Section 4.4(c) of the Target Disclosure
Schedule, result in any violation of or the breach of or constitute a default
(with notice or lapse of time or both) under, or give rise to any right of
termination, cancellation or acceleration or guaranteed payments or a loss of a
material benefit under, any of the terms, conditions or provisions of any note,
lease, mortgage, license, agreement or other instrument or obligation to which
Target or is a party or by which Target or any of its properties or assets may
be bound, except for such violations, breaches, defaults, or rights of
termination, cancellation or acceleration, or losses as to which requisite
waivers or consents have been obtained or which, individually or in the
aggregate, would not (i) result in a Target Material Adverse Effect, (ii)
materially impair the ability of Target to perform its obligations under this
Agreement or any Ancillary Agreement or (iii) prevent the consummation of any of
the Transactions;
(d) except as set forth in Section 4.4(d) of the Target Disclosure
Schedule, violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to Target;
(e) except as set forth in Section 4.4(e) of the Target Disclosure
Schedule, result in the creation of any liens, mortgages, pledges, security
interests, encumbrances, claims or charges of any kind (collectively, "Liens")
upon any shares of capital stock or material properties or assets of Target
under any agreement or instrument to which Target is a party or by which Target
or any of its properties or assets is bound; or
(f) except as set forth in Section 4.4(f) of the Target Disclosure
Schedule or Section 3.5, result in any holder of any securities of Target being
entitled to appraisal, dissenters' or similar rights.
4.5 Target SEC Reports. Except as set forth in Section 4.5 of the
Target Disclosure Schedule, Target has filed with the Securities and Exchange
Commission (the "SEC") each form, registration statement, report, schedule,
proxy or information statement and other document (including exhibits and
amendments thereto), including its Annual Reports to Stockholders incorporated
by reference in certain of such reports, required to be filed by it or its
predecessors with the SEC since January 1, 1999 under the Securities Act or the
Exchange Act (collectively, the "Target SEC Reports"). As of the respective
dates the Target SEC Reports were filed or, if any Target SEC Reports were
amended, as of the date such amendment was filed, each Target SEC Report,
including any financial statements or schedules included therein, (a) complied
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and the applicable rules and
regulations promulgated thereunder, and (b) did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
10
light of the circumstances under which they were made, not misleading. No event
since the date of the last Target SEC Report has occurred that would require
Target to file a Current Report on Form 8-K other than the execution of this
Agreement.
4.6 Financial Statements. Each of the audited consolidated financial
statements and unaudited consolidated interim financial statements of Target
(including any related notes and schedules) included (or incorporated by
reference) in its Annual Reports on Form 10-KSB for each of the three fiscal
years ended December 31, 1999, 2000 and 2001 and its Quarterly Reports on Form
10-Q for its fiscal quarters ended March 31, June 30 and September 30, 2002 have
been prepared from, and are in accordance with, the books and records of Target
and its consolidated Subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis (except as
may be indicated in the notes thereto and subject, in the case of quarterly
financial statements, to normal and recurring year-end adjustments) and fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of Target
and its Subsidiaries as of the date thereof and the consolidated results of
operations and cash flows (and changes in financial position, if any) of Target
and its Subsidiaries for the periods presented therein (subject to normal
year-end adjustments and the absence of financial footnotes in the case of any
unaudited interim financial statements).
4.7 Absence of Undisclosed Liabilities; Liabilities as of Year End. Except
(a) as set forth on Section 4.7 of the Target Disclosure Schedule (b) as
specifically disclosed in the Target SEC Reports filed and publicly available
prior to the date hereof and (c) for liabilities and obligations incurred in the
ordinary course of business and consistent with past practice since December 31,
2001, Target has not incurred any liabilities or obligations of any nature
(contingent or otherwise) that would have a Target Material Adverse Effect. As
of December 31, 2002, Target's long term debt did not exceed $99 million.
4.8 Absence of Certain Changes. Except as disclosed in the Target SEC
Reports filed and publicly available prior to the date hereof, as set forth in
Section 4.8 of the Target Disclosure Schedule or as contemplated by this
Agreement, since December 31, 2001 (a) Target has conducted its business only in
the ordinary course of business consistent with past practices, (b) there has
not been any change or development, or combination of changes or developments
that, individually or in the aggregate, would have a Target Material Adverse
Effect, (c) except with respect to the Target D Preferred Shares, there has not
been any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Target, or any
repurchase, redemption or other acquisition by Target of any outstanding shares
of capital stock or other securities of, or other ownership interests in,
Target, (d) there has not been any amendment of any term of any outstanding
security of Target, and (e) there has not been any change in any method of
accounting or accounting practice by Target, except for any such change required
because of a concurrent change in GAAP.
4.9 Taxes. Except as otherwise disclosed in Section 4.9 of the Target
Disclosure Schedule and for matters that would have no adverse effect on Target:
11
(a) Target has timely filed (or have had timely filed on their
behalf) or will file or cause to be timely filed, all material Tax Returns (as
defined below) required by applicable law to be filed by any of them prior to or
as of the Closing Date. As of the time of filing, the foregoing Tax Returns
correctly reflected the material facts regarding the income, business, assets,
operations, activities, status, or other matters of Target or any other
information required to be shown thereon. An extension of time within which to
file a Tax Return that has not been filed has not been requested or granted.
(b) Target has paid (or has had paid on its behalf), or where
payment is not yet due, has established (or has had established on its behalf
and for its sole benefit and recourse), or will establish or cause to be
established on or before the Closing Date, an adequate accrual for the payment
of all material Taxes (as defined below) due with respect to any period ending
prior to or as of the Closing Date.
(c) No Audit (as defined below) by a Tax Authority (as defined
below) is pending or to the knowledge of Target, threatened, with respect to any
Tax Returns filed by, or Taxes due from, Target. No issue has been raised by any
Tax Authority in any Audit of Target that if raised with respect to any other
period not so audited could be expected to result in a material proposed
deficiency for any period not so audited. No material deficiency or adjustment
for any Taxes has been, proposed, asserted, assessed or to the knowledge of
Target, threatened, against Target. There are no liens for Taxes upon the assets
of Target, except liens for current Taxes not yet delinquent.
(d) Target has neither given or been requested to give any waiver
of statutes of limitations relating to the payment of Taxes or have executed
powers of attorney with respect to Tax matters, which will be outstanding as of
the Closing Date.
(e) Prior to the date hereof, Target has disclosed and provided or
made available true and complete copies to Parent of, all material Tax sharing,
Tax indemnity, or similar agreements to which Target is a party to, is bound by,
or has any obligation or liability for Taxes.
(f) In this Agreement, (i) "Audit" means any audit, assessment of
Taxes, other examination by any Tax Authority, proceeding or appeal of such
proceeding relating to Taxes; (ii) "Taxes" means all Federal, state, local and
foreign taxes, and other assessments of a similar nature (whether imposed
directly or through withholding), including any interest, additions to tax, or
penalties applicable thereto; (iii) "Tax Authority" means the Internal Revenue
Service and any other domestic or foreign Governmental Authority responsible for
the administration of any Taxes; and (iv) "Tax Returns" means all Federal,
state, local and foreign tax returns, declarations, statements, reports,
schedules, forms and information returns and any amended Tax Return relating to
Taxes.
(g) Except for the group of which Target is currently a member,
Target has never been a member of an affiliated group of corporations, within
the meaning of Section 1504 of the Code.
12
(h) Target has not agreed to make nor is it required to make any
adjustment under Section 481(a) of the Code by reason of change in accounting
method or otherwise.
4.10 Litigation. Except as disclosed in the Target SEC Reports filed and
publicly available prior to the date hereof or Section 4.10 of the Target
Disclosure Schedule and for matters that would not have a Target Material
Adverse Effect, there is no suit, claim, action, proceeding or investigation
pending or, to Target's knowledge, threatened against or directly affecting
Target or any of the directors or officers of Target in their capacity as such,
nor is there any reasonable basis therefor that could reasonably be expected to
have a Target Material Adverse Effect, if adversely determined. Neither Target
nor any officer, director or employee of Target has been permanently or
temporarily enjoined by any order, judgment or decree of any court or any other
Governmental Authority from engaging in or continuing any conduct or practice in
connection with the business, assets or properties of Target nor, to the
knowledge of Target, is Target or any officer, director or employee of Target
under investigation by any Governmental Authority. Except as disclosed in the
Target SEC Reports filed and publicly available prior to the date hereof or
Section 4.10 of the Target Disclosure Schedule, there is no order, judgment or
decree of any court or other tribunal or other agency extant enjoining or
requiring Target to take any action of any kind with respect to its business,
assets or properties. Notwithstanding the foregoing, no representation or
warranty in this Section 4.10 is made with respect to Environmental Laws, which
are covered exclusively by the provisions set forth in Section 4.12.
4.11 Employee Benefit Plans; ERISA.
(a) Section 4.11(a)(1) of the Target Disclosure Schedule contains a
true and complete list of the individual or group employee benefit plans or
arrangements of any type (including plans described in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
sponsored, maintained or contributed to by Target or any trade or business,
whether or not incorporated, which together with Target would be deemed a
"single employer" within the meaning of Section 414(b), (c) or (m) of the Code
or Section 4001(b)(1) of ERISA (a "Target ERISA Affiliate") within six years
prior to the Effective Time ("Target Benefit Plans"), and Section 4.11(a)(2) of
the Target Disclosure Schedule lists each individual employment, severance or
similar agreement with respect to which Target or any Target ERISA Affiliate has
any current or future obligation or liability other than the Target Severance
Policy (as defined below) ("Target Employee Agreement").
(b) Except as set forth in Section 4.11(b) of the Target Disclosure
Schedule, with respect to each Target Benefit Plan: (i) if intended to qualify
under Section 401(a) or 401(k) of the Code, such plan satisfies the requirements
of such sections, has received a favorable determination letter from the
Internal Revenue Service with respect to its qualification, and its related
trust has been determined to be exempt from tax under Section 501(a) of the Code
and, to the knowledge of Target, nothing has occurred since the date of such
letter to adversely affect such qualification or exemption; (ii) each such plan
has been administered in substantial compliance with its terms and applicable
law, except for any noncompliance with respect to any such plan that could not
reasonably be expected to result in a Target Material Adverse Effect; (iii)
neither Target nor any Target ERISA Affiliate has engaged in, and Target and
each Target ERISA Affiliate do not have any knowledge of any Person that has
engaged in, any transaction
13
or acted or failed to act in any manner that would subject Target or any Target
ERISA Affiliate to any liability for a breach of fiduciary duty under ERISA that
could reasonably be expected to result in a Target Material Adverse Effect; (iv)
no disputes are pending or, to the knowledge of Target or any Target ERISA
Affiliate, threatened; (v) neither Target nor any Target ERISA Affiliate has
engaged in, and Target and each Target ERISA Affiliate do not have any knowledge
of any Person that has engaged in, any transaction in violation of Section
406(a) or (b) of ERISA or Section 4975 of the Code for which no exemption exists
under Section 408 of ERISA or Section 4975(c) of the Code or Section 4975(d) of
the Code that could reasonably be expected to result in a Target Material
Adverse Effect; (vi) there have been no "reportable events" within the meaning
of Section 4043 of ERISA for which the 30 day notice requirement of ERISA has
not been waived by the Pension Benefit Guaranty Corporation (the "PBGC"); (vii)
all contributions due have been made on a timely basis (within, where
applicable, the time limit established under Section 302 of ERISA or Code
Section 412); (viii) no notice of intent to terminate such plan has been given
under Section 4041 of ERISA and no proceeding has been instituted under Section
4042 of ERISA to terminate such plan; and (ix) except for defined benefit plans
(if applicable), such plan may be terminated on a prospective basis without any
continuing liability for benefits other than benefits accrued to the date of
such termination. All contributions made or required to be made under any Target
Benefit Plan meet the requirements for deductibility under the Code, and all
contributions which are required and which have not been made have been properly
recorded on the books of Target or a Target ERISA Affiliate.
(c) No Target Benefit Plan is a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning
of Section 413(c) of the Code). No event has occurred with respect to Target or
a Target ERISA Affiliate in connection with which Target could be subject to any
liability, lien or encumbrance with respect to any Target Benefit Plan or any
employee benefit plan described in Section 3(3) of ERISA maintained, sponsored
or contributed to by a Target ERISA Affiliate under ERISA or the Code, except
for regular contributions and benefit payments in the ordinary course of plan
business.
(d) Except as set forth in Section 4.11(d) of the Target Disclosure
Schedule, no present or former employees of Target are covered by any Target
Employee Agreements or plans that provide or will provide severance pay,
post-termination health or life insurance benefits (except as required pursuant
to Section 4980(B) of the Code) or any similar benefits, and the consummation of
the Transactions shall not cause any payments or benefits to any employee to be
either subject to an excise tax or non-deductible to Target under Sections 4999
and 280G of the Code, respectively.
(e) Attached as Section 4.11(e) of the Target Disclosure Schedule
is a current list of Target's employees (the "Target Employees"), a copy of
Target's severance policy (the "Target Severance Policy"), a severance package
table (the "Severance Package Table") which lists the maximum amount of all
severance pay that may be paid to Target Employees, and a list of Target
Employees with written employment agreements, written letter agreements,
agreements covered by resolution of the Target Board of Directors addressing
specific employees, or other agreements set forth in Section 4.11(a)(2) of the
Target Disclosure Schedule ("Contract Employees").
14
4.12 Environmental Liability. Except as set forth in Section 4.12 of the
Target Disclosure Schedule or as could not reasonably be expected to result in
liabilities that have a Target Material Adverse Effect:
(a) The businesses of Target has been and are operated in material
compliance with all applicable federal, state and local statutes, ordinances,
restrictions, licenses, rules, orders, regulations, permit conditions,
injunctive obligations, standard, and legal requirements relating to the
protection of the environment and human health, including the common law and the
Federal Clean Water Act, Safe Drinking Water Act, Resource Conservation &
Recovery Act, Clean Air Act, Outer Continental Shelf Lands Act, Comprehensive
Environmental Response, Compensation and Liability Act, and Emergency Planning
and Community Right to Know Act, each as amended and currently in effect
(together, "Environmental Laws").
(b) Target has not caused or allowed the generation, treatment,
manufacture, processing, distribution, use, storage, discharge, release,
disposal, transport or handling of any chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum, petroleum products or
any substance regulated under any Environmental Law (together, "Hazardous
Substances"), except in material compliance with all Environmental Laws, and, to
Target's knowledge, no generation, treatment, manufacture, processing,
distribution, use, storage, discharge, release, disposal, transport or handling
of any Hazardous Substances has occurred at any property or facility owned,
leased or operated by Target except in material compliance with all
Environmental Laws.
(c) Target has not received any written notice from any
Governmental Authority or third party or, to the knowledge of Target, any other
communication alleging or concerning any material violation by Target of, or
responsibility or liability of Target under, any Environmental Law. There are no
pending, or to the knowledge of Target, threatened, claims, suits, actions,
proceedings or investigations with respect to the businesses or operations of
Target alleging or concerning any material violation of, or responsibility or
liability under, any Environmental Law, nor does Target have any knowledge of
any fact or condition that could give rise to such a claim, suit, action,
proceeding or investigation.
(d) Target is in possession of and is in compliance with all
material approvals, permits, licenses, registrations and similar authorizations
from all Governmental Authorities under all Environmental Laws required for the
operation of the businesses of Target; there are no pending or, to the knowledge
of Target, threatened, actions, proceedings or investigations alleging
violations of or seeking to modify, revoke or deny renewal of any of such
approvals, permits, licenses, registrations and authorizations; and Target does
not have knowledge of any fact or condition that is reasonably likely to give
rise to any action, proceeding or investigation regarding the violation of or
seeking to modify, revoke or deny renewal of any of such approvals, permits,
licenses, registrations and authorizations.
(e) Without in any way limiting the generality of the foregoing,
(i) to Target's knowledge, all offsite locations where Target has transported,
released, discharged, stored, disposed or arranged for the disposal of Hazardous
Substances are licensed and operating as required by law and (ii) no
polychlorinated biphenyls ("PCBs"), PCB-containing items,
15
asbestos-containing materials, or radioactive materials are used or stored at
any property owned, leased or operated by Target except in material compliance
with Environmental Laws.
(f) No claims have been asserted or, to Target's knowledge,
threatened to be asserted against Target for any personal injury (including
wrongful death) or property damage (real or personal) arising out of alleged
exposure or otherwise related to Hazardous Substances used, handled, generated,
transported or disposed by Target.
4.13 Compliance with Applicable Laws. Target holds all material
approvals, licenses, permits, registrations and similar type authorizations
necessary for the lawful conduct of its business, as now conducted, and such
business is being, and Target has not received any notice from any Person that
any such business has been or is being, conducted in violation of any law,
ordinance or regulation, including any law, ordinance or regulation relating to
occupational health and safety, except for possible violations which either
individually or in the aggregate have not resulted and would not result in a
Target Material Adverse Effect; provided, however, notwithstanding the
foregoing, no representation or warranty in this Section 4.13 is made with
respect to Environmental Laws, which are covered exclusively in Section 4.12.
4.14 Insurance. Section 4.14 of the Target Disclosure Schedule lists
each insurance policy relating to Target currently in effect. Target has made
available to Parent a true, complete and correct copy of each such policy or the
binder therefor. With respect to each such insurance policy or binder none of
Target or any other party to the policy is in breach or default thereunder
(including with respect to the payment of premiums or the giving of notices),
and Target does not know of any occurrence or any event which (with notice or
the lapse of time or both) would constitute such a breach or default or permit
termination, modification or acceleration under the policy, except for such
breaches or defaults which, individually or in the aggregate, would not result
in a Target Material Adverse Effect. Section 4.14 of the Target Disclosure
Schedule describes any self-insurance arrangements affecting Target.
4.15 Labor Matters; Employees.
(a) Except as set forth in Section 4.15 of the Target Disclosure
Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the knowledge of Target, threatened against or
affecting Target and, during the past five years, there has not been any such
action, (ii) Target is not a party to or bound by any collective bargaining or
similar agreement with any labor organization, or work rules or practices agreed
to with any labor organization or employee association applicable to employees
of Target, (iii) none of the employees of Target are represented by any labor
organization and Target does not have any knowledge of any current union
organizing activities among the employees of Target nor does any question
concerning representation exist concerning such employees, (iv) Target has at
all times been in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, and is not engaged in any unfair labor
practices as defined in the National Labor Relations Act or other applicable
law, ordinance or regulation, (v) there is no unfair labor practice charge or
complaint against Target pending or, to the knowledge of Target, threatened
before the National Labor Relations Board or any similar state or foreign
agency, (vi) there is no grievance or arbitration proceeding arising out of any
collective bargaining agreement or other
16
grievance procedure relating to Target, (vii) neither the Occupational Safety
and Health Administration nor any other federal or state agency has threatened
to file any citation, and there are no pending citations, relating to Target,
and (viii) there is no employee or governmental claim or investigation,
including any charges to the Equal Employment Opportunity Commission or state
employment practice agency, investigations regarding Fair Labor Standards Act
compliance, audits by the Office of Federal Contractor Compliance Programs,
Workers' Compensation claims, sexual harassment complaints or demand letters or
threatened claims.
(b) Since the enactment of the Worker Adjustment and Retraining
Notification Act of 1988 ("WARN Act"), Target has not effectuated (i) a "plant
closing" (as defined in the WARN Act) affecting any site of employment or one or
more facilities or operating units within any site of employment or facility of
Target, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site
of employment or facility of Target, nor has Target been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law, in each case
that could reasonably be expected to have a Target Material Adverse Effect.
4.16 Reserve Reports.
(a) All information (excluding assumptions and estimates, but
including the statement of the percentage of reserves from the oil and gas wells
and other interests evaluated therein to which Target is entitled and the
percentage of the costs and expenses related to such wells or interests to be
borne by Target) supplied to Ryder Scott Company, L.P. by or on behalf of Target
that was material to such firm's estimates of proved oil and gas reserves
attributable to the Oil and Gas Interests (as hereinafter defined) of Target in
connection with the preparation of the proved oil and gas reserve reports
concerning the Oil and Gas Interests of Target as of December 31, 2002 and
prepared by such engineering firm (the "Target Reserve Report") was (at the time
supplied or as modified or amended prior to the issuance of the Target Reserve
Report) to Target's knowledge accurate in all material respects and Target has
no knowledge of any material errors in such information that existed at the time
of such issuance. For this Agreement "Oil and Gas Interests" means direct and
indirect interests in and rights with respect to oil, gas, mineral, and related
properties and assets of any kind and nature, direct or indirect, including
working, leasehold and mineral interests and operating rights and royalties,
overriding royalties, production payments, net profit interests and other
non-working interests and non-operating interests; all interests in rights with
respect to oil, condensate, gas, casinghead gas and other liquid or gaseous
hydrocarbons (collectively, "Hydrocarbons") and other minerals or revenues
therefrom, all contracts in connection therewith and claims and rights thereto
(including all oil and gas leases, operating agreements, unitization and pooling
agreements and orders, division orders, transfer orders, mineral deeds, royalty
deeds, oil and gas sales, exchange and processing contracts and agreements, and
in each case, interests thereunder), surface interests, fee interests,
reversionary interests, reservations, and concessions; all easements, rights of
way, licenses, permits, leases, and other interests associated with, appurtenant
to, or necessary for the operation of any of the foregoing; and all interests in
equipment and machinery (including wells, well equipment and machinery), oil and
gas production, gathering, transmission, treating, processing, and storage
facilities (including tanks, tank batteries, pipelines, and gathering systems),
pumps, water plants, electric plants, gasoline and gas processing plants,
refineries, and
17
other tangible personal property and fixtures associated with, appurtenant to,
or necessary for the operation of any of the foregoing.
(b) Set forth in Section 4.16(b) of the Target Disclosure Schedule
is a list of all material Oil and Gas Interests that were included in the Target
Reserve Report that have been disposed of prior to the date hereof.
4.17 Permits. Immediately prior to the Effective Time and except for
Customary Post-Closing Consents, Target holds all of the permits, licenses,
certificates, consents, approvals, entitlements, plans, surveys, relocation
plans, environmental impact reports and other authorizations of Governmental
Authorities ("Permits") required or necessary to construct, own, operate, use
and/or maintain its properties and conduct its operations as presently
conducted, except for such Permits, the lack of which, individually or in the
aggregate, would not have a Target Material Adverse Effect; provided, however,
that notwithstanding the foregoing, no representation or warranty in this
Section 4.17 is made with respect to Permits issued pursuant to Environmental
Laws, which are covered exclusively in Section 4.12.
4.18 Material Contracts.
(a) Set forth in Section 4.18(a) of the Target Disclosure Schedule
or the Target SEC Reports is a list of each contract, lease, indenture,
agreement, arrangement or understanding to which Target is subject that is
currently in effect and is of a type that would be required to be included as an
exhibit to a Form S-1 Registration Statement pursuant to the rules and
regulations of the SEC if such a registration statement were filed by Target
(collectively, the "Target Material Contracts").
(b) Except as set forth in Section 4.18(a) or 4.18(b) of the Target
Disclosure Schedule or the Target SEC Reports, the Oil and Gas Interests of
Target are not subject to (i) any instrument or agreement evidencing or related
to indebtedness for borrowed money, whether directly or indirectly, or (ii) any
agreement not entered into in the ordinary course of business in which the
amount involved is in excess of $1,000,000. In addition, (A) all Target Material
Contracts the valid and legally binding obligations of Target, and to the
knowledge of Target, each of the other parties thereto and are enforceable in
accordance with their respective terms; (B) Target is not in material breach or
default with respect to, and to the knowledge of Target, no other party to any
Target Material Contract is in material breach or default with respect to, its
obligations thereunder, including with respect to payments or otherwise; (C) no
party to any Target Material Contract has given notice of any action to
terminate, cancel, rescind or procure a judicial reformation thereof; and (D)
except as set forth in the Target SEC reports no Target Material Contract
contains any provision that prevents Target from owning, managing and operating
the Oil and Gas Interests of Target in accordance with historical practices.
4.19 Required Stockholder Vote or Consent. The only votes or written
consents of the holders of any class or series of Target's capital stock
necessary to consummate the Transactions are (i) the adoption of this Agreement
by the holders of a majority of the votes entitled to be cast by holders of
Target Common Shares and (ii) the adoption of the Agreement by the holders of a
majority of the votes entitled to be cast by holders of Target D Preferred
Shares if such shares are outstanding at the time of such meeting (collectively
the "Target Stockholders' Approval").
18
4.20 Proxy/Prospectus; Registration Statement. None of the information
to be supplied by Target for inclusion in (a) the joint proxy statement relating
to the Target Special Meeting and the Parent Special Meeting (in each case, as
defined below) (also constituting the prospectus in respect of Parent Common
Shares into which Target Common Shares will be converted) (the
"Proxy/Prospectus"), to be filed by Target and Parent with the SEC, and any
amendments or supplements thereto, or (b) the Registration Statement on Form S-4
(the "Registration Statement") to be filed by Parent with the SEC in connection
with the Merger, and any amendments or supplements thereto, will, at the
respective times such documents are filed, and, in the case of the
Proxy/Prospectus, at the time the Proxy/Prospectus or any amendment or
supplement thereto is first mailed to the Target stockholders, at the time of
the Target Special Meeting and the Parent Special Meeting and at the Effective
Time, and, in the case of the Registration Statement, when it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be made therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
4.21 Intellectual Property. Target owns, or licenses or otherwise has
the right to use, all patents, patent rights, trademarks, rights, trade names,
trade name rights, service marks, service mark rights, copyrights, technology,
know-how, processes and other proprietary intellectual property rights and
computer programs ("Intellectual Property") currently used in the conduct of the
business of Target, except where the failure to so own or otherwise have the
right to use such Intellectual Property would not, individually or in the
aggregate, have a Target Material Adverse Effect. No Person has notified Target
that its use of such Intellectual Property infringes on the rights of any
Person, subject to such claims and infringements as do not, individually or in
the aggregate, give rise to any liability on the part of Target that could have
a Target Material Adverse Effect, and, to Target's knowledge, no Person is
infringing on any right of Target with respect to any such Intellectual
Property. No claims are pending or, to Target's knowledge, threatened that
Target is infringing or otherwise adversely affecting the rights of any Person
with regard to any Intellectual Property.
4.22 Hedging. Section 4.22 of the Target Disclosure Schedule sets forth
for the periods shown obligations of Target for the delivery of Hydrocarbons
attributable to any of the properties of Target in the future on account of
prepayment, advance payment, take-or-pay or similar obligations without then or
thereafter being entitled to receive full value therefor. Except as set forth in
Section 4.22 of the Target Disclosure Schedule, as of the date hereof, Target is
not bound by futures, hedge, swap, collar, put, call, floor, cap, option or
other contracts that are intended to benefit from, relate to or reduce or
eliminate the risk of fluctuations in the price of commodities, including
Hydrocarbons, or securities.
4.23 Brokers. No broker, finder or investment banker (other than Credit
Suisse First Boston LLC or Bear Stearns, the fees and expenses of which will be
paid by Target) is entitled to any brokerage, finder's fee or other fee or
commission payable by Target in connection with the Transactions based upon
arrangements made by and on behalf of Target. True and correct copies of all
agreements and engagement letters currently in effect with Credit Suisse First
Boston LLC or Bear Stearns (the "Target Engagement Letters") have been provided
to Parent.
19
4.24 Tax-Free Reorganization. Neither Target nor, to the knowledge of
Target, any of its affiliates has taken or agreed to take any action that would
prevent the Merger from constituting a reorganization within the meaning of
Section 368(a) of the Code. Without limiting the generality of the foregoing:
(a) The Merger will be carried out strictly in accordance with this
Agreement and the Ancillary Agreement, and there are no other written or oral
agreements regarding the Merger other than those expressly referred to in this
Agreement.
(b) The fair market value of Parent Common Shares and cash received
by each holder of Target Common Shares in connection with the Merger will be
approximately equal to the fair market value of the shares of Target Common
Shares surrendered in the exchange.
(c) To the best knowledge of Target, neither Parent nor Merger Sub
nor any Related Person (defined below) has any plan or intention to redeem or
otherwise reacquire, directly or indirectly, any Parent Common Shares to be
issued in the Merger.
(d) To the best knowledge of Target, the aggregate fair market
value, determined at the Effective Time, of the Parent Common Shares to be
received in the Merger will not be less than forty percent (40%) of the value,
determined at the Effective Time, of Target Common Shares and any warrants to
purchase Target Common Shares ("Target Warrants") outstanding immediately before
the Effective Time. For this purpose, it is assumed that the fair market value
of the outstanding Target Common Shares and Target Warrants will equal the fair
market value of the aggregate Merger Consideration.
(e) Prior to the Effective Time and in connection with or
anticipation of the Merger, (i) none of the Target Common Shares will be
redeemed, (ii) no extraordinary distribution will be made with respect to Target
Common Shares, and (iii) none of the Target Common Shares will be acquired by
Target or any Related Person.
(f) Target will redeem its outstanding Series D Preferred Stock
immediately before the Merger solely with Target's funds. Parent will provide no
funds to Target, directly or indirectly, for Target to redeem such Series D
Preferred Stock or for Target to repay debt incurred to redeem such stock.
(g) The only capital stock of Target issued and outstanding is
Target Common Stock and Series D Preferred Stock.
(h) Target and Target stockholders will each pay their respective
expenses, if any, incurred in connection with the Merger.
(i) Any compensation paid to the Target stockholders who enter (or
have entered) into employment, consulting or noncompetitive contracts, if any,
with Parent, Merger Sub, or the Surviving Corporation (a) will be for services
actually rendered or to be rendered, (b) will be commensurate with amounts paid
to third parties bargaining at arm's length for similar services, and (c) will
not represent consideration for the surrender of the Target Common Shares in the
Merger.
20
(j) No debt of Target is guaranteed by any Target stockholder.
(k) Target owns no stock of Parent.
(l) Merger Sub will acquire at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%) of the gross
assets held by Target immediately prior to the Merger. For purposes of this
representation, amounts paid by Target to dissenters, amounts paid by Target to
stockholders who receive cash or other property, Target assets used to pay its
reorganization expenses, and all redemptions and distributions (including the
redemption of the Series D Preferred Stock, but excluding regular, normal
dividends) made by Target immediately preceding the transfer, will be included
in assets of Target held immediately prior to the Merger.
(m) No assets of Target have been sold, transferred or otherwise
disposed of which would prevent Parent from continuing the historic business of
Target or from using a significant portion of Target's historic business assets
in a business following the Merger. Target intends to continue its historic
business or use a significant portion of its historic business assets in a
business.
(n) Target is not an investment company as defined in Section
368(a)(2)(F) of the Code. An investment company is (a) a regulated investment
company; (b) a real estate investment trust; or (c) a corporation (i) fifty
percent (50%) or more of the value of whose total assets are stock and
securities, and (ii) eighty percent (80%) or more of the value of whose total
assets are held for investment. For this purpose, "total assets" shall not
include cash and cash items (including receivables) and government securities.
(o) The fair market value of the assets of Target transferred to
Merger Sub in the Merger will equal or exceed the sum of the liabilities assumed
or paid by Parent or Merger Sub, plus the amount of liabilities, if any, to
which the transferred assets are subject.
(p) The total adjusted basis of the assets of Target transferred to
Merger Sub in the Merger will equal or exceed the sum of the liabilities assumed
or paid by Parent or Merger Sub, plus the amount of liabilities, if any, to
which the transferred assets are subject.
(q) Target is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(r) There is no intercorporate indebtedness existing between Parent
and Target, or between Merger Sub and Target, that was or will be issued,
acquired, or settled at a discount in connection with the Merger.
(s) Target has substantial non-tax business purposes and reasons for
the Merger, and the terms of the Merger are the product of arm's length
negotiations.
(t) Target will not take, and Target is not aware of any plan or
intention of any of the Target stockholders to take, any position on any
federal, state or local income or franchise tax return, or take any other tax
reporting position, that is inconsistent with the
21
treatment of the Merger as a reorganization within the meaning of Section 368(a)
of the Code, unless otherwise required by a "determination" (as defined in Code
Section 1313(a)(1)).
(u) No stock or securities of Target, or to the knowledge of Target,
no stock or securities of Parent, will be issued to any Target stockholder for
services rendered to or for the benefit of Parent, Merger Sub, or Target in
connection with the Merger.
(v) No stock or securities of Parent or of Target will be issued to
any Target stockholder for any indebtedness owed to any Target stockholder in
connection with the Merger.
(w) The liabilities of Target to be assumed or paid by Parent and
Merger Sub and the liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its business.
(x) No assets were transferred to Target, nor did Target assume any
liabilities, in anticipation of the Merger.
(y) The undersigned officer is authorized to make all of the
certifications and representations set forth herein.
For purposes of this section, a "Related Person" with respect to
either Parent or Merger Sub shall mean
(i) a corporation that, immediately before or immediately after a
purchase, exchange, redemption, or other acquisition of Parent Common Stock, is
a member of an Affiliated Group (as defined herein) of which Parent (or any
successor corporation) is a member, or
(ii) a corporation in which Parent (or any successor corporation),
owns, or which owns with respect to Parent (or any successor corporation),
directly or indirectly, immediately before or immediately after such purchase,
exchange, redemption, or other acquisition, at least 50% of the total combined
voting power of all classes of stock entitled to vote or at least 50% of the
total value of shares of all classes of stock, taking into account for purposes
of this clause (ii) any stock owned by 5% or greater stockholders of Parent (or
any successor) or such corporation, a proportionate share of the stock owned by
entities in which Parent (or any successor) or such corporation owns an
interest, and any stock which may be acquired pursuant to the exercise of
options.
For purposes of this section, "Affiliated Group" shall mean one or
more chains of corporations connected through stock ownership with a common
parent corporation, but only if
(x) the common parent owns directly stock that possesses at least 80%
of the total voting power, and has a value at least equal to 80% of the total
value, of the stock in at least one of the other corporations, and
(y) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in each
corporation (except the common parent) is owned directly by one or more of the
other corporations.
22
For purposes of the preceding sentence, "stock" does not include any stock
that (a) is not entitled to vote, (b) is limited and preferred as to dividends
and does not participate in corporate growth to any significant extent, (c) has
redemption and liquidation rights that do not exceed the issue price of such
stock (except for a reasonable redemption or liquidation premium), and (d) is
not convertible into another class of stock.
4.25 Fairness Opinion. Target's Board of Directors has received a written
opinion from each of Credit Suisse First Boston LLC and Bear Stearns to the
effect that, as of the date of such opinions, the Common Conversion
Consideration is fair, from a financial point of view, to the holders of the
Target Common Shares. True and complete copies of such opinion have been given
to Parent.
4.26 Takeover Laws. Target and Target's Board of Directors have each taken
all actions necessary to be taken such that no restrictive provision of any
"moratorium," "control share acquisition," "fair price," "interested
shareholder," "affiliate transaction," "business combination," or other similar
anti-takeover statutes, laws or regulations of any state, including the State of
Delaware and Section 203 of the DGCL, or any applicable anti-takeover provision
in the certificate of incorporation or bylaws of the Target, is, or at the
Effective Time will be, applicable to Target, Parent, Merger Sub, Target Common
Shares or Target D Preferred Shares, the Voting Agreements, this Agreement or
the Transactions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
Target as follows:
5.1 Organization and Qualification.
(a) Each of Parent and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified to do business as a foreign corporation and is in good
standing in the jurisdictions set forth in Section 5.1(a) of the disclosure
letter delivered by Parent to Target contemporaneously with the execution hereof
(the "Parent Disclosure Schedule"), which include each jurisdiction in which the
character of Parent's or Merger Sub's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where the
failure to be so qualified would not result in a Parent Material Adverse Effect
(as defined below). Each Parent Party has all requisite corporate power and
authority to own, use or lease its properties and to carry on its business as it
is now being conducted. Each Parent Party has made available to Target a
complete and correct copy of its certificate of incorporation and bylaws, each
as amended to date, and Parent's and Merger Sub's certificate of incorporation
and bylaws as so delivered are in full force and effect. Neither Parent nor
Merger Sub is in default in any respect in the performance, observation or
fulfillment of any provision of its certificate of incorporation or bylaws.
Merger Sub is a direct, wholly owned subsidiary of Parent formed solely for the
purpose of effecting the Merger and has conducted no activity and has incurred
no liability or obligation other than as contemplated by this Agreement.
23
(b) Section 5.1(b) of the Parent Disclosure Schedule lists the name
and jurisdiction of organization of each Subsidiary of Parent (other than Merger
Sub) and the jurisdictions in which each such Subsidiary is qualified or holds
licenses to do business as a foreign corporation or other organization as of the
date hereof. Each of Parent's Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business as a foreign corporation and is
in good standing in the jurisdictions listed in Section 5.1(b) of the Parent
Disclosure Schedule, which includes each jurisdiction in which the character of
such Subsidiary's properties or the nature of its business makes such
qualification necessary, except in jurisdictions, if any, where the failure to
be so qualified would not result in a Parent Material Adverse Effect. Each of
Parent's Subsidiaries has the requisite corporate power and authority to own,
use or lease its properties and to carry on its business as it is now being
conducted and as it is now proposed to be conducted. Parent has made available
to Target a complete and correct copy of the certificate of incorporation and
bylaws (or similar organizational documents) of each of Parent's Subsidiaries,
each as amended to date, and the certificate of incorporation and bylaws (or
similar organizational documents) as so delivered are in full force and effect.
No Subsidiary of Parent is in default in any respect in the performance,
observation or fulfillment of any provision of its certificate of incorporation
or bylaws (or similar organizational documents). Other than Parent's
Subsidiaries, Parent does not beneficially own or control, directly or
indirectly, 5% or more of any class of equity or similar securities of any
corporation or other organization, whether incorporated or unincorporated.
(c) For this Agreement, a "Parent Material Adverse Effect" means any
event, circumstance, condition, development or occurrence causing, resulting in
or having (or with the passage of time likely to cause, result in or have) a
material adverse effect on the financial condition, business, assets,
properties, prospects or results of operations of Parent and its Subsidiaries,
taken as a whole; provided that, in no event shall any of the following be
deemed to constitute or be taken into account in determining a Parent Material
Adverse Effect: any event, circumstance, change or effect that results from (i)
changes affecting the economy generally, (ii) changes in the market price of oil
or natural gas, (iii) the public announcement or pending nature of the
Transactions, (iv) compliance with the terms of this Agreement, or (v) change in
the price of the Target Common Shares or the Parent Common Shares.
5.2 Capitalization.
(a) The authorized capital stock of Parent consists of 100,000,000
Parent Common Shares, and 5,000,000 shares of preferred stock of Parent, par
value $.01 per share. As of the date hereof, Parent has (i) 24,224,448 Parent
Common Shares issued and outstanding, (ii) no Parent Common Shares in treasury,
(iii) no shares of preferred stock outstanding (iv) no outstanding stock options
to acquire Parent Common Shares under any stock option plans or agreements of
Parent, and (v) no more than 4,023,834 stock appreciation rights of Parent. All
the outstanding Parent Common Shares are validly issued, fully paid and
nonassessable, and free of preemptive rights. Except as set forth above, and
other than this Agreement, there are no outstanding subscriptions, options,
rights, warrants, convertible securities, stock appreciation rights, phantom
equity, or other agreements or commitments (including "rights plans" or "poison
pills") obligating Parent to issue, transfer, sell, redeem, repurchase or
otherwise acquire any shares of its capital stock of any class. Except as
contemplated by the Voting Agreement, there
24
are no agreements, arrangements or other understandings with respect to the
right to vote any shares of capital stock of Parent.
(b) Except as set forth in Section 5.2(b) Parent Disclosure Letter,
Parent is, directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each Parent Subsidiary, there are no
irrevocable proxies with respect to any such shares, and no equity securities of
any Parent Subsidiary are or may become required to be issued because of any
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
or exercisable for, shares of any capital stock of any Parent Subsidiary, and
there are no contracts, commitments, understandings or arrangements by which
Parent or any Parent Subsidiary is or may be bound to issue additional shares of
capital stock of any Parent Subsidiary or securities convertible into or
exchangeable or exercisable for any such shares. Except as set forth in Section
5.2(b) to the Parent Disclosure Schedule, all of such shares so owned by Parent
are validly issued, fully paid and nonassessable and are owned by it free and
clear of all Liens.
5.3 Authority. Each of Parent and, solely with respect to this Agreement,
Merger Sub, has full corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which it is or will be a party and,
subject to obtaining the Parent Share Issuance Approval to consummate the
Transactions. The execution, delivery and performance of this Agreement and the
Ancillary Agreements to which it is or will be a party and the consummation of
the Transactions have been duly and validly authorized by each Parent Party's
Board of Directors, and no other corporate proceedings on the part of either
Parent Party are necessary to authorize this Agreement or the Ancillary
Agreements to which any of them are or will be a party or to consummate the
Transactions, other than the Parent Share Issuance Approval. This Agreement has
been, and the Ancillary Agreements to which Parent or Merger Sub is or will be a
party are, or upon execution will be, duly and validly executed and delivered by
each Parent Party and, assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto, constitutes or upon
execution will constitute, valid and binding obligations of each Parent Party
enforceable against such Persons in accordance with their respective terms,
except for the Enforceability Exception.
5.4 Consents and Approvals; No Violation. The execution and delivery of
this Agreement, the consummation of the Transactions and the performance by each
Parent Party of its obligations hereunder will not:
(a) subject to obtaining the Parent Share Issuance Approval, conflict
with any provision of the certificate of incorporation or bylaws, as amended, of
Parent or the certificates of incorporation or bylaws (or other similar
organizational documents) of any of its Subsidiaries;
(b) subject to obtaining the Parent Share Issuance Approval and the
filing of the Certificate of Merger with the Secretary of State of Delaware,
require any consent, waiver, approval, order, authorization or permit of, or
registration, filing with or notification to, (i) any Governmental Authority,
except for applicable requirements of the Securities Act, the Exchange Act,
state laws relating to takeovers, if applicable, state securities or blue sky
laws, and Customary Post-Closing Consents or (ii) except as set forth in Section
5.4(b) of the Parent Disclosure Schedule, any third party other than a
Governmental Authority, other than such non-
25
Governmental Authority third party consents, waivers, approvals, orders,
authorizations and permits that would not (i) result in a Parent Material
Adverse Effect, (ii) materially impair the ability of Parent or any of its
Subsidiaries to perform its obligations under this Agreement or any Ancillary
Agreement or (iii) prevent the consummation of any of the Transactions;
(c) except as set forth in Section 5.4(c) of the Parent Disclosure
Schedule, result in any violation of or the breach of or constitute a default
(with notice or lapse of time or both) under, or give rise to any right of
termination, cancellation or acceleration or guaranteed payments or a loss of a
material benefit under, any of the terms, conditions or provisions of any note,
lease, mortgage, license, agreement or other instrument or obligation to which
Parent or any of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries or any of their respective properties or assets may be bound,
except for such violations, breaches, defaults, or rights of termination,
cancellation or acceleration, or losses as to which requisite waivers or
consents have been obtained or which, individually or in the aggregate, would
not (i) result in a Parent Material Adverse Effect, (ii) materially impair the
ability of Parent or any of its Subsidiaries to perform its obligations under
this Agreement or any Ancillary Agreement or (iii) prevent the consummation of
any of the Transactions;
(d) violate the provisions of any order, writ, injunction, judgment,
decree, statute, rule or regulation applicable to Parent or any of its
Subsidiaries;
(e) result in the creation of any Lien upon any material properties or
assets or on any shares of capital stock of Parent or its Subsidiaries (other
than Target and its Subsidiaries after the Effective Time) under any agreement
or instrument to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries or any of their properties or assets is bound;
or
(f) result in any holder of any securities of Parent being entitled to
appraisal, dissenters' or similar rights.
5.5 Parent SEC Reports. Parent has filed with the SEC each form,
registration statement, report, schedule, proxy or information statement and
other document (including exhibits and amendments thereto), filed with the SEC
since November 8, 2002 under the Securities Act or the Exchange Act
(collectively, the "Parent SEC Reports"). As of the respective dates such Parent
SEC Reports were filed or, if any such Parent SEC Reports were amended, as of
the date such amendment was filed, each Parent SEC Report, including any
financial statements or schedules included therein, (a) complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and the applicable rules and regulations promulgated
thereunder, and (b) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. No event since the date of the last Parent SEC
Report has occurred that would require Parent to file a Current Report on Form
8-K other than the execution of this Agreement.
5.6 Parent Financial Statements. Each of the audited consolidated
financial statements and unaudited consolidated interim financial statements of
Parent (including any
26
related notes and schedules) included (or incorporated by reference) in its
Report on Form 10 made effective on December 6, 2002 have been prepared from,
and are in accordance with, the books and records of Parent and its consolidated
Subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto and subject,
in the case of quarterly financial statements, to normal and recurring year-end
adjustments) and fairly present, in conformity with GAAP applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of Parent and its Subsidiaries as of the date thereof and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of Parent and its Subsidiaries for the periods presented
therein (subject to normal year-end adjustments and the absence of financial
footnotes in the case of any unaudited interim financial statements).
5.7 Absence of Undisclosed Liabilities. As of the date hereof, except (a)
as specifically disclosed in the Parent SEC Reports filed and publicly available
prior to the date hereof and (b) for liabilities and obligations incurred in the
ordinary course of business and consistent with past practice since December 31,
2001, neither Parent nor any of its Subsidiaries has incurred any liabilities or
obligations of any nature (contingent or otherwise) that would have a Parent
Material Adverse Effect.
5.8 Absence of Certain Changes. Except as disclosed in the Parent SEC
Reports filed and publicly available prior to the date hereof, as set forth in
Section 5.8 of the Parent Disclosure Schedule or as contemplated by this
Agreement, since December 31, 2001 (a) Parent and its Subsidiaries have
conducted their respective businesses only in the ordinary course of business
consistent with past practices, (b) there has not been any change or
development, or combination of changes or developments that, individually or in
the aggregate, would have a Parent Material Adverse Effect, (c) there has not
been any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Parent, or any
repurchase, redemption or other acquisition by Parent or any of its Subsidiaries
of any outstanding shares of capital stock or other securities of, or other
ownership interests in, Parent or any of its Subsidiaries, (d) there has not
been any amendment of any term of any outstanding security of Parent or any of
its Subsidiaries, and (e) there has not been any change in any method of
accounting or accounting practice by Parent or any of its Subsidiaries, except
for any such change required because of a concurrent change in GAAP or to
conform a Subsidiary's accounting policies and practices to those of Parent.
5.9 Taxes. Except as otherwise disclosed in Section 5.9 of the Parent
Disclosure Schedule and for matters that would not have a Parent Material
Adverse Effect:
(a) Parent and each of its Subsidiaries have timely filed (or have had
timely filed on their behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by any of them prior
to or as of the Closing Date. As of the time of filing, the foregoing Tax
Returns correctly reflected the facts regarding the income, business, assets,
operations, activities, status, or other matters of Parent or any other
information required to be shown thereon. An extension of time within which to
file a Tax Return that has not been filed has not been requested or granted.
27
(b) Parent and each of its Subsidiaries have paid (or have had paid on
their behalf), or where payment is not yet due, have established (or have had
established on their behalf and for their sole benefit and recourse), or will
establish or cause to be established on or before the Closing Date, an adequate
accrual for the payment of all material Taxes (as defined below) due with
respect to any period ending prior to or as of the Closing Date.
(c) No Audit by a Tax Authority is pending or, to the knowledge of
Parent, threatened with respect to any Tax Returns filed by, or Taxes due from,
Parent or any Subsidiary. No issue has been raised by any Tax Authority in any
Audit of Parent or any of its Subsidiaries that if raised with respect to any
other period not so audited could be expected to result in a material proposed
deficiency for any period not so audited. No material deficiency or adjustment
for any Taxes has been proposed, asserted, assessed, or, to the knowledge of
Parent, threatened against Parent or any of its Subsidiaries. There are no liens
for Taxes upon the assets of Parent or any of its Subsidiaries, except liens for
current Taxes not yet delinquent.
(d) Neither Parent nor any of its Subsidiaries has given or been
requested to give any waiver of statutes of limitations relating to the payment
of Taxes or have executed powers of attorney with respect to Tax matters, which
will be outstanding as of the Closing Date.
(e) Prior to the date hereof, Parent and its Subsidiaries have
disclosed, and provided or made available true and complete copies to Target of,
all material Tax sharing, Tax indemnity, or similar agreements to which Parent
or any of its Subsidiaries are a party to, is bound by, or has any obligation or
liability for Taxes.
(f) Neither Parent nor any of its Subsidiaries has given or been
requested to give any waiver of statutes of limitations relating to the payment
of Taxes or have executed powers of attorney with respect to Tax matters, which
will be outstanding as of the Closing Date.
(g) Prior to the date hereof, Parent and its Subsidiaries have
disclosed, and provided or made available true and complete copies to Target of,
all material Tax sharing, Tax indemnity, or similar agreements to which Parent
or any of its Subsidiaries are a party to, is bound by, or has any obligation or
liability for Taxes.
(h) Except as set forth in Section 5.9(h) of the Parent Disclosure
Schedule, and except for the group of which Parent is currently a member and any
group affiliated with Plains Resources Inc., Parent has never been a member of
an affiliated group of corporations, within the meaning of Section 1504 of the
Code.
(i) Parent has not agreed to make nor is it required to make any
adjustment under Section 481(a) of the Code by reason of change in accounting
method or otherwise.
(j) After consultation with counsel, Parent is aware of no facts which
would prevent its counsel from rendering the opinion set forth in Section 8.1(f)
5.10 Litigation. Except as disclosed in the Parent SEC Reports filed and
publicly available prior to the date hereof or Section 5.10 of the Parent
Disclosure Schedule and for matters that would not have a Parent Material
Adverse Effect, there is no suit, claim, action, proceeding or investigation
pending or, to Parent's knowledge, threatened against or directly
28
affecting Parent, any Subsidiaries of Parent or any of the directors or officers
of Parent or any of its Subsidiaries in their capacity as such, nor is there any
reasonable basis therefor that could reasonably be expected to have a Parent
Material Adverse Effect, if adversely determined. Neither Parent nor any of its
Subsidiaries, nor any officer, director or employee of Parent or any of its
Subsidiaries, has been permanently or temporarily enjoined by any order,
judgment or decree of any court or any other Governmental Authority from
engaging in or continuing any conduct or practice in connection with the
business, assets or properties of Parent or such Subsidiary, nor, to the
knowledge of Parent, is Parent, any Subsidiary or any officer, director or
employee of Parent or its Subsidiaries under investigation by any Governmental
Authority. Except as disclosed in the Parent SEC Reports filed and publicly
available prior to the date hereof or Section 5.10 of the Parent Disclosure
Schedule, there is no order, judgment or decree of any court or other tribunal
or other agency extant enjoining or requiring Parent or any of its Subsidiaries
to take any action of any kind with respect to its business, assets or
properties. Notwithstanding the foregoing, no representation or warranty in this
Section 5.10 is made with respect to Environmental Laws, which are covered
exclusively by the provisions set forth in Section 5.12.
5.11 Employee Benefit Plans; ERISA.
(a) Section 5.11(a)(1) of the Parent Disclosure Schedule contains a
true and complete list of the individual or group employee benefit plans or
arrangements of any type (including plans described in Section 3(3) of ERISA),
sponsored, maintained or contributed to by Parent or any trade or business,
whether or not incorporated, which together with Parent would be deemed a
"single employer" within the meaning of Section 414(b), (c) or (m) of the Code
or Section 4001(b)(1) of ERISA (a "Parent ERISA Affiliate") within six years
prior to the Effective Time ("Parent Benefit Plans"), and Schedule 5.11(a)(2) of
the Parent Disclosure Schedule lists each individual employment, severance or
similar agreement with respect to which Parent or any Parent ERISA Affiliate has
any current or future obligation or liability.
(b) With respect to each Parent Benefit Plan: (i) if intended to
qualify under Section 401(a) or 401(k) of the Code, such plan satisfies the
requirements of such sections, has received a favorable determination letter
from the Internal Revenue Service with respect to its qualification, and its
related trust has been determined to be exempt from tax under Section 501(a) of
the Code and, to the knowledge of Parent, nothing has occurred since the date of
such letter to adversely affect such qualification or exemption; (ii) each such
plan has been administered in substantial compliance with its terms and
applicable law, except for any noncompliance with respect to any such plan that
could not reasonably be expected to result in a Parent Material Adverse Effect;
(iii) neither Parent nor any Parent ERISA Affiliate has engaged in, and Parent
and each Parent ERISA Affiliate do not have any knowledge of any Person that has
engaged in, any transaction or acted or failed to act in any manner that would
subject Parent or any Parent ERISA Affiliate to any liability for a breach of
fiduciary duty under ERISA that could reasonably be expected to result in a
Parent Material Adverse Effect; (iv) no disputes are pending or, to the
knowledge of Parent or any Parent ERISA Affiliate, threatened; (v) neither
Parent nor any Parent ERISA Affiliate has engaged in, and Parent and each Parent
ERISA Affiliate do not have any knowledge of any Person that has engaged in, any
transaction in violation of Section 406(a) or (b) of ERISA or Section 4975 of
the Code for which no exemption exists under Section 408 of ERISA or Section
4975(c) of the Code or Section 4975(d) of the
29
Code that could reasonably be expected to result in a Parent Material Adverse
Effect; (vi) there have been no "reportable events" within the meaning of
Section 4043 of ERISA for which the 30 day notice requirement of ERISA has not
been waived by the Pension Benefit Guaranty Corporation (the "PBGC"); (vii) all
contributions due have been made on a timely basis (within, where applicable,
the time limit established under Section 302 of ERISA or Code Section 412);
(viii) no notice of intent to terminate such plan has been given under Section
4041 of ERISA and no proceeding has been instituted under Section 4042 of ERISA
to terminate such plan; and (ix) except for defined benefit plans (if
applicable), such plan may be terminated on a prospective basis without any
continuing liability for benefits other than benefits accrued to the date of
such termination. All contributions made or required to be made under any Parent
Benefit Plan meet the requirements for deductibility under the Code, and all
contributions which are required and which have not been made have been properly
recorded on the books of Parent or a Parent ERISA Affiliate.
(c) No Parent Benefit Plan is a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning
of Section 413(c) of the Code). No event has occurred with respect to Parent or
a Parent ERISA Affiliate in connection with which Parent could be subject to any
liability, lien or encumbrance with respect to any Parent Benefit Plan or any
employee benefit plan described in Section 3(3) of ERISA maintained, sponsored
or contributed to by a Parent ERISA Affiliate under ERISA or the Code, except
for regular contributions and benefit payments in the ordinary course of plan
business.
(d) Except as set forth in Section 5.11(d) of the Parent Disclosure
Schedule, no present or former employees of Parent or any of its Subsidiaries
are covered by any employee agreements or plans that provide or will provide
severance pay, post-termination health or life insurance benefits (except as
required pursuant to Section 4980(B) of the Code) or any similar benefits, and
the consummation of the Transactions shall not cause any payments or benefits to
any employee to be either subject to an excise tax or non-deductible to Parent
under Sections 4999 and 280G of the Code, respectively.
5.12 Environmental Liability. Except as set forth in Section 5.12 of the
Parent Disclosure Schedule or as could not reasonably be expected to result in
liabilities that have a Parent Material Adverse Effect:
(a) The businesses of Parent and its Subsidiaries have been and are
operated in material compliance with all Environmental Laws.
(b) Neither Parent nor any of its Subsidiaries has caused or allowed
the generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous Substances,
except in material compliance with all Environmental Laws, and, to Parent's
knowledge, no generation, treatment, manufacture, processing, distribution, use,
storage, discharge, release, disposal, transport or handling of any Hazardous
Substances has occurred at any property or facility owned, leased or operated by
Parent for any of its Subsidiaries except in material compliance with all
Environmental Laws.
30
(c) Neither Parent nor any of its Subsidiaries has received any
written notice from any Governmental Authority or third party or, to the
knowledge of Parent, any other communication alleging or concerning any material
violation by Parent or any of its Subsidiaries of, or responsibility or
liability of Parent or any of its Subsidiaries under, any Environmental Law.
There are no pending, or to the knowledge of Parent, threatened, claims, suits,
actions, proceedings or investigations with respect to the businesses or
operations of Parent or any of its Subsidiaries alleging or concerning any
material violation of, or responsibility or liability under, any Environmental
Law, nor does Parent have any knowledge of any fact or condition that could give
rise to such a claim, suit, action, proceeding or investigation.
(d) Parent and its Subsidiaries are in possession of and are in
compliance with all material approvals, permits, licenses, registrations and
similar authorizations from all Governmental Authorities under all Environmental
Laws required for the operation of the businesses of Parent and its
Subsidiaries; there are no pending or, to the knowledge of Parent, threatened,
actions, proceedings or investigations alleging violations of or seeking to
modify, revoke or deny renewal of any of such approvals, permits, licenses,
registrations and authorizations; and Parent does not have knowledge of any fact
or condition that is reasonably likely to give rise to any action, proceeding or
investigation regarding the violation of or seeking to modify, revoke or deny
renewal of any of such approvals, permits, licenses, registrations and
authorizations.
(e) Without in any way limiting the generality of the foregoing,
(i) to Parent's knowledge, all offsite locations where Parent or any of its
Subsidiaries has transported, released, discharged, stored, disposed or arranged
for the disposal of Hazardous Substances are licensed and operating as required
by law and (ii) no PCBs, PCB-containing items, asbestos-containing materials, or
radioactive materials are used or stored at any property owned, leased or
operated by Parent or any of its Subsidiaries except in material compliance with
Environmental Laws.
(f) No claims have been asserted or, to Parent's knowledge,
threatened to be asserted against Parent or its Subsidiaries for any personal
injury (including wrongful death) or property damage (real or personal) arising
out of alleged exposure or otherwise related to Hazardous Substances used,
handled, generated, transported or disposed by Parent or its Subsidiaries.
5.13 Compliance with Laws and Parent Material Contracts. Neither Parent
nor any of its Subsidiaries is in violation of, or in default under, and no
event has occurred that (with notice or the lapse of time or both) would
constitute a violation of or default under, (a) its certificate of
incorporation, bylaws, or other governing document, (b) any applicable law,
rule, regulation, order, writ, decree or judgment of any Governmental Authority,
or (c) any Parent Material Contract, except (in the case of clause (b) or (c)
above) for any violation or default that would not, individually or in the
aggregate, have a Parent Material Adverse Effect. No investigation or review by
any Governmental Authority with respect to Parent is pending or, to the
knowledge of Parent, threatened, other than those the outcome of which would
not, individually or in the aggregate, have a Parent Material Adverse Effect. To
the knowledge of Parent, no party to any Parent Material Contract is in material
breach of the terms, provisions and conditions of such Parent Material Contract.
"Parent Material Contract" means any written or oral agreements, contracts,
commitments or understandings to which Parent is a party, by which Parent is
directly
31
or indirectly bound, or to which any asset of Parent may be subject, involving
total value or consideration in excess of $1,000,000.
5.14 Insurance. Section 5.14 of the Parent Disclosure Schedule lists
each insurance policy relating to Parent or its Subsidiaries currently in
effect. Parent has made available to Target a true, complete and correct copy of
each such policy or the binder therefor. With respect to each such insurance
policy or binder none of Parent, any of its Subsidiaries or any other party to
the policy is in breach or default thereunder (including with respect to the
payment of premiums or the giving of notices), and Parent does not know of any
occurrence or any event which (with notice or the lapse of time or both) would
constitute such a breach or default or permit termination, modification or
acceleration under the policy, except for such breaches or defaults which,
individually or in the aggregate, would not result in a Parent Material Adverse
Effect. Section 5.14 of the Parent Disclosure Schedule describes any
self-insurance arrangements affecting Parent or its Subsidiaries.
5.15 Labor Matters; Employees.
(a) Except as set forth in Section 5.15 of the Parent Disclosure
Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to the knowledge of Parent, threatened against or
affecting Parent or any of its Subsidiaries and, during the past five years,
there has not been any such action, (ii) none of Parent or any of its
Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to employees of Parent
or any of its Subsidiaries, (iii) none of the employees of Parent or any of its
Subsidiaries are represented by any labor organization and none of Parent or any
of its Subsidiaries have any knowledge of any current union organizing
activities among the employees of Parent or any of its Subsidiaries nor does any
question concerning representation exist concerning such employees, (iv) Parent
and its Subsidiaries have each at all times been in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation,
(v) there is no unfair labor practice charge or complaint against any of Parent
or any of its Subsidiaries pending or, to the knowledge of Parent, threatened
before the National Labor Relations Board or any similar state or foreign
agency, (vi) there is no grievance or arbitration proceeding arising out of any
collective bargaining agreement or other grievance procedure relating to Parent
or any of its Subsidiaries, (vii) neither the Occupational Safety and Health
Administration nor any other federal or state agency has threatened to file any
citation, and there are no pending citations, relating to Parent or any of its
Subsidiaries, and (viii) there is no employee or governmental claim or
investigation, including any charges to the Equal Employment Opportunity
Commission or state employment practice agency, investigations regarding Fair
Labor Standards Act compliance, audits by the Office of Federal Contractor
Compliance Programs, Workers' Compensation claims, sexual harassment complaints
or demand letters or threatened claims.
(b) Since the enactment of the WARN Act, none of Parent or any of
its Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or
32
facility of any of Parent or any of its Subsidiaries, or (ii) a "mass layoff"
(as defined in the WARN Act) affecting any site of employment or facility of
Parent or any of its Subsidiaries, nor has Parent or any of its Subsidiaries
been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar state or
local law, in each case that could reasonably be expected to have a Parent
Material Adverse Effect.
5.16 Reserve Reports.
(a) All information (excluding assumptions and estimates but
including the statement of the percentage of reserves from the oil and gas wells
and other interests evaluated therein to which Parent is entitled and the
percentage of the costs and expenses related to such wells or interests to be
borne by Parent) supplied to Ryder Scott Company, L.P. and Netherland, Sewell &
Associates, Inc. by or on behalf of Parent that was material to such firm's
estimates of proved oil and gas reserves attributable to the Oil and Gas
Interests (as hereinafter defined) of Parent in connection with the preparation
of the proved oil and gas reserve reports concerning the Oil and Gas Interests
of Parent as of December 31, 2002 and prepared by such engineering firm (the
"Parent Reserve Report") was (at the time supplied or as modified or amended
prior to the issuance of the Parent Reserve Report) to Parent's knowledge
accurate in all material respects and Parent has no knowledge of any material
errors in such information that existed at the time of such issuance.
(b) Set forth in Section 5.16(b) of the Parent Disclosure Schedule
is a list of all material Oil and Gas Interests that were included in the Parent
Reserve Report that have been disposed of prior to the date hereof.
5.17 Permits. Immediately prior to the Effective Time and except for
Customary Post Closing Consents, Parent and its Subsidiaries hold all of the
Permits required or necessary to construct, own, operate, use and/or maintain
its properties and conduct its operations as presently conducted, except for
such Permits, the lack of which, individually or in the aggregate, would not
have a Parent Material Adverse Effect; provided, however, that notwithstanding
the foregoing, no representation or warranty in this Section 5.17 is made with
respect to Permits issued pursuant to Environmental Laws, which are covered
exclusively in Section 5.12.
5.18 Required Stockholder Vote or Consent. The only vote or written
consent of the holders of any class or series of Parent's capital stock that
shall be necessary to consummate the Transactions is the approval by a majority
of the voting power of the Parent Common Shares of the issuance of Parent Common
Shares to the holders of Target Common Shares as a result of the Transactions
(the "Parent Share Issuance Approval").
5.19 Proxy/Prospectus; Registration Statement. None of the information
to be supplied by Parent for inclusion in (a) the Proxy/Prospectus to be filed
by Target and Parent with the SEC, and any amendments or supplements thereto, or
(b) the Registration Statement to be filed by Parent with the SEC in connection
with the Merger, and any amendments or supplements thereto, will, at the
respective times such documents are filed, and, in the case of the
Proxy/Prospectus, at the time the Proxy/Prospectus or any amendment or
supplement thereto is first mailed to the Target and Parent stockholders, at the
time of the Target Special Meeting and the Parent Special Meeting and at the
Effective Time, and, in the case of the Registration
33
Statement, when it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be made therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
5.20 Intellectual Property. Parent or its Subsidiaries own, or are
licensed or otherwise have the right to use, all Intellectual Property currently
used in the conduct of the business of Parent and its Subsidiaries, except where
the failure to so own or otherwise have the right to use such Intellectual
Property would not, individually or in the aggregate, have a Parent Material
Adverse Effect. No Person has notified either Parent or any of its Subsidiaries
that their use of the Intellectual Property infringes on the rights of any
Person, subject to such claims and infringements as do not, individually or in
the aggregate, give rise to any liability on the part of Parent and its
Subsidiaries that could have a Parent Material Adverse Effect, and, to Parent's
knowledge, no Person is infringing on any right of Parent or any of its
Subsidiaries with respect to any such Intellectual Property. No claims are
pending or, to Parent's knowledge, threatened that Parent or any of its
Subsidiaries is infringing or otherwise adversely affecting the rights of any
Person with regard to any Intellectual Property.
5.21 Hedging. Section 5.21 of the Parent Disclosure Schedule sets forth
for the periods shown obligations of Parent and each of its Subsidiaries for the
delivery of Hydrocarbons attributable to any of the properties of Parent or any
of its Subsidiaries in the future on account of prepayment, advance payment,
take-or-pay or similar obligations without then or thereafter being entitled to
receive full value therefor. Except as set forth in Section 5.21 of the Parent
Disclosure Schedule, as of the date hereof, neither Parent nor any of its
Subsidiaries is bound by futures, hedge, swap, collar, put, call, floor, cap,
option or other contracts that are intended to benefit from, relate to or reduce
or eliminate the risk of fluctuations in the price of commodities, including
Hydrocarbons, or securities.
5.22 Brokers. No broker, finder or investment banker (other than Lehman
Brothers Inc. the fees and expenses of which will be paid by Parent) is entitled
to any brokerage, finder's fee or other fee or commission payable by Parent or
any of its Subsidiaries in connection with the Transactions based upon
arrangements made by and on behalf of Parent or any of its Subsidiaries. True
and correct copies of all agreements and engagement letters currently in effect
with Lehman Brothers Inc. (the "Parent Engagement Letters") have been provided
to Target.
5.23 Tax Matters. Neither Parent nor, to the knowledge of Parent, any of
its affiliates has taken or agreed to take any action that would prevent the
Merger from constituting a reorganization within the meaning of Section 368(a)
of the Code. Without limiting the generality of the foregoing:
(a) The Merger will be carried out strictly in accordance with this
Agreement and the Ancillary Agreements, and there are no other written or oral
agreements relating to the Merger other than those expressly referred to in this
Agreement.
(b) In connection with the Merger, no Target Common Shares will be
acquired by Parent or a Related Person for consideration other than Parent
Common Shares,
34
except for the Cash Consideration, payments to the dissenting stockholders, if
any, and any cash received in lieu of fractional share interests in Parent
Common Shares.
(c) The fair market value of Parent Common Shares and cash received
by each holder of Target Common Shares in connection with the Merger will be
approximately equal to the fair market value of the Target Common Shares
surrendered in the exchange.
(d) Parent will provide no funds to Target, directly or indirectly,
for Target to redeem its Series D Preferred Stock or for Target to repay debt
incurred to redeem such stock.
(e) Neither Parent nor Merger Sub (nor any Related Person as
defined in Attachment A) has any plan or intention to redeem or otherwise
reacquire, directly or indirectly, any Parent Common Shares to be issued in the
Merger.
(f) Parent has no stock repurchase program and has no current plan
or intention to adopt such a plan.
(g) To the best knowledge of Parent, the aggregate fair market
value, determined at the Effective Time, of the Parent Common Shares to be
received in the Merger will not be less than forty percent (40%) of the value,
determined at the Effective Time, of the Target Common Shares and Target
Warrants outstanding immediately before the Effective Time. For this purpose, it
is assumed that the fair market value of the outstanding Target Common Shares
and Target Warrants will equal the fair market value of the aggregate Merger
Consideration.
(h) Neither Parent nor any Related Person owns, nor has it owned
during the past five years, any shares of stock of the Target. Neither Parent
nor any Related Person has caused any other person to acquire stock of the
Target on behalf of Parent or a Related Person, and will not directly or
indirectly acquire any stock of the Target in connection with the Merger, except
as described in the Merger Agreement.
(i) Parent has not, directly or indirectly, transferred any cash or
property to the Target (or any entity controlled directly or indirectly by the
Target) for less than full and adequate consideration and has not made any loan
to the Target (or any entity controlled directly or indirectly by the Target) in
anticipation of the Merger.
(j) There is no intercompany indebtedness existing between Parent
and Target, or between Merger Sub and Target, that was or will be issued,
acquired, or settled at a discount in connection with the Merger.
(k) Parent will pay its own expenses incurred in connection with or
as part of the Merger or related transactions. Parent has not paid and will not
pay, directly or indirectly, any expenses (including transfer taxes) incurred by
any holder of Target Common Shares in connection with or as part of the Merger
or any related transactions. Parent has not agreed to assume, nor will it
directly or indirectly assume, any expense or other liability, whether fixed or
contingent, of any holder of Target Common Shares.
35
(l) Any compensation paid to the holders of Target Common Shares
who enter (or have entered) into employment, consulting or noncompetitive
contracts, if any, with Parent, Merger Sub, or the Surviving Corporation (a)
will be for services actually rendered or to be rendered, (b) will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services, and (c) will not represent consideration for the surrender of
the Target Common Shares in the Merger.
(m) Merger Sub is wholly and directly owned by Parent and has been
newly formed solely to consummate the Merger. Prior to the Effective Time,
Merger Sub will have no assets other than cash to satisfy capital requirements
under state law and has not, and will not, conduct any business activities or
other operations of any kind other than the issuance of its stock to Parent or
as otherwise expressly required by the Merger Agreement.
(n) At the Effective Time of the Merger, Merger Sub will not have
or issue any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire any stock in Merger Sub.
(o) Merger Sub will acquire at least ninety percent (90%) of the
fair market value of the net assets and at least seventy percent (70%) of the
gross assets held by Target immediately prior to the Merger. For purposes of
this representation, amounts paid by Target to dissenters, amounts paid by
Target to stockholders who receive cash or other property, Target assets used to
pay its reorganization expenses, and all redemptions and distributions
(including the redemption of the Series D Preferred Stock, but excluding
regular, normal dividends) made by Target immediately preceding the transfer,
will be included in assets of Target held immediately prior to the Merger.
(p) Following the Merger, the Surviving Corporation will continue
the historic business of Target or use a significant portion of its assets in a
business, within the meaning of Treas. Reg.(S)1.368-1(d).
(q) Parent has no plan or intention to liquidate the Surviving
Corporation following the Merger; to merge the Surviving Corporation with
another corporation; to sell or otherwise dispose of the stock of Merger Sub; or
to sell or otherwise dispose of any of the assets of Target except for
dispositions made in the ordinary course of business or transfers or successive
transfers to one or more corporations controlled (within the meaning of Section
368(c) of the Code) in each case by the transferor corporation.
(r) Following the Merger, Parent has no plan or intention to cause
the Surviving Corporation to issue additional shares of its stock that would
result in Parent owning stock possessing less than eighty percent (80%) of the
total combined voting power of all classes of stock entitled to vote or less
than eighty percent (80%) of the total number of shares of all other classes of
stock of the Surviving Corporation.
(s) Parent is paying no consideration for the Target stock other
than the Merger Consideration.
36
(t) To the best knowledge of Parent, any Target liabilities
assumed or paid by Parent or Merger Sub and the liabilities to which the
transferred assets of the Target are subject were incurred by the Target in the
ordinary course of its business.
(u) Neither Parent nor Merger Sub is an investment company within
the meaning of Sections 368(a)(2)(F) of the Code. An investment company is (1) a
regulated investment company; (2) a real estate investment trust; or (3) a
corporation (i) fifty percent (50%) or more of the value of whose total assets
are stock and securities, and (ii) eighty percent (80%) or more of the value of
whose total assets are held for investment. For this purpose, "total assets"
shall not include cash and cash items (including receivables) and government
securities.
(v) Parent has substantial non-tax business purposes and reasons
for the Merger, and the terms of the Merger are the product of arm's length
negotiations.
(w) Neither Parent nor the Surviving Corporation will take any
position on any federal, state or local income or franchise tax return, or take
any other tax reporting position that is inconsistent with the treatment of the
Merger as a reorganization within the meaning of Section 368(a) of the Code,
unless otherwise required by a "determination" (as defined in Code Section
1313(a)(1)).
(x) No stock or securities of Parent will be issued to any Target
stockholder for services rendered to or for the benefit of Parent, Merger Sub,
or the Target in connection with the Merger.
(y) To the best knowledge of Parent, no stock or securities of the
Target will be issued to any Target stockholder for services rendered to or for
the benefit of Parent, Merger Sub, or the Target in connection with the Merger.
(z) No stock or securities of Parent will be issued for any
indebtedness owed to any Target stockholder in connection with the Merger.
(aa) To the best knowledge of Parent, no stock or securities of the
Target will be issued for any indebtedness owed to any Target stockholder in
connection with the Merger.
(bb) No stock of Merger Sub will be issued in connection with the
Merger.
(cc) Rights received by the Parent stockholders pursuant to
Parent's [Poison Pill Agreement] are not separately tradeable, are contingent,
are non-exercisable, are subject to redemption if they become exercisable, and
have no ascertainable fair market value.
(dd) The undersigned officer is authorized to make all of the
certifications and representations set forth herein.
37
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 Conduct of Business by Target Pending the Merger. From the date
hereof until the Effective Time, except as Parent otherwise agrees in writing,
as set forth in the Target Disclosure Schedule, or as otherwise contemplated by
this Agreement, Target shall conduct its business in the ordinary course
consistent with past practice and shall use all reasonable efforts to preserve
intact its business organizations and relationships with third parties and to
keep available the services of its present officers and key employees, subject
to the terms of this Agreement. Except as otherwise provided in this Agreement,
and without limiting the generality of the foregoing, from the date hereof until
the Effective Time, without Parent's written consent (which consent shall not be
unreasonably withheld):
(a) Target shall not adopt or propose any change to its certificate
of incorporation or bylaws (or similar organizational documents);
(b) Target shall not (i) declare, set aside or pay any dividend or
other distribution with respect to any shares of capital stock of Target (except
for accumulated dividends on the Target D Preferred Shares) or (ii) except as
contemplated in Article III or Section 7.21, repurchase, redeem or otherwise
acquire any outstanding shares of capital stock or other securities of, or other
ownership interests in Target;
(c) Target shall not merge or consolidate with any other Person or
acquire assets of any other Person for aggregate consideration in excess of
$1,000,000, or enter a new line of business or commence business operations in
any country in which Target is not operating as of the date hereof;
(d) Except as set forth in Section 6.1(d) of the Target Disclosure
Schedule, Target shall not sell, lease, license or otherwise surrender,
relinquish or dispose of any assets or properties with an aggregate fair market
value exceeding $1,000,000 (other than sales of Hydrocarbons in the ordinary
course of business);
(e) Target shall not settle any material Audit, make or change any
material Tax election or file any material amended Tax Return except as set
forth in Section 4.9 of the Target Disclosure Schedule;
(f) Except as otherwise permitted by this Agreement, Target shall
not issue any securities (whether through the issuance or granting of options,
warrants, rights or otherwise and except pursuant to existing obligations
disclosed in the Target SEC Reports filed and publicly available prior to the
date hereof or the Target Disclosure Schedule), enter into any amendment of any
term of any outstanding security of Target, incur any indebtedness except trade
debt in the ordinary course of business and debt pursuant to existing credit
facilities or arrangements (except as set forth in Section 6.1(f) of the Target
Disclosure Schedule), fail to make any required contribution to any Target
Benefit Plan, increase compensation, bonus (except for compensation or bonuses
as set forth in Section 6.1(f) of the Target Disclosure Schedule) or other
benefits payable to (except for payments pursuant to 401(k) plans), or modify
38
or amend any employment agreements or severance agreements with, any executive
officer or former employee or enter into any settlement or consent with respect
to any pending litigation other than settlements in the ordinary course of
business;
(g) Target shall not change any method of accounting or accounting
practice by Target except for any such change required by GAAP;
(h) Target shall not take any action that would give rise to a
claim under the WARN Act or any similar state law or regulation because of a
"plant closing" or "mass layoff" (each as defined in the WARN Act);
(i) Target shall not amend or otherwise change the terms of the
Target Engagement Letters, except to the extent that any such amendment or
change would result in terms more favorable to Target;
(j) Except as set forth in Section 6.1(j) of the Target Disclosure
Schedule, Target shall not become bound or obligated to participate in any
operation, or consent to participate in any operation, with respect to any Oil
and Gas Interests that will individually cost in excess of $1,000,000 unless the
operation is a currently existing obligation of Target or necessary to extend,
preserve or maintain an Oil and Gas Interest;
(k) Target shall timely meet its royalty payment obligations in
connection with its oil and gas leases.
(l) Target shall not (i) enter into any futures, hedge, swap,
collar, put, call, floor, cap, option or other contracts that are intended to
benefit from or reduce or eliminate the risk of fluctuations in the price of
commodities, including Hydrocarbons or securities, other than in the ordinary
course of business in accordance with Target's current policies or (ii) enter
into any fixed price commodity sales agreements with a duration of more than
three months;
(m) Target shall not (i) adopt, amend (other than amendments that
reduce the amounts payable by Target, or amendments required by law to preserve
the qualified status of a Target Benefit Plan or otherwise comply with ERISA,
the Code or other applicable law) or assume an obligation to contribute to any
employee benefit plan or arrangement of any type or collective bargaining
agreement or enter into any employment, severance or similar contract with any
Person (including contracts with management of Target that might require that
payments be made upon consummation of the Transactions) or amend any such
existing contracts to increase any amounts payable thereunder or benefits
provided thereunder, (ii) engage in any transaction (either acting alone or in
conjunction with any Target Benefit Plan or trust created thereunder) in
connection with which Target could be subjected (directly or indirectly) to
either a civil penalty assessed pursuant to subsections (c), (i) or (l) of
Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of
the Code, (iii) terminate any Target Benefit Plan in a manner, or take any other
action with respect to any Target Benefit Plan, that could result in the
liability of Target to any person, (iv) take any action that could adversely
affect the qualification of any Target Benefit Plan or its compliance with the
applicable requirements of ERISA, (v) fail to make full payment when due of all
amounts which, under the provisions of any Target Benefit Plan, any agreement
relating thereto or applicable law, Target is required to pay as contributions
39
thereto or (vi) fail to file, on a timely basis, all reports and forms required
by federal regulations with respect to any Target Benefit Plan;
(n) Target shall not (i) approve an increase in salary for any
Target Employees or (ii) without Parent's prior written consent (which consent
shall not be unreasonably withheld), terminate any Target Employee entitled to
any severance payment upon such termination;
(o) Target shall not organize or acquire any Person that could
become a Subsidiary;
(p) Target shall not enter into any commitment or agreement to
license or purchase seismic data that will cost in excess of $1,000,000, other
than pursuant to agreements or commitments existing on the date hereof; and
(q) Target shall not agree or commit to do any of the foregoing.
6.2 Conduct of Business by Parent Pending the Merger. From the date
hereof until the Effective Time, except as Target otherwise agrees in writing,
as set forth in the Parent Disclosure Schedule, or as otherwise contemplated by
this Agreement, Parent shall conduct its business in the ordinary course
consistent with past practice and shall use all reasonable efforts to preserve
intact its business organizations and relationships with third parties and to
keep available the services of its present officers and key employees, subject
to the terms of this Agreement. Except as otherwise provided in this Agreement,
and without limiting the generality of the foregoing, from the date hereof until
the Effective Time, without Target's written consent (which consent shall not be
unreasonably withheld):
(a) Parent shall not adopt or propose any change to its certificate
of incorporation or bylaws that would alter the terms of the Parent Common
Shares;
(b) Except as set forth in Section 6.2(b) to the Parent Disclosure
Schedule, Parent shall not, and shall not permit any of its Subsidiaries to (i)
declare, set aside or pay any dividend or other distribution with respect to any
shares of capital stock of Parent or its subsidiaries (except for intercompany
dividends from direct or indirect wholly owned subsidiaries, (ii) repurchase,
redeem or otherwise acquire any outstanding shares of capital stock or other
securities of, or other ownership interests in, Parent or any of its
Subsidiaries, other than intercompany acquisitions of stock, or (iii) provide
any funds to Target, directly or indirectly, for Target to redeem the Target
Series D Preferred Shares, or for Target to repay debt incurred to redeem such
shares;
(c) Parent shall not, and shall not permit any of its Subsidiaries
to, merge or consolidate with any other Person or acquire assets of any other
Person for aggregate consideration in excess of $5,000,000, or enter a new line
of business or commence business operations in any country in which Parent is
not operating as of the date hereof;
(d) Except as set forth in Section 6.2(d) of the Parent Disclosure
Schedule, Parent shall not, and shall not permit any of its Subsidiaries to,
sell, lease, license or otherwise surrender, relinquish or dispose of any assets
or properties (other than among Parent and its
40
direct and indirect wholly owned Subsidiaries) with an aggregate fair market
value exceeding $5,000,000 (other than sales of Hydrocarbons in the ordinary
course of business);
(e) Except as otherwise permitted by this Agreement, Parent shall
not (i) issue equity securities for consideration in excess of $5,000,000 in the
aggregate, or (ii) incur any indebtedness except trade debt in the ordinary
course of business, debt pursuant to existing credit facilities or arrangements,
debt incurred to pay the Cash Consideration and the Preferred Stock Merger
Consideration, and other debt, which other debt shall not exceed $5,000,000 in
the aggregate;
(f) Parent shall not change any method of accounting or accounting
practice by Parent or any of its Subsidiaries, except for any such change
required by GAAP;
(g) Parent shall not amend or otherwise change the terms of the
Parent Engagement Letter, except to the extent that any such amendment or change
would result in terms more favorable to Parent;
(h) Parent shall not adopt a plan of complete or partial
liquidation, dissolution, or reorganization;
(i) Except as set forth in Section 6.2(i) of the Parent Disclosure
Schedule, Parent shall not become bound or obligated to participate in any
operation, or consent to participate in any operation, with respect to any Oil
and Gas Interests that will individually cost in excess of $5,000,000 unless the
operation is a currently existing obligation of Parent or necessary to extend,
preserve or maintain an Oil and Gas Interest;
(j) Parent shall not (i) enter into any futures, hedge, swap,
collar, put, call, floor, cap, option or other contracts that are intended to
benefit from or reduce or eliminate the risk of fluctuations in the price of
commodities, including Hydrocarbons or securities, other than in the ordinary
course of business in accordance with Parent's current policies or (ii) enter
into any fixed price commodity sales agreements with a duration of more than
three months;
(k) Parent shall not (i) adopt, amend (other than the adoption of
the Parent Incentive Plan (as defined), and amendments that reduce the amounts
payable by Parent, or amendments required by law to preserve the qualified
status of a Parent Benefit Plan or otherwise comply with ERISA, the Code or
other applicable law) or assume an obligation to contribute to any employee
benefit plan or arrangement of any type or collective bargaining agreement or
enter into any employment, severance or similar contract with any Person or
amend any such existing contracts to increase any amounts payable thereunder or
benefits provided thereunder, (ii) engage in any transaction (either acting
alone or in conjunction with any Parent Benefit Plan or trust created
thereunder) in connection with which Parent could be subjected (directly or
indirectly) to either a civil penalty assessed pursuant to subsections (c), (i)
or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code, (iii) terminate any Parent Benefit Plan in a manner, or
take any other action with respect to any Parent Benefit Plan, that could result
in the liability of Parent to any person, (iv) take any action that could
adversely affect the qualification of any Parent Benefit Plan or its compliance
with the applicable requirements of ERISA, (v) fail to make full payment when
due of all amounts which,
41
under the provisions of any Parent Benefit Plan, any agreement relating thereto
or applicable law, Parent is required to pay as contributions thereto or (vi)
fail to file, on a timely basis, all reports and forms required by federal
regulations with respect to any Parent Benefit Plan; provided, however, that
Parent may issue stock options, stock appreciation rights, and bonuses in the
ordinary course of business;
(l) Parent shall not enter into any commitment or agreement to
license or purchase seismic data that will cost in excess of $5,000,000, other
than pursuant to agreements or commitments existing on the date hereof; and
(m) Parent shall not, and shall not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access and Information. The parties shall each afford to the other
and to the other's financial advisors, legal counsel, accountants, consultants,
financing sources, and other authorized representatives access during normal
business hours throughout the period prior to the Effective Time to all of its
books, records, properties, contracts, leases, plants and personnel and, during
such period, each shall furnish promptly to the other (a) a copy of each report,
schedule and other document filed or received by it pursuant to the requirements
of federal or state securities laws, and (b) all other information as such other
party reasonably may request, provided that no investigation pursuant to this
Section 7.1 shall affect any representations or warranties made herein or the
conditions to the obligations of the respective parties to consummate the
Merger. Each party shall hold in confidence all nonpublic information until such
time as such information is otherwise publicly available and, if this Agreement
is terminated, each party will deliver to the other all documents, work papers
and other materials (including copies) obtained by such party or on its behalf
from the other party as a result of this Agreement or in connection herewith,
whether so obtained before or after the execution hereof. Notwithstanding the
foregoing, the Confidentiality Agreements dated January 10, 2003 and January 20,
2003 between Parent and Target (the "Confidentiality Agreements") shall survive
the execution and delivery of this Agreement.
7.2 Acquisition Proposals.
From the date hereof until the termination of this Agreement, Target shall
not, and shall cause its officers, directors, employees or other agents not to,
directly or indirectly, (a) take any action to solicit, initiate or encourage
any Target Acquisition Proposal or (b) engage in discussions or negotiations
with, or disclose any nonpublic information relating to Target or afford access
to its books or records to any Person that may be considering making, or has
made, a Target Acquisition Proposal. Nothing contained in this Section 7.2 shall
prohibit Target and its Board of Directors from (i) taking and disclosing a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2(a) under the Exchange Act, or (ii) prior to obtaining the Target
Stockholders' Approval, furnishing information, including nonpublic information
to, or entering into negotiations with, any Person that has indicated its
willingness to
42
make an unsolicited bona fide Target Acquisition Proposal if, and only to the
extent that (with respect to this Section 7.2 F only):
(A) such unsolicited bona fide proposal relating to a Target
Acquisition Proposal is made by a third party that Target's Board
of Directors determines in good faith has the good faith intent
to proceed with negotiations to consider, and the financial and
legal capability to consummate, such Target Acquisition Proposal,
(B) Target's Board of Directors determines in good faith
after consultation with its independent legal counsel and
financial advisor (taking into account among other things the
legal, financial, regulatory and other aspects of the proposal,
the Person making the proposal, the likelihood of consummation
and the time to complete such transaction) that such Target
Acquisition Proposal is a Target Superior Proposal,
(C) contemporaneously with furnishing such information to,
or entering into discussions with, such Person, Target enters
into a customary confidentiality agreement with such Person,
(D) contemporaneously with furnishing such information to,
or entering into discussions or negotiations with, such Person,
Target provides written notice to Parent to the effect that it is
furnishing information to, or entering into discussions or
negotiations with, such Person,
(E) such Target Acquisition Proposal is not subject to any
financing contingencies, and
(F) Target uses all reasonable efforts to keep Parent
informed in all material respects of the status and terms of any
such negotiations or discussions (including the identity of the
Person with whom such negotiations or discussions are being held)
and provides Parent copies of such written proposals and any
amendments or revisions thereto or correspondence related
thereto; provided, that Parent agrees to execute a
confidentiality agreement, in form reasonably acceptable to it,
with respect to any such information delivered to Parent pursuant
to this clause (G), which confidentiality agreement shall be
subject to Parent's disclosure obligations arising under
applicable law or securities exchange regulations.
The term "Target Acquisition Proposal" means any offer or proposal for, or
any indication of interest in, a merger, acquisition, consolidation or other
business combination directly or indirectly involving Target or the acquisition
of a substantial equity interest in, or a substantial portion of the assets of,
Target, other than the Transactions.
7.3 Directors' and Officers' Indemnification and Insurance.
43
(a) For six years after the Effective Time, the Surviving
Corporation shall indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer or director of Target and its Subsidiaries (each an
"Indemnified Party"), who was or is made or is threatened to be made a party or
is otherwise involved in any action, suit or proceeding, whether civil,
criminal, or investigative (a "proceeding") against all losses, damages,
liabilities, fees and expenses (including reasonable fees and disbursements of
counsel and experts and judgments, fines, losses, claims, liabilities and
amounts paid in settlement (provided that any such settlement is effected with
the prior written consent of Parent, which will not be unreasonably withheld))
actually and reasonably incurred by the Indemnified Party because the
Indemnified Party is or was a director or officer of Target or any of its
Subsidiaries pertaining to any act or omission existing or occurring at or prior
to the Effective Time including any act or omission relating to this Agreement
or the Transactions (the "Indemnified Liabilities") to the full extent permitted
under Delaware law or the Surviving Corporation's certificate of incorporation
and bylaws. If an Indemnified Party makes or asserts any claim for Indemnified
Liabilities, any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under the DGCL
shall be made by independent counsel mutually acceptable to the Surviving
Corporation and the Indemnified Party; and provided, further, that nothing
herein shall impair any rights or obligations of any Indemnified Party. If any
claim or claims are brought against any Indemnified Party (whether arising
before or after the Effective Time), such Indemnified Party may select counsel
for the defense of such claim, which counsel shall be reasonably acceptable to
Target (if selected before the Effective Time) and the Surviving Corporation (if
selected after the Effective Time).
(b) The Surviving Corporation shall promptly advance all reasonable
out-of-pocket expenses of each Indemnified Party in connection with any such
action or proceeding described above, as such expenses are incurred, to the
fullest extent permitted by the DGCL, subject to the receipt by the Surviving
Corporation of an undertaking by or on behalf of such Indemnified Party to repay
such amount if it shall ultimately be determined that such Indemnified Party is
not entitled to be indemnified by the Surviving Corporation.
(c) The Surviving Corporation shall maintain Target's existing
officers' and directors' liability insurance policy ("D&O Insurance") for a
period of at least six years after the Effective Time, but only to the extent
related to actions or omissions prior to the Effective Time; provided, that the
Surviving Corporation may substitute therefor policies of substantially similar
coverage and amounts containing terms no less advantageous to such former
directors or officers.
7.4 Further Assurances. Each party shall use all reasonable efforts to
obtain all consents and approvals and to do all other things necessary for the
consummation of the Transactions. The parties shall take such further action to
deliver or cause to be delivered to each other at the Closing and at such other
times thereafter as shall be reasonably agreed by such parties such additional
agreements or instruments as any of them may reasonably request for the purpose
of carrying out this Agreement and the Transactions. The parties shall afford
each other access to all information, documents, records and personnel who may
be necessary for any party to comply with laws or regulations (including the
filing and payment of taxes and handling tax audits), to fulfill its obligations
with respect to indemnification hereunder or to defend itself
44
against suits or claims of others. Parent and Target shall duly preserve all
files, records or any similar items of Parent or Target received or obtained as
a result of the Transactions with the same care and for the same period of time
as it would preserve its own similar assets.
7.5 Expenses.
(a) Except as provided in Sections 10.2(b) and 7.17, each party
shall bear solely and entirely, all Expenses (as defined below) that they incur;
provided, however, that if this Agreement is terminated for any reason, then the
allocable share of the Parent Parties and Target for all Expenses (including any
fees and expenses of accountants, experts, and consultants, but excluding the
fees and expenses of legal counsel and investment bankers) related to preparing,
printing, filing and mailing the Registration Statement, the Proxy/Prospectus
and all SEC and other regulatory filing fees incurred in connection with the
Registration Statement, and Proxy/Prospectus shall be allocated one-half each.
(b) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including all reasonable fees and expenses of
outside counsel, accountants, financing sources, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the due diligence, authorization,
preparation, negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Registration Statement and the
Proxy/Prospectus, the solicitation of stockholder approvals, and all other
matters related to the consummation of the Transactions (subject to reasonable
documentation).
7.6 Cooperation. Subject to compliance with applicable law, from the
date hereof until the Effective Time, each party shall confer on a regular and
frequent basis with one or more representatives of the other parties to report
operational matters of materiality and the general status of ongoing operations
and shall promptly provide the other party or its counsel with copies of all
filings made by such party with any Governmental Authority in connection with
this Agreement and the Transactions.
7.7 Publicity. Neither Target, Parent nor any of their respective
affiliates shall issue or cause the publication of any press release or other
announcement with respect to the Transactions without the prior consultation of
the other party, except as may be required by law or by any listing agreement
with a national securities exchange, and each party shall use reasonable efforts
to provide copies of such release or other announcement to the other party
hereto, and give due consideration to such comments as each such other party may
have, prior to such release or other announcement.
7.8 Additional Actions. Subject to the terms and conditions of this
Agreement, each party agrees to use all reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations, or to remove any
injunctions or other impediments or delays, to consummate and make effective the
Transactions, subject, however, to the Target Stockholders' Approval and the
Parent Share Issuance Approval.
45
7.9 Filings. Each party shall make all filings such party is required
to make in connection herewith or desirable to achieve the purposes contemplated
hereby, and shall cooperate as needed with respect to any such filing by any
other party.
7.10 Consents. Each of Parent and Target shall use all reasonable
efforts to obtain all consents necessary or advisable in connection with its
obligations hereunder.
7.11 Employee Matters; Benefit Plans.
(a) On or prior to the Effective Time, Target shall pay the
severance pay as indicated on the Severance Package Table to the Target
Employees.
(b) Notwithstanding Section 7.11(a), Target shall not pay such
severance pay to any Target Employee (other than a Contract Employee) to whom
severance pay would not be payable under the Target Severance Policy.
(c) With respect to any Target Employee who is not paid severance
pay on or prior to the Effective Time, all the terms and provisions of the
Severance Policy and the Contract Employees' employment agreements shall
continue in full force and effect.
7.12 Parent Board of Directors. Prior to the mailing to stockholders of
the Proxy/Prospectus, (i) the nominating committee of Target's Board of
Directors shall select two individuals reasonably acceptable to Parent (the
"Director Nominees") for nomination as directors of Parent. Parent shall use its
best efforts to cause the Director Nominees to be elected as members of Parent's
Board of Directors by Parent's existing Board of Directors simultaneous with
Closing, subject to applicable law. Each Director Nominee shall serve as a
director for a term expiring at Parent's next annual meeting of stockholders
following the Effective Time and until his successor is elected and qualified,
provided that Parent shall use its best efforts to cause its Board to
re-nominate him as a director for election at the following annual meeting at
the discretion of Parent's Board of Directors. If at any time prior to the
Effective Time, any Director Nominee shall be unable or elects not to serve as a
director at the Effective Time, then Target's Board of Directors shall nominate
another individual who is reasonably acceptable to Parent. Parent shall take
such action, including amending its bylaws, as required to cause the number of
directors constituting Parent's Board of Directors immediately after the
Effective Time to be increased from four to six members (as applicable).
7.13 Stockholders' Meetings.
(a) Target shall, as promptly as reasonably practicable after the
date hereof (i) take all steps reasonably necessary to call, give notice of,
convene and hold a special meeting of its stockholders (the "Target Special
Meeting") for the purpose of securing the Target Stockholders' Approval, (ii)
distribute to its stockholders the Proxy/Prospectus in accordance with
applicable federal and state law and its certificate of incorporation and
bylaws, which Proxy/Prospectus shall contain the recommendation of the Target
Board of Directors that its stockholders approve this Agreement, and (iii) use
all reasonable efforts to solicit from its stockholders proxies in favor of
approval of this Agreement and to secure the Target Stockholders' Approval, and
(iv) cooperate and consult with Parent with respect to each of the foregoing
matters; provided, that nothing contained in this Section 7.13(a) shall prohibit
the
46
Target Board of Directors from failing to make or from withdrawing or modifying
its recommendation to the Target stockholders hereunder if such Board of
Directors, after consultation with independent legal counsel, determines in good
faith that such action is necessary for Target's Board of Directors to comply
with its fiduciary duties under applicable law.
(b) Parent shall, as promptly as reasonably practicable after the
date hereof (i) take all steps reasonably necessary to call, give notice of,
convene and hold a special meeting of its stockholders (the "Parent Special
Meeting") for the purpose of (A) securing the Parent Share Issuance Approval and
(B) securing the approval by the holders of a majority of the Parent Common
Shares represented in person or by proxy and voting with respect thereto of the
Parent 2003 Incentive Plan having the terms contemplated by Exhibit 7.13(b) (the
"Parent Incentive Plan" and, together with the Parent Share Issuance Approval,
the "Parent Stockholders' Approval"), (ii) distribute to its stockholders the
Proxy/Prospectus in accordance with applicable federal and state law and its
certificate of incorporation and bylaws, which Proxy/Prospectus shall contain
the recommendation of the Parent Board of Directors that its stockholders
approve this Agreement, (iii) use all reasonable efforts to solicit from its
stockholders proxies to secure the Parent Stockholders' Approval, and (iv)
cooperate and consult with Target with respect to each of the foregoing matters;
provided, that nothing contained in this Section 7.13(b) shall prohibit the
Parent Board of Directors from failing to make or from withdrawing or modifying
its recommendation to the Parent stockholders hereunder if Parent's Board of
Directors, after consultation with and in consultation with independent legal
counsel, determines in good faith that such action is necessary for such Board
of Directors to comply with its fiduciary duties under applicable law.
(c) If a Target Superior Proposal is received and Target accepts
such Target Superior Proposal and thereby terminates this Agreement under
Section 10.1(h), then, unless Parent terminates this Agreement under Section
10.1(h), prior to the termination of this Agreement taking effect under Section
10.1(h), Target shall be obligated to comply with Section 7.13(a) and the other
terms of this Agreement, including by holding the Target Special Meeting. If the
Target Stockholders' Approval is not secured at such meeting, then at such time
this Agreement shall be deemed to be terminated by Target under Section 10.1(h),
Target shall pay to Parent the Termination Fee and the Expenses of Target up to
the Expense Cap as provided in Section 10.2. Target acknowledges and agrees that
Parent would be damaged irreparably if any provision of this Section 7.13(c) is
not performed in accordance with its specific terms or is otherwise breached.
Accordingly, Target agrees that Parent will be entitled to an injunction or
injunctions to prevent breaches of this Section 7.13(c) and to enforce
specifically this Agreement and its terms and provisions in any action or
proceeding instituted in any court of the United States or any state thereof
having jurisdiction over the parties and the matter, in addition to any other
remedy to which Parent may be entitled, at law or in equity.
7.14 Preparation of the Proxy/Prospectus and Registration Statement.
(a) Parent and Target shall promptly prepare and file with the SEC
a preliminary version of the Proxy/Prospectus and will use all reasonable
efforts to respond to the comments of the SEC in connection therewith and to
furnish all information required to prepare the definitive Proxy/Prospectus. At
any time from (and including) the initial filing with the SEC
47
of the Proxy/Prospectus, Parent shall file with the SEC the Registration
Statement containing the Proxy/Prospectus so long as Parent shall have provided
to Target a copy of the Registration Statement containing the Proxy/Prospectus
at least ten days prior to any filing thereof and any supplement or amendment at
least two days prior to any filing thereof. Subject to the foregoing sentence,
Parent and Target shall jointly determine the date that the Registration
Statement is filed with the SEC. Parent and Target shall use all reasonable
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing. Parent shall also
take any action (other than qualifying to do business in any jurisdiction in
which it is not now so qualified or filing a general consent to service of
process in any jurisdiction) required to be taken under any applicable state
securities laws in connection with the issuance of Parent Common Shares in the
Merger and Target shall furnish all information concerning Target and the
holders of shares of Target capital stock as may be reasonably requested in
connection with any such action. Promptly after the effectiveness of the
Registration Statement, Parent and Target shall cause the Proxy/Prospectus to be
mailed to their respective stockholders, and if necessary, after the definitive
Proxy/Prospectus has been mailed, promptly circulate amended, supplemented or
supplemental proxy materials and, if required in connection therewith,
re-solicit proxies or written consents, as applicable. Parent shall advise
Target and Target shall advise Parent, as applicable, promptly after it receives
notice thereof, of the time when the Registration Statement becomes effective or
any supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the Parent Common Shares for offering or sale
in any jurisdiction, or any request by the SEC for amendment of the
Proxy/Prospectus or the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
(b) Following receipt by PricewaterhouseCoopers LLP, Parent's
independent auditors, of an appropriate request from Target pursuant to SAS No.
72, Parent shall use all reasonable efforts to cause to be delivered to Target a
letter of PricewaterhouseCoopers LLP, dated a date within two business days
before the effective date of the Registration Statement, and addressed to
Target, in form and substance reasonably satisfactory to Target and customary in
scope and substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Proxy/Prospectus.
(c) Following receipt by KPMG LLP, Target's independent auditors,
of an appropriate request from Parent pursuant to SAS No. 72, Target shall use
all reasonable efforts to cause to be delivered to Parent a letter of KPMG LLP,
dated a date within two business days before the effective date of the
Registration Statement, and addressed to Parent, in form and substance
satisfactory to Parent and customary in scope and substance for "cold comfort"
letters delivered by independent public accountants in connection with
registration statements and proxy statements similar to the Proxy/Prospectus.
7.15 Stock Exchange Listing. Parent shall use all reasonable efforts to
cause the Parent Common Shares to be issued in the Merger to be approved for
listing on the New York Stock Exchange at or prior to the Effective Time,
subject to official notice of issuance.
7.16 Notice of Certain Events. Each party shall promptly as reasonably
practicable notify the other parties of:
48
(a) any notice or other communication from any Person alleging that
the consent of such Person (or other Person) is or may be required in connection
with the Transactions;
(b) any notice or other communication from any Governmental
Authority in connection with the Transactions;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge, threatened against, relating to or
involving or otherwise affecting it or any of its Subsidiaries which, if pending
on the date hereof, would have been required to have been disclosed pursuant to
Sections 4.10, 4.12, 5.10 or 5.12, or which relate to the consummation of the
Transactions;
(d) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received by it or any of its Subsidiaries subsequent to the date hereof, under
any material agreement; and
(e) any Target Material Adverse Effect or Parent Material Adverse
Effect or the occurrence of any event which is reasonably likely to result in a
Target Material Adverse Effect or a Parent Material Adverse Effect, as the case
may be.
7.17 Site Inspections. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each party may undertake (at that
party's sole cost and expense) an environmental and operational assessment or
assessments (an "Assessment") of the other party's operations, business and/or
properties that are the subject of this Agreement. An Assessment may include a
review of permits, files and records including, but not limited to,
environmental investigations, audits, assessments, studies, testing and
management plans and systems, as well as visual and physical inspections and
testing. Before conducting an Assessment, the party intending to conduct such
Assessment (the "Inspecting Party") shall confer with the party whose
operations, business or property is the subject of such Assessment (the
"Inspected Party") regarding the nature, scope and scheduling of such
Assessment, and shall comply with such conditions as the Inspected Party may
reasonably impose to avoid interference with the Inspected Party's operations or
business. The Inspected Party shall cooperate in good faith with the Inspecting
Party's effort to conduct an Assessment.
7.18 Affiliate Agreements; Tax Treatment.
(a) Target shall identify in a letter to Parent all Persons who
are, on the date hereof, "affiliates" of Target, as such term is used in Rule
145 under the Securities Act. Target shall use all reasonable efforts to cause
its respective affiliates to deliver to Parent not later than 10 days prior to
the date of the Parent Special Meeting, a written agreement substantially in the
form attached as Exhibit 7.18, and shall use all reasonable efforts to cause
Persons who become "affiliates" after such date but prior to the Closing Date to
execute and deliver agreements at least 5 days prior to the Closing Date.
(b) Each party shall use all reasonable efforts to cause the Merger
to qualify, and shall not take, and shall use all reasonable efforts to prevent
any subsidiary of such party
49
from taking, any actions which could prevent the Merger from qualifying, as a
reorganization under the provisions of Section 368(a) of the Code.
7.19 Stockholder Litigation. Each of Parent and Target shall give the
other the reasonable opportunity to participate in the defense of any litigation
against Parent or Target, as applicable, and its directors relating to the
Transactions.
7.20 Certain Parent Board Approvals. Parent shall use its best efforts
to cause its Board of Directors prior to the Effective Time to approve in the
form required by Rule 16b-3 under the Exchange Act certain acquisitions of
Parent Common Shares pursuant to the Merger, as directed by Target and in form
reasonably acceptable to Target.
7.21 Optional Redemption or Liquidation of Target D Preferred Shares.
Target may take any and all actions necessary to redeem or liquidate the Target
D Preferred Shares effective after the Record Date for the Target Special
Meeting and on or prior to the Effective Time for an amount equal to the
Preferred Stock Conversion Consideration, except that dividends shall only be
paid through the date of redemption.
7.22 Registration Rights Agreement. Parent and Target agree to use their
reasonable best efforts to cause the parties to the Registration Rights
Agreement, dated as of August 27, 1999, as amended on October 19, 1999, by and
among Middle Bay Oil Company, Inc. and the parties listed on Schedule 1 thereto,
to be amended such that no parties thereto will have registration rights with
respect to their Parent Common Shares after the Effective Time if the Parent
Common Shares they receive in the Merger may be transferred either (a) in one
90-day period under Rule 144 under the Securities Act, or (b) in a transaction
exempt from registration under the Securities Act because such parties have
received Parent Common Shares in a registered transaction under the
Proxy/Prospectus.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
8.1 Conditions to the Obligation of Each Party. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions:
(a) The Target Stockholders' Approval and the Parent Share Issuance
Approval must have been obtained.
(b) No action, suit or proceeding instituted by any Governmental
Authority may be pending and no statute, rule, order, decree or regulation and
no injunction, order, decree or judgment of any court or Governmental Authority
of competent jurisdiction may be in effect, in each case which would prohibit,
restrain, enjoin or restrict the consummation of the Transactions; provided,
however, that the party seeking to terminate this Agreement pursuant to this
subsection (b) must have used all reasonable best efforts to prevent the entry
of such injunction or other order.
50
(c) The Registration Statement must have become effective in
accordance with the provisions of the Securities Act and no stop order
suspending the effectiveness of the Registration Statement may be in effect and
no proceeding for such purpose may be pending before or threatened by the SEC.
(d) Each of Target and Parent must have obtained all material permits,
authorizations, consents, or approvals required to consummate the Transactions.
(e) The Parent Common Shares to be issued in the Merger must have been
approved for listing on the New York Stock Exchange, subject to official notice
of issuance.
(f) Parent must have received a supplemental ruling from the Internal
Revenue Service or a tax opinion reasonably acceptable to Plains Resources Inc.
from counsel to Parent to the effect that the Transactions would not adversely
affect the tax treatment of the spin-off of Parent from Plains Resources Inc.
under Section 355 of the Code as ruled by the Internal Revenue Service in its
private letter rulings to Plains Resources Inc. dated November 5, 2002 and May
22, 2002; provided, however, that if counsel to Parent shall not render such
opinion, this condition shall nonetheless be deemed satisfied if other
nationally-recognized counsel shall render such opinion to Parent.
8.2 Conditions to the Obligations of Parent. The obligation of Parent to
effect the Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) Target must have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time and the representations and warranties of Target contained in
this Agreement, to the extent qualified with respect to materiality must be true
and correct in all respects, and to the extent not so qualified must be true and
correct in all material respects, in each case as of the date hereof and at and
as of the Effective Time as if made at and as of such time, except as expressly
contemplated by the Target Disclosure Schedule or this Agreement and except that
the accuracy of representations and warranties that by their terms speak as of
the date hereof or some other date shall be determined as of such date, and
Parent must have received a certificate of the Chief Executive Officer and Chief
Financial Officer of Target as to the satisfaction of this condition.
(b) From the date hereof through the Effective Time, there must not
have occurred any change in the financial condition, business, operations or
prospects of Target, that would constitute a Target Material Adverse Effect.
(c) Target must have delivered to its counsel, Parent and Parent's
counsel a certificate signed on behalf of Target by a duly authorized officer of
Target certifying the representations set forth in the form of Target Tax
Certificate attached as Exhibit 8.2(c) (the "Target Tax Certificate").
(d) Parent must have received an opinion from Akin Gump Strauss Hauer
& Feld LLP prior to the effectiveness of the Registration Statement and also as
of the Effective Time to the effect that (i) the Merger constitutes a
reorganization under Section 368(a) of the Code, (ii) Parent and Target shall
each be a party to that reorganization, and (iii) no gain or loss shall be
recognized by Parent or Target because of the Merger; provided, however, that if
51
counsel to Parent shall not render such opinion, this condition shall
nonetheless be deemed satisfied if counsel to Target shall render such opinion
to Parent; provided further, that in rendering such opinion, such counsel may
rely upon the Parent Tax Certificate and the Target Tax Certificate.
(e) Each consent, waiver and approval set forth in Section 4.4(c) of
the Target Disclosure Schedule must have been obtained, and Target must have
provided Parent with copies thereof.
8.3 Conditions to the Obligations of Target. The obligation of Target to
effect the Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) Parent must have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time and the representations and warranties of Parent contained in
this Agreement, to the extent qualified with respect to materiality must be true
and correct in all respects, and to the extent not so qualified must be true and
correct in all material respects, in each case as of the date hereof and at and
as of the Effective Time as if made at and as of such time, except as expressly
contemplated by the Parent Disclosure Schedule or this Agreement and except that
the accuracy of representations and warranties that by their terms speak as of
the date hereof or some other date shall be determined as of such date, and
Target must have received a certificate of the Chief Executive Officer and Chief
Financial Officer of Parent as to the satisfaction of this condition.
(b) From the date hereof through the Effective Time, there must not
have occurred any change in the financial condition, business, operations or
prospects of Parent that would constitute a Parent Material Adverse Effect.
(c) Parent must have delivered to its counsel, Target and Target's
counsel a certificate signed on behalf of Parent by a duly authorized officer of
Parent certifying the representations set forth in the form of Parent Tax
Certificate attached as Exhibit 8.3(c) (the "Parent Tax Certificate").
(d) Target must have received an opinion from Thompson & Knight, LLP
prior to the effectiveness of the Registration Statement and also as of the
Effective Time to the effect that (i) the Merger constitutes a reorganization
under Section 368(a) of the Code, (ii) Target and Parent shall each be a party
to that reorganization, and (iii) no gain or loss shall be recognized by the
Target stockholders upon the receipt of Parent Common Shares in exchange for
Target Common Shares pursuant to the Merger except with respect to the Cash
Consideration, the Series D Preferred Stock Merger Consideration and any cash
received in lieu of fractional share interests; provided, however, that if
counsel to Target shall not render such opinion, this condition shall
nonetheless be deemed satisfied if counsel to Parent shall render such opinion
to Target; provided further, that in rendering such opinion, such counsel may
rely upon the Parent Tax Certificate and the Target Tax Certificate.
52
ARTICLE IX
SURVIVAL
9.1 Survival of Representations and Warranties. The representations and
warranties of the parties contained in this Agreement shall not survive the
Effective Time.
9.2 Survival of Covenants and Agreements. The covenants and agreements of
the parties to be performed after the Effective Time contained in this Agreement
shall survive the Effective Time.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the stockholders of Target
or Parent:
(a) by the mutual written consent of Parent and Target;
(b) by either Parent or Target if the Effective Time has not occurred
on or before August 31, 2003 (the "Termination Date"), provided that the party
seeking to terminate this Agreement pursuant to this Section 10.1(b) shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Merger on or before the Termination Date;
(c) by Target if there has been a material breach by Parent of any
representation, warranty, covenant or agreement set forth in this Agreement
which breach (if susceptible to cure) has not been cured in all material
respects within 20 business days following receipt by Parent of notice of such
breach;
(d) by Parent, if there has been a material breach by Target of any
representation, warranty, covenant or agreement set forth in this Agreement
which breach (if susceptible to cure) has not been cured in all material
respects within 20 business days following receipt by Target of notice of such
breach (a "Target Breach");
(e) by either Target or Parent, if any applicable law, rule or
regulation that makes consummation of the Merger illegal is extant or if any
judgment, injunction, order or decree of a court or other Governmental Authority
of competent jurisdiction restrains or prohibits the consummation of the Merger,
and such judgment, injunction, order or decree becomes final and nonappealable;
(f) by either Target or Parent, if either of the stockholder approvals
referred to in Section 7.13 is not obtained because of the failure to obtain the
Target Stockholders Approval or the Parent Share Issuance Approval upon a vote
at a duly held meeting of stockholders or at any adjournment or postponement
thereof;
53
(g) by Parent, if (i) Target's Board of Directors withdraws, modifies
or changes its recommendation of this Agreement or the Merger in a manner
adverse to Parent or resolves to do any of the foregoing or Target's Board of
Directors recommends to Target's stockholders any Target Acquisition Proposal or
resolves to do so; (ii) a tender offer or exchange offer for outstanding shares
of Target's capital stock then representing 30% or more of the combined power to
vote generally for the election of directors is commenced, and Target's Board of
Directors does not, within the applicable period required by law, recommend that
stockholders not tender their shares into such tender or exchange offer; or
(iii) Target shall have breached any of its obligations under Section 7.2; or
(h) by Parent, or, subject to Section 7.13(c), Target, if Target
accepts a Target Superior Proposal. For this Agreement, "Target Superior
Proposal" means bona fide written Target Acquisition Proposal that (i) Target's
Board of Directors in good faith determines, after consultation with its
financial advisors and its outside legal counsel, is reasonably likely to be
consummated taking into account the Person making such Target Acquisition
Proposal and all legal, financial, regulatory and other relevant aspects of such
Target Acquisition Proposal, and Target's Board of Directors in good faith
determines, after consultation with its financial advisors and its outside legal
counsel, that such Target Acquisition Proposal would, if consummated, result in
a transaction that is more favorable from a financial point of view to the
holders of Target Common Shares than the Transactions; provided, however, that
Target may not terminate this Agreement under this Section 10.1(h) unless it
pays the Termination Fee plus Parent's Expenses up to the Expense Cap and has
used all reasonable efforts to provide Parent with five business days prior
written notice of its intent to so terminate this Agreement together with a
detailed summary of the terms and conditions of such Target Acquisition
Proposal; provided further, during such five (5) day period, Target shall and
shall direct its respective financial and legal advisors to negotiate in good
faith with Parent to make such adjustments in the terms and conditions of this
Agreement as would result, in the opinion of Target's Board of Directors, after
consultation with its financial advisors and outside legal counsel, in a revised
Parent proposal that is reasonably capable of being completed, and, if
consummated, may reasonably be expected to result in a transaction that is at
least as favorable from a financial point of view to the holders of Target
Common Stock as the Target Superior Proposal.
(i) by Parent, if the Market Price is less than the Minimum Market
Price.
10.2 Effect of Termination.
(a) If this Agreement is terminated and the Merger is abandoned under
this Article X, all obligations of the parties shall terminate, except the
parties' obligations pursuant to this Section 10.2 and except for Sections 7.5,
7.7, 9.1, 9.2, 11.2, 11.6, 11.7, 11.8, 11.9 and the last two sentences of
Section 7.1, provided that nothing herein shall relieve any party from liability
for any breaches hereof.
(b) Termination by Parent.
(i) If (x) a Target Acquisition Proposal shall have been made or
shall have otherwise become publicly known or any Person (other than
Parent or any of its affiliates) shall have publicly announced an
intention (whether or not
54
conditional) to make a Target Acquisition Proposal, (y) this Agreement
is terminated by Parent under Section 10.1(f) (failure to obtain the
Target Stockholder's Approval), Section 10.1(b) (Effective Time has
not occurred on or prior to Termination Date) or Section 10.1(d)
(Target Breach), and (z) in each case, within twelve months after such
termination of this Agreement:
(A) a transaction is consummated, which transaction, if
offered or proposed, would constitute a Target Acquisition
Proposal,
(B) a definitive agreement (the execution and delivery of
which has been authorized by the boards of directors, or
comparable bodies) that would if consummated constitute a Target
Acquisition Proposal is entered into or
(C) (X) any Person acquires beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such
term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated hereunder), shall have been
formed that beneficially owns, or has the right to acquire
beneficial ownership of, outstanding shares of capital stock of
Target then representing 50% or more of the combined power to
vote generally for the election of directors, and (Y) Target's
Board of Directors has taken any action for the benefit of such
person, that facilitates the acquisition by such person or group
of such beneficial ownership,
then Target shall promptly (and no later than one business day after
the first to occur of any of clauses (A)-(C) above) pay to Parent a
termination fee of $9.0 million (the "Termination Fee"), plus Parent's
Expenses up to $1.0 million (the "Expense Cap").
(ii) If (x) Parent terminates this Agreement under Section 10.1(g)
(change of recommendation; recommendation of Target Acquisition
Proposal; failure to reject; breach of Sections 7.2 or (y) Target or
Parent terminates this Agreement pursuant to Section 10.1(h) (Target
Superior Proposal), Target shall promptly (and in any event no later
than one business day after such termination) pay to Parent the
Termination Fee plus Parent's Expenses up to the Expense Cap.
ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices or communications hereunder shall be in writing
(including facsimile or similar writing) addressed as follows:
To Parent:
Plains Exploration & Production Company
500 Dallas Street, Suite 700
55
Houston, Texas 77002-4804
Attention: James C. Flores
Telephone: (713) 739-6700
Facsimile: (713) 654-1523
With a copy (which shall not constitute notice) to:
Akin Gump Strauss Hauer & Feld LLP
1900 Pennzoil Place
South Tower
711 Louisiana Street
Houston, Texas 77002
Attention: Michael E. Dillard, P.C.
Facsimile No.: (713) 236-0822
To Target:
3TEC Energy Corporation
700 Milam, Suite 1100
Houston, Texas 77002
Attention: Floyd C. Wilson
Telephone: (713) 821-7100
Facsimile: (713) 821-7200
With a copy (which shall not constitute notice) to:
Hinkle Elkouri Law Firm L.L.C.
301 N. Main, Suite 2000
Wichita, Kansas 67202
Attention: David S. Elkouri
Telephone: (316) 660-6111
Facsimile: (316) 660-6011
and
Thompson & Knight LLP
333 Clay Street, Suite 3300
Houston, Texas 77002
Attention: Dallas Parker or Timothy T. Samson
Facsimile: (713) 654-1871
Any such notice or communication shall be deemed given (i) when made, if made by
hand delivery, and upon confirmation of receipt, if made by facsimile, (ii) one
business day after being deposited with a next-day courier, postage prepaid, or
(iii) three business days after being sent certified or registered mail, return
receipt requested, postage prepaid, in each case addressed as above (or to such
other address as such party may designate in writing from time to time).
56
11.2 Severability. If any provision of this Agreement shall be declared to
be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
11.3 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors, and assigns; provided, however, that neither this Agreement nor any
rights hereunder shall be assignable or otherwise subject to hypothecation and
any assignment in violation hereof shall be null and void.
11.4 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each party.
11.6 Entire Agreement. This Agreement, all documents contemplated herein
or required hereby, and the Confidentiality Agreements represent the entire
Agreement of the parties with respect to the subject matter hereof and shall
supersede any and all previous contracts, arrangements or understandings between
the parties with respect to the subject matter hereof.
11.7 Governing Law. This Agreement shall be construed, interpreted, and
governed in accordance with the laws of the state of Delaware, without reference
to rules relating to conflicts of law.
11.8 Submission to Jurisdiction. Each party to this Agreement submits to
the exclusive jurisdiction of any state or federal court sitting in the State of
Delaware in any dispute or action arising out of or relating to this Agreement
and agrees that all claims in respect of such dispute or action may be heard and
determined in any such court. Each party also agrees not to bring any dispute or
action arising out of or relating to this Agreement in any other court. Each
party agrees that a final judgment in any dispute or action so brought will be
conclusive and may be enforced by dispute or action on the judgment or in any
other manner provided at law (common, statutory or other) or in equity. Each
party waives any defense of inconvenient forum to the maintenance of any dispute
or action so brought and waives any bond, surety, or other security that might
be required of any other party with respect thereto.
11.9 Attorneys' Fees. If any action at law or equity, including an action
for declaratory relief, is brought to enforce or interpret any provision of this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and expenses from the other party, which fees and expenses shall
be in addition to any other relief which may be awarded.
11.10 No Third Party Beneficiaries. Except as provided in Section 7.3, no
Person other than the parties is an intended beneficiary of this Agreement or
any portion hereof.
11.11 Disclosure Schedules. The disclosures made on any disclosure
schedule, including the Target Disclosure Schedule and the Parent Disclosure
Schedule, with respect to any representation or warranty shall be deemed to be
made with respect to any other
57
representation or warranty requiring the same or similar disclosure to the
extent that the relevance of such disclosure to other representations and
warranties is reasonably evident from the face of the disclosure schedule. The
inclusion of any matter on any disclosure schedule will not be deemed an
admission by any party that such listed matter is material or that such listed
matter has or would have a Target Material Adverse Effect or a Parent Material
Adverse Effect, as applicable.
11.12 Amendments and Supplements. At any time before or after approval of
the matters presented in connection with the Merger by the respective
stockholders of Parent and Target and prior to the Effective Time, this
Agreement may be amended or supplemented in writing by Parent and Target with
respect to any of the terms contained in this Agreement, except as otherwise
provided by law; provided, however, that following approval of this Agreement by
the stockholders of Parent, or Target, as applicable, there shall be no
amendment or change to the provisions hereof unless permitted by the DGCL
without further approval by the stockholders of Parent, or Target, as
applicable.
11.13 Extensions, Waivers, Etc. At any time prior to the Effective Time,
either party may (a) extend the time for the performance of any of the
obligations or acts of the other party;
(b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant hereto;
or
(c) subject to the proviso of Section 11.12 waive compliance with any
of the agreements or conditions of the other party contained herein.
Notwithstanding the foregoing, no failure or delay by Parent or Target in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
[SIGNATURE PAGE FOLLOWS]
58
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
PLAINS EXPLORATION & PRODUCTION COMPANY
By: ___________________________________
Name: James C. Flores
Title: Chief Executive Officer
PXP GULF COAST INC.
By: ___________________________________
Name: James C. Flores
Title: Chief Executive Officer
3TEC ENERGY CORPORATION
By: ___________________________________
Name: Floyd C. Wilson
Title: Chief Executive Officer
Exhibit 7.13(b)
Parent Incentive Plan
The Parent Incentive Plan will have the same characteristics as the
Plains Exploration & Production Company 2002 Stock Incentive Plan. Parent's
Compensation Committee shall determine the number of shares that will be
reserved under such plan.
Exhibit 7.18
Form of Affiliate Agreement
Plains Exploration & Production Company
599 Dallas Street, Suite 700
Houston, Texas 77002-4804
Gentlemen:
Reference is made to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of February 2, 2003 between Plains Exploration & Production
Company, a Delaware corporation ("Parent"), PXP Gulf Coast Inc. a Delaware
corporation ("Merger Sub"), and 3TEC Energy Corporation, a Delaware corporation
("Target"), pursuant to which Merger Sub and Target shall merge. Pursuant to the
terms and conditions of the Merger Agreement, upon consummation of the
transactions contemplated thereby, each share of Common Stock, par value $.02
per share, of Target owned by the undersigned as of the Effective Time (as
defined in the Merger Agreement) shall be converted into and exchangeable for
certain shares of the common stock, par value $.01 per share, of Parent (the
"Parent Common Shares") and cash.
The undersigned understands that the he may be deemed to be an
"affiliate" of Target for purposes of Rule 145 promulgated under the Securities
Act of 1933, as amended (the "Act"). The undersigned is delivering this letter
of undertaking and commitment pursuant to Section 7.18 of the Merger Agreement.
With respect to such Parent Common Shares the undersigned may receive
under the Merger Agreement (the "Shares"), the undersigned represents to and
agrees with Parent that:
A. The undersigned shall not make any offer to sell or any
sale or other disposition of all or any part of the Shares in violation
of the Act or the rules and regulations thereunder, including Rule 145,
and shall hold all the Shares subject to all applicable provisions of
the Act and the rules and regulations thereunder.
B. The undersigned has been advised that the offering, sale
and delivery of the Shares to the undersigned pursuant to the Merger
Agreement shall be registered under the Act on a Registration Statement
on Form S-4. The undersigned has also been advised, however, that,
since the undersigned may be deemed an "affiliate" of Target, any
public reoffering or resale by the undersigned of any of the Shares
shall, under current law, require either (i) the further registration
under the Act of the Shares to be sold, (ii) compliance with Rule 145
promulgated under the Act (permitting limited sales under certain
circumstances) or (iii) the availability of another exemption from
registration under the Act.
C. The undersigned also understands that, if Parent should
deem it necessary to comply with the requirements of the Act, stop
transfer instructions will be given to its
transfer agents with respect to the Shares and that there will be
placed on the certificates for the Shares, or any substitutions
therefor, a legend stating in substance:
"The securities represented by this certificate were issued in
a transaction under Rule 145 promulgated under the Securities
Act of 1933, as amended (the "Act"), and may be sold,
transferred or otherwise disposed of only upon receipt by the
Corporation of an opinion of counsel acceptable to it that the
securities are being sold in compliance with the limitations
of Rule 145 or that some other exemption from registration
under the Act is available, or pursuant to a registration
statement under the Act."
Execution of this letter shall not be considered an admission on the
part of the undersigned that the undersigned is an "affiliate" of Target for
purposes of Rule 145 under the Act or as a waiver of any rights the undersigned
may have to any claim that the undersigned is not such an affiliate on or after
the date of this letter.
Very truly yours,
_______________________________
Signature
_______________________________
Name
_______________________________
Date
Exhibit 8.2(c)
TARGET
OFFICER'S CERTIFICATE
On behalf of 3TEC Energy Corporation, a Delaware corporation ("Target"), I
hereby certify that all the information set forth below relating to the proposed
merger of Target into PXP Gulf Coast Inc. a Delaware corporation ("Merger Sub")
and the wholly-owned subsidiary of Plains Exploration & Production Company, a
Delaware corporation ("Parent"), is true, correct and complete as of the date
hereof and will continue to be true and correct as of the Effective Time. To
make this certification, I have relied on my personal knowledge of the facts set
forth below or I have obtained information as to these matters from officers or
employees or other advisors in whom I have confidence and whose duties require
them to have personal knowledge thereof. I understand that each of Thompson &
Knight L.L.P. and Akin Gump Strauss Hauer & Feld LLP will rely on this
certification in delivering certain opinions pursuant to the Agreement and Plan
of Merger dated as of February 2, 2003 (the "Merger Agreement"), by and among
Parent, Merger Sub, and Target. Except as expressly provided otherwise,
capitalized terms used herein have the same meanings assigned to them in the
Merger Agreement.
1. The Merger will be carried out strictly in accordance with the Merger
Agreement and the agreements referenced therein, and there are no
other written or oral agreements regarding the Merger other than those
expressly referred to in the Merger Agreement.
2. The fair market value of Parent Common Shares and cash received by
each holder of Target Common Shares in connection with the Merger will
be approximately equal to the fair market value of the shares of
Target Common Shares surrendered in the exchange.
3. To the best knowledge of Target, neither Parent nor Merger Sub (nor
any Related Person as defined in Attachment A) has any plan or
intention to redeem or otherwise reacquire, directly or indirectly,
any Parent Common Shares to be issued in the Merger.
4. To the best knowledge of Target, the aggregate fair market value,
determined at the Effective Time, of the Parent Common Stock to be
received in the Merger will not be less than forty percent (40%) of
the value, determined at the Effective Time, of Target Common Shares
and Target Warrants outstanding immediately before the Effective Time.
For this purpose, we assume that the fair market value of the
outstanding Target Common Shares and Target Warrants will equal the
fair market value of the aggregate Merger Consideration.
5. Prior to the Effective Time and in connection with or anticipation of
the Merger, (i) none of the Target Common Shares will be redeemed,
(ii) no extraordinary distribution will be made with respect to Target
Common Shares, and (iii) none of the Target Common Shares will be
acquired by Target or any Related Person.
6. Target will redeem its outstanding Series D Preferred Stock
immediately before the Merger solely with Target's funds. Parent will
provide no funds to Target, directly or indirectly, for Target to
redeem such Series D Preferred Stock or for Target to repay debt
incurred to redeem such stock.
7. The only capital stock of Target issued and outstanding is Target
Common Stock and Series D Preferred Stock.
8. Target and Target stockholders will each pay their respective
expenses, if any, incurred in connection with the Merger.
9. Any compensation paid to the Target stockholders who enter (or have
entered) into employment, consulting or noncompetitive contracts, if
any, with Parent, Merger Sub, or the Surviving Corporation (a) will be
for services actually rendered or to be rendered, (b) will be
commensurate with amounts paid to third parties bargaining at arm's
length for similar services, and (c) will not represent consideration
for the surrender of the Target Common Shares in the Merger.
10. No debt of Target is guaranteed by any Target stockholder.
11. Target owns no stock of Parent.
12. Merger Sub will acquire at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%) of
the gross assets held by Target immediately prior to the Merger. For
purposes of this representation, amounts paid by Target to dissenters,
amounts paid by Target to stockholders who receive cash or other
property, Target assets used to pay its reorganization expenses, and
all redemptions and distributions (including the redemption of the
Series D Preferred Stock, but excluding regular, normal dividends)
made by Target immediately preceding the transfer, will be included in
assets of Target held immediately prior to the Merger.
13. No assets of Target have been sold, transferred or otherwise disposed
of which would prevent Parent from continuing the historic business of
Target or from using a significant portion of Target's historic
business assets in a business following the Merger. Target intends to
continue its historic business or use a significant portion of its
historic business assets in a business.
14. Target is not an investment company as defined in Section 368(a)(2)(F)
of the Code. An investment company is (a) a regulated investment
company; (b) a real estate investment trust; or (c) a corporation (i)
fifty percent (50%) or more of the value of whose total assets are
stock and securities, and (ii) eighty percent (80%) or more of the
value of whose total assets are held for investment. For this purpose,
"total assets" shall not include cash and cash items (including
receivables) and government securities.
15. The fair market value of the assets of Target transferred to Merger
Sub in the Merger will equal or exceed the sum of the liabilities
assumed or paid by Parent or Merger Sub, plus the amount of
liabilities, if any, to which the transferred assets are subject.
16. The total adjusted basis of the assets of Target transferred to Merger
Sub in the Merger will equal or exceed the sum of the liabilities
assumed or paid by Parent or Merger Sub, plus the amount of
liabilities, if any, to which the transferred assets are subject.
17. Target is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
18. There is no intercorporate indebtedness existing between Parent and
Target, or between Merger Sub and Target, that was or will be issued,
acquired, or settled at a discount in connection with the Merger.
19. Target has substantial non-tax business purposes and reasons for the
Merger, and the terms of the Merger are the product of arm's length
negotiations.
20. Target will not take, and Target is not aware of any plan or intention
of any of the Target stockholders to take, any position on any
federal, state or local income or franchise tax return, or take any
other tax reporting position, that is inconsistent with the treatment
of the Merger as a reorganization within the meaning of Section 368(a)
of the Code, unless otherwise required by a "determination" (as
defined in Code Section 1313(a)(1)).
21. No stock or securities of Target, or to the knowledge of Target, no
stock or securities of Parent, will be issued to any Target
stockholder for services rendered to or for the benefit of Parent,
Merger Sub, or Target in connection with the Merger.
22. No stock or securities of Parent or of Target will be issued to any
Target stockholder for any indebtedness owed to any Target stockholder
in connection with the Merger.
23. The liabilities of Target to be assumed or paid by Parent and Merger
Sub and the liabilities to which the transferred assets of Target are
subject were incurred by Target in the ordinary course of its
business.
24. No assets were transferred to Target, nor did Target assume any
liabilities, in anticipation of the Merger.
25. The undersigned officer is authorized to make all of the
certifications and representations set forth herein.
[SIGNATURE PAGE FOLLOWS]
Signed _______________ ____, 2003.
3TEC ENERGY CORPORATION
By:__________________________________
Name: Floyd C. Wilson
Title: Chief Executive Officer
ATTACHMENT A
For purposes of this certificate, a Related Person with respect to either
Parent or Merger Sub shall mean
(i) a corporation that, immediately before or immediately after a
purchase, exchange, redemption, or other acquisition of Parent Common
Stock, is a member of an Affiliated Group (as defined herein) of which
Parent (or any successor corporation) is a member, or
(ii) a corporation in which Parent (or any successor corporation),
owns, or which owns with respect to Parent (or any successor corporation),
directly or indirectly, immediately before or immediately after such
purchase, exchange, redemption, or other acquisition, at least 50% of the
total combined voting power of all classes of stock entitled to vote or at
least 50% of the total value of shares of all classes of stock, taking into
account for purposes of this clause (ii) any stock owned by 5% or greater
stockholders of Parent (or any successor) or such corporation, a
proportionate share of the stock owned by entities in which Parent (or any
successor) or such corporation owns an interest, and any stock which may be
acquired pursuant to the exercise of options.
For purposes of this certificate, "Affiliated Group" shall mean one or more
chains of corporations connected through stock ownership with a common parent
corporation, but only if
(x) the common parent owns directly stock that possesses at least
80% of the total voting power, and has a value at least equal to 80% of the
total value, of the stock in at least one of the other corporations, and
(y) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in
each corporation (except the common parent) is owned directly by one or
more of the other corporations.
For purposes of the preceding sentence, "stock" does not include any stock that
(a) is not entitled to vote, (b) is limited and preferred as to dividends and
does not participate in corporate growth to any significant extent, (c) has
redemption and liquidation rights that do not exceed the issue price of such
stock (except for a reasonable redemption or liquidation premium), and (d) is
not convertible into another class of stock.
Exhibit 8.3(c)
PARENT AND MERGER SUB
OFFICER'S CERTIFICATE
On behalf of Plains Exploration & Production Company, a Delaware
corporation ("Parent"), and its wholly-owned subsidiary PXP Gulf Coast Inc., a
Delaware corporation ("Merger Sub"), I hereby certify that all the information
set forth below relating to the proposed merger of 3TEC Energy Corporation, a
Delaware corporation ("Target"), into Merger Sub is true, correct and complete
as of the date hereof and will continue to be true and correct as of the
Effective Time. To make this certification, I have relied on my personal
knowledge of the facts set forth below or I have obtained information as to
these matters from officers or employees or other advisors in whom I have
confidence and whose duties require them to have personal knowledge thereof. I
understand that each of Thompson & Knight L.L.P. and Akin Gump Strauss Hauer &
Feld LLP will rely on this certification in delivering certain opinions pursuant
to the Agreement and Plan of Merger dated as of February 2, 2003 (the "Merger
Agreement"), by and among Parent, Merger Sub, and Target. Except as expressly
provided otherwise, capitalized terms used herein have the same meanings
assigned to them in the Merger Agreement.
1. The Merger will be carried out strictly in accordance with the Merger
Agreement and the agreements referenced therein, and there are no
other written or oral agreements relating to the Merger other than
those expressly referred to in the Merger Agreement.
2. In connection with the Merger, no Target Common Shares will be
acquired by Parent or a Related Person (as defined in Attachment A)
for consideration other than Parent Common Shares, except for the Cash
Consideration, payments to the dissenting stockholders, if any, and
any cash received in lieu of fractional share interests in Parent
Common Shares.
3. The fair market value of Parent Common Shares and cash received by
each holder of Target Common Shares in connection with the Merger will
be approximately equal to the fair market value of the Target Common
Shares surrendered in the exchange.
4. Parent will provide no funds to Target, directly or indirectly, for
Target to redeem its Series D Preferred Stock or for Target to repay
debt incurred to redeem such stock.
5. Neither Parent nor Merger Sub (nor any Related Person as defined in
Attachment A) has any plan or intention to redeem or otherwise
reacquire, directly or indirectly, any Parent Common Shares to be
issued in the Merger.
6. Parent has no stock repurchase program and has no current plan or
intention to adopt such a plan.
7. To the best knowledge of Parent, the aggregate fair market value,
determined at the Effective Time, of the Parent Common Shares to be
received in the Merger will not be less than forty percent (40%) of
the value, determined at the Effective Time, of the Target Common
Shares and Target Warrants outstanding immediately before the
Effective Time. For this purpose, we assume that the fair market value
of the outstanding Target Common Shares and Target Warrants will equal
the fair market value of the aggregate Merger Consideration.
8. Neither Parent nor any Related Person owns, nor has it owned during
the past five years, any shares of stock of the Target. Neither Parent
nor any Related Person has caused any other person to acquire stock of
the Target on behalf of Parent or a Related Person, and will not
directly or indirectly acquire any stock of the Target in connection
with the Merger, except as described in the Merger Agreement.
9. Parent has not, directly or indirectly, transferred any cash or
property to the Target (or any entity controlled directly or
indirectly by the Target) for less than full and adequate
consideration and has not made any loan to the Target (or any entity
controlled directly or indirectly by the Target) in anticipation of
the Merger.
10. There is no intercompany indebtedness existing between Parent and
Target, or between Merger Sub and Target, that was or will be issued,
acquired, or settled at a discount in connection with the Merger.
11. Parent will pay its own expenses incurred in connection with or as
part of the Merger or related transactions. Parent has not paid and
will not pay, directly or indirectly, any expenses (including transfer
taxes) incurred by any holder of Target Common Shares in connection
with or as part of the Merger or any related transactions. Parent has
not agreed to assume, nor will it directly or indirectly assume, any
expense or other liability, whether fixed or contingent, of any holder
of Target Common Shares.
12. Any compensation paid to the holders of Target Common Shares who enter
(or have entered) into employment, consulting or noncompetitive
contracts, if any, with Parent, Merger Sub, or the Surviving
Corporation (a) will be for services actually rendered or to be
rendered, (b) will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services, and (c) will not
represent consideration for the surrender of the Target Common Shares
in the Merger.
13. Merger Sub is wholly and directly owned by Parent and has been newly
formed solely to consummate the Merger. Prior to the Effective Time,
Merger Sub will have no assets other than cash to satisfy capital
requirements under state law and has not, and will not, conduct any
business activities or other operations of any kind other than the
issuance of its stock to Parent or as otherwise expressly required by
the Merger Agreement.
14. At the Effective Time of the Merger, Merger Sub will not have or issue
any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire any stock in Merger
Sub.
15. Merger Sub will acquire at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%) of
the gross assets held by Target immediately prior to the Merger. For
purposes of this representation, amounts paid by Target to dissenters,
amounts paid by Target to stockholders who receive cash or other
property, Target assets used to pay its reorganization expenses, and
all redemptions and distributions (including the redemption of the
Series D Preferred Stock, but excluding regular, normal dividends)
made by Target immediately preceding the transfer, will be included in
assets of Target held immediately prior to the Merger.
16. Following the Merger, the Surviving Corporation will continue the
historic business of Target or use a significant portion of its assets
in a business, within the meaning of Treas. Reg.ss.1.368-1(d).
17. Parent has no plan or intention to liquidate the Surviving Corporation
following the Merger; to merge the Surviving Corporation with another
corporation; to sell or otherwise dispose of the stock of Merger Sub;
or to sell or otherwise dispose of any of the assets of Target except
for dispositions made in the ordinary course of business or transfers
or successive transfers to one or more corporations controlled (within
the meaning of Section 368(c) of the Code) in each case by the
transferor corporation.
18. Following the Merger, Parent has no plan or intention to cause the
Surviving Corporation to issue additional shares of its stock that
would result in Parent owning stock possessing less than eighty
percent (80%) of the total combined voting power of all classes of
stock entitled to vote or less than eighty percent (80%) of the total
number of shares of all other classes of stock of the Surviving
Corporation.
19. Parent is paying no consideration for the Target stock other than the
Merger Consideration.
20. To the best knowledge of Parent, any Target liabilities assumed or
paid by Parent or Merger Sub and the liabilities to which the
transferred assets of the Target are subject were incurred by the
Target in the ordinary course of its business.
21. Neither Parent nor Merger Sub is an investment company within the
meaning of Sections 368(a)(2)(F) of the Code. An investment company is
(1) a regulated investment company; (2) a real estate investment
trust; or (3) a corporation (i) fifty percent (50%) or more of the
value of whose total assets are stock and securities, and (ii) eighty
percent (80%) or more of the value of whose total assets are held for
investment. For this purpose, "total assets" shall not include cash
and cash items (including receivables) and government securities.
22. Parent has substantial non-tax business purposes and reasons for the
Merger, and the terms of the Merger are the product of arm's length
negotiations.
23. Neither Parent nor the Surviving Corporation will take any position on
any federal, state or local income or franchise tax return, or take
any other tax reporting position that is inconsistent with the
treatment of the Merger as a reorganization within the meaning of
Section 368(a) of the Code, unless otherwise required by a
"determination" (as defined in Code Section 1313(a)(1)).
24. No stock or securities of Parent will be issued to any Target
stockholder for services rendered to or for the benefit of Parent,
Merger Sub, or the Target in connection with the Merger.
25. To the best knowledge of Parent, no stock or securities of the Target
will be issued to any Target stockholder for services rendered to or
for the benefit of Parent, Merger Sub, or the Target in connection
with the Merger.
26. No stock or securities of Parent will be issued for any indebtedness
owed to any Target stockholder in connection with the Merger.
27. To the best knowledge of Parent, no stock or securities of the Target
will be issued for any indebtedness owed to any Target stockholder in
connection with the Merger.
28. No stock of Merger Sub will be issued in connection with the Merger.
29. Rights received by the Parent stockholders pursuant to Parent's
[Poison Pill Agreement] are not separately tradeable, are contingent,
are non-exercisable, are subject to redemption if they become
exercisable, and have no ascertainable fair market value.
30. The undersigned officer is authorized to make all of the
certifications and representations set forth herein.
[SIGNATURE PAGE FOLLOWS]
Signed _______________ ___, 2003.
PLAINS EXPLORATION & PRODUCTION COMPANY
By: ________________________________
Name: James C. Flores
Title: Chief Executive Officer
PXP GULF COAST INC.
By: ________________________________
Name: James C. Flores
Title: Chief Executive Officer
ATTACHMENT A
For purposes of this certificate, a Related Person with respect to either
Parent or Merger Sub shall mean
(i) a corporation that, immediately before or immediately after a
purchase, exchange, redemption of Parent Common Stock, or other
acquisition, is a member of an Affiliated Group (as defined herein) of
which Parent (or any successor corporation) is a member, or
(ii) a corporation in which Parent (or any successor corporation),
owns, or which owns with respect to Parent (or any successor corporation),
directly or indirectly, immediately before or immediately after such
purchase, exchange, redemption, or other acquisition, at least 50% of the
total combined voting power of all classes of stock entitled to vote or at
least 50% of the total value of shares of all classes of stock, taking into
account for purposes of this clause (ii) any stock owned by 5% or greater
stockholders of Parent (or any successor) or such corporation, a
proportionate share of the stock owned by entities in which Parent (or any
successor) or such corporation owns an interest, and any stock which may be
acquired pursuant to the exercise of options.
For purposes of this certificate, "Affiliated Group" shall mean one or more
chains of corporations connected through stock ownership with a common parent
corporation, but only if
(x) the common parent owns directly stock that possesses at least 80%
of the total voting power, and has a value at least equal to 80% of the
total value, of the stock in at least one of the other corporations, and
(y) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in
each corporation (except the common parent) is owned directly by one or
more of the other corporations.
For purposes of the preceding sentence, "stock" does not include any stock that
(a) is not entitled to vote, (b) is limited and preferred as to dividends and
does not participate in corporate growth to any significant extent, (c) has
redemption and liquidation rights that do not exceed the issue price of such
stock (except for a reasonable redemption or liquidation premium), and (d) is
not convertible into another class of stock.