EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
Dated as of May 13, 2003
among
TOM BROWN, INC.,
MAVERICK ACQUISITION CORPORATION
and
MATADOR PETROLEUM CORPORATION
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TABLE OF CONTENTS
ARTICLE I THE MERGER...........................................................................................1
1.01. Company Actions...............................................................................1
1.02. The Merger....................................................................................1
1.03. Closing.......................................................................................1
1.04. Effective Time................................................................................2
1.05. Effects.......................................................................................2
1.06. Articles of Incorporation and Bylaws..........................................................2
1.07. Directors and Officers........................................................................2
ARTICLE II EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES..............3
2.01. Effect on Capital Stock.......................................................................3
2.02. Surrender of Certificates; Payment for Shares.................................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................................6
3.01. Organization, Standing and Power..............................................................6
3.02. Subsidiaries..................................................................................7
3.03. Capital Structure.............................................................................7
3.04. Authority; Execution and Delivery; Enforceability.............................................8
3.05. No Conflicts; Consents........................................................................8
3.06. Financial Statements; Undisclosed Liabilities.................................................9
3.07. Absence of Certain Changes or Events.........................................................10
3.08. Taxes........................................................................................11
3.09. Absence of Changes in Benefit Plans and Agreements...........................................12
3.10. ERISA Compliance; Excess Parachute Payments..................................................13
3.11. Litigation...................................................................................15
3.12. Compliance With Applicable Laws..............................................................15
3.13. Environmental Matters........................................................................16
3.14. Contracts....................................................................................17
3.15. Labor and Employment Matters.................................................................18
3.16. Brokers; Fees and Expenses...................................................................19
3.17. Opinion of Financial Advisor.................................................................19
3.18. Reserve Information..........................................................................19
3.19 Intellectual Property.........................................................................20
3.20 Related Party Transactions....................................................................20
3.21 Oil and Gas Properties........................................................................20
3.22 Insurance.....................................................................................21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB...................................................21
4.01. Organization, Standing and Power.............................................................21
4.02. Sub..........................................................................................22
4.03. Authority; Execution and Delivery; Enforceability............................................22
4.04. No Conflicts; Consents.......................................................................22
4.05. Financing....................................................................................23
4.06. Litigation...................................................................................23
4.07. Ownership of Company Common Stock............................................................23
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ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS...........................................................23
5.01. Conduct of Business..........................................................................23
5.02. No Solicitation..............................................................................26
ARTICLE VI ADDITIONAL AGREEMENTS..............................................................................28
6.01. Shareholders Meeting.........................................................................28
6.02. Access to Information; Confidentiality.......................................................29
6.03. Commercially Reasonable Best Efforts; Notification...........................................30
6.04. Stock Options and 401(k) Profit Sharing Plan.................................................31
6.05. Indemnification..............................................................................32
6.06. Fees and Expenses............................................................................33
6.07. Public Announcements.........................................................................34
6.08. Transfer Taxes...............................................................................34
6.09. Support Agreements...........................................................................34
6.10. Tax Certificates.............................................................................35
6.11. Further Assurances...........................................................................35
ARTICLE VII CONDITIONS PRECEDENT..............................................................................35
7.01. Conditions to Each Party's Obligation to Effect the Merger...................................35
7.02. Conditions to the Obligations of Parent and Sub..............................................35
7.03. Conditions to the Obligations of Company.....................................................37
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................................................................37
8.01. Termination..................................................................................37
8.02. Effect of Termination........................................................................39
8.03. Amendment....................................................................................40
8.04. Extension; Waiver............................................................................40
8.05. Procedure for Termination, Amendment, Extension or Waiver....................................40
ARTICLE IX GENERAL PROVISIONS.................................................................................40
9.01. Nonsurvival of Representations and Warranties................................................40
9.02. Notices......................................................................................40
9.03. Definitions..................................................................................41
9.04. Interpretation...............................................................................43
9.05. Severability.................................................................................43
9.06. Counterparts.................................................................................43
9.07. Entire Agreement; No Third-Party Beneficiaries...............................................43
9.08. Governing Law; Submission to Jurisdiction....................................................43
9.09. Attorneys' Fees..............................................................................44
9.10. Company Disclosure Letter....................................................................44
9.11. Assignment...................................................................................44
9.12. Limitations on Warranties....................................................................44
9.13. Specific Performance.........................................................................45
9.14. Waiver of Trial by Jury......................................................................45
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INDEX OF DEFINED TERMS
TERM SECTION
- ---- -------
affiliate ......................................................................................... 9.03
Agreement ......................................................................................... Preamble
Articles of Merger ................................................................................ 1.04
business day....................................................................................... 9.03
Certificates ...................................................................................... 2.02(b)
Change in Recommendation .......................................................................... 6.01(a)
Closing ........................................................................................... 1.03
Closing Date ...................................................................................... 1.03
Code .............................................................................................. 2.02(f)
Company ........................................................................................... Preamble
Company Benefit Agreements ........................................................................ 3.09
Company Benefit Plans ............................................................................. 3.09
Company Board ..................................................................................... 1.01
Company Bylaws .................................................................................... 3.01
Company Charter ................................................................................... 3.01
Company Common Stock .............................................................................. Recitals
Company Disclosure Letter ......................................................................... Article III
Company Financial Statements....................................................................... 3.06(a)
Company knowledge.................................................................................. 9.03
Company Material Adverse Effect ................................................................... 9.03
Company Multiemployer Pension Plan ................................................................ 3.10(c)
Company Pension Plans ............................................................................. 3.10(a)
Company Right ..................................................................................... 3.03
Company Rights Agreement .......................................................................... 3.03
Company Shareholder Approval ...................................................................... 3.04(a)
Company Shareholders Meeting ...................................................................... 6.01(a)
Company Stock Option .............................................................................. 6.04(c)
Company Stock Plan ................................................................................ 6.04(c)
Company Takeover Proposal ......................................................................... 5.02(c)
Confidentiality Agreement ......................................................................... 6.02(b)
Consent ........................................................................................... 3.05(b)
Contract .......................................................................................... 3.03
Credit Facility.................................................................................... 3.06(b)
Dissent Shares .................................................................................... 2.01(d)
Dissenters' Statute ............................................................................... 2.01(d)
D&M ............................................................................................... 3.18
Effective Time .................................................................................... 1.04
Environmental Claim ............................................................................... 3.13
Environmental Laws ................................................................................ 3.13
ERISA ............................................................................................. 3.10(a)
ERISA Affiliate ................................................................................... 3.10(c)
ERISA Affiliate Pension Plan....................................................................... 3.10(c)
Exchange Fund ..................................................................................... 2.02(a)
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GAAP .............................................................................................. 3.06(a)
Governmental Entity ............................................................................... 3.05(b)
Hazardous Substance ............................................................................... 3.13
Hedge Contracts.................................................................................... 8.02
Hydrocarbons....................................................................................... 9.03
in the ordinary course of business ................................................................ 9.03
Indemnified Liabilities ........................................................................... 6.05(a)
Indemnified Parties ............................................................................... 6.05(a)
Indemnified Party ................................................................................. 6.05(a)
Judgment .......................................................................................... 3.05(a)
Law ............................................................................................... 3.05(a)
Liens ............................................................................................. 3.05(a)
Material Contracts ................................................................................ 3.14
Merger ............................................................................................ Recitals
Merger Consideration .............................................................................. 2.01(c)(ii)
Option Cancellation Agreement ..................................................................... 6.04(a)
Option Consideration .............................................................................. 6.04(a)
Optionholder ...................................................................................... 6.04(a)
Parent ............................................................................................ Preamble
Parent Material Adverse Effect .................................................................... 9.03
Paying Agent ...................................................................................... 2.02(a)
Permits ........................................................................................... 3.12(b)
person ............................................................................................ 9.03
Representatives ................................................................................... 5.02(a)
Reserve Report .................................................................................... 3.18
Rights Agent ...................................................................................... 3.03
Shareholders Agreement............................................................................. 3.05(c)
Sub ............................................................................................... Preamble
Subsidiaries ...................................................................................... 3.02
Superior Company Proposal ......................................................................... 5.02(c)
Support Agreements ................................................................................ 6.09
Surviving Corporation ............................................................................. 1.02
Tax Return ........................................................................................ 3.08(f)
Taxes ............................................................................................. 3.08(f)
TBCA .............................................................................................. 1.02
Termination Fee ................................................................................... 6.06(b)
Transfer Taxes .................................................................................... 6.08
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AGREEMENT AND PLAN OF MERGER dated as of May 13_, 2003 (this
"Agreement") among TOM BROWN, INC., a Delaware corporation ("Parent"), MAVERICK
ACQUISITION CORPORATION, a Texas corporation and a direct wholly-owned
subsidiary of Parent ("Sub"), and MATADOR PETROLEUM CORPORATION, a Texas
corporation (the "Company").
WHEREAS, Parent desires to acquire the Company through the merger of
Sub with and into the Company (the "Merger") on the terms and subject to the
conditions set forth in this Agreement; and
WHEREAS, the respective Boards of Directors of Parent and Sub have
determined that the Merger is advisable and in the best interests of their
respective shareholders and, by resolution duly adopted, has approved the Merger
and this Agreement; and
WHEREAS, the Board of Directors of the Company has determined that the
Merger is advisable and in the best interests of its shareholders and, by
resolution duly adopted, has approved the Merger and this Agreement and resolved
to recommend that holders of shares of the Company's common stock, par value
$0.10 per share ("Company Common Stock"), approve and adopt this Agreement and
the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and other terms contained in this
Agreement, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
THE MERGER
Section 1.01. Company Actions.
By action of the Board of Directors of the Company (the "Company
Board"), the Company has approved of and consented to the Merger as contemplated
by this Agreement.
Section 1.02. The Merger.
On the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Texas Business Corporation Act (the "TBCA"), Sub
shall be merged with and into the Company at the Effective Time (as defined in
Section 1.04 of this Agreement). At the Effective Time, the separate corporate
existence of Sub shall cease and the Company shall continue as the surviving
corporation (as such, the "Surviving Corporation") and a wholly-owned subsidiary
of Parent.
Section 1.03. Closing.
Unless this Agreement shall have been terminated and the transactions
contemplated hereby shall have been abandoned pursuant to Article VIII, the
closing (the "Closing") of the
Merger shall take place at the offices of Vinson & Elkins, L.L.P., 3700 Trammel
Crow Center, 2001 Ross Avenue, Dallas, Texas 75201-2975, as soon as practicable,
but in any event within two (2) business days (or up to ten (10) business days
at the request of Parent), following the satisfaction or, to the extent
permitted by Law (as defined in Section 3.05(a)), waiver of the conditions set
forth in Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or, to the extent
permitted by Law, waiver of those conditions), or at such other place, time and
date as shall be agreed in writing between Parent and the Company. The date on
which the Closing occurs is referred to in this Agreement as the "Closing Date."
Section 1.04. Effective Time.
Prior to the Closing, Parent shall prepare, and as promptly as possible
on the Closing Date the parties shall cause the Merger to be consummated by
filing with the Secretary of State of the State of Texas, articles of merger
(the "Articles of Merger") in such form as is required by, and executed in
accordance with, the relevant provisions of the TBCA and shall make all other
filings or recordings required under the TBCA. The Merger shall become effective
at such time as the Articles of Merger are duly filed with such Secretary of
State of the State of Texas or at such later time as Parent and the Company
shall agree and specify in the Articles of Merger (the time the Merger becomes
effective being the "Effective Time").
Section 1.05. Effects.
From and after the Effective Time, the Merger shall have the effects
provided in Article 5.06A of the TBCA. At the Effective Time, the separate
existence of Sub shall cease. All rights, titles and interests to all oil and
gas assets and other property owned by the Company and Sub shall be allocated to
and vested in the Surviving Corporation without reversion or impairment, without
further act or deed, and without any transfer or assignment having occurred, but
subject to any existing liens or other encumbrances thereon. All liabilities and
obligations of the Company and Sub shall become liabilities and obligations of
the Surviving Corporation. In addition, the Merger will have the effects set
forth in Article II.
Section 1.06. Articles of Incorporation and Bylaws.
(a) The Articles of Incorporation of the Company, as amended and in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter changed or amended
in accordance with the provisions thereof and applicable Law.
(b) The Bylaws of the Company, as amended and in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter changed or amended in accordance with the provisions thereof
and the provisions of the Articles of Incorporation of the Surviving Corporation
and applicable Law.
Section 1.07. Directors and Officers.
From and after the Effective Time, the officers of Sub shall be the
officers of the Surviving Corporation and the directors of Sub shall be the
directors of the Surviving
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Corporation, in each case until their respective successors are duly elected and
qualified. On or prior to the Closing Date, the Company shall deliver to Parent
evidence satisfactory to Parent of the resignations of the officers and
directors of the Company and its Subsidiaries (as defined in Section 3.02), such
resignations to be effective as of the Effective Time.
ARTICLE II
EFFECT ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES
Section 2.01. Effect on Capital Stock.
At the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Sub or the Company or their respective shareholders:
(a) Capital Stock of Sub. Each share of capital stock of Sub issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of common stock, par value $0.10
per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share
of Company Common Stock held in the treasury of the Company or issued and
outstanding and owned, directly or indirectly, by Parent or any subsidiary of
Parent or the Company, in each case immediately prior to the Effective Time
shall automatically be canceled and retired and shall cease to exist, and no
cash or other consideration shall be delivered or deliverable in respect
thereto.
(c) Conversion of Company Common Stock.
(i) Subject to Sections 2.01(b) and 2.01(d), each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time shall be converted into the right to receive an amount in cash equal to
$17.53, without interest, less any required withholding taxes, upon surrender
and exchange of the certificate representing such share.
(ii) The cash payable upon the conversion of a share of
Company Common Stock pursuant to this Section 2.01(c) is referred to as the
"Merger Consideration." As of the Effective Time, all such shares of Company
Common Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate formerly
representing any such shares of Company Common Stock shall, subject to Section
2.01(d), cease to have any rights with respect thereto, except the right to
receive the Merger Consideration, without interest less any required withholding
taxes.
(d) Dissenters' Rights. Notwithstanding anything in this Agreement to
the contrary, shares of Company Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by any person who is
entitled to dissent from and properly dissents from this Agreement pursuant to,
and who complies in all respects with, Articles 5.11, 5.12 and 5.13 of the TBCA
(the "Dissenters' Statute"), in each case to the extent applicable ("Dissent
Shares"), shall not be converted into a right to receive the Merger
Consideration as provided in Section 2.01(c), but rather the holders of Dissent
Shares shall be entitled to the right
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to receive payment of the fair value of such Dissent Shares in accordance with
the Dissenters' Statute upon surrender of the certificate or certificates
representing such Dissent Shares; provided, however, that if any such holder
shall fail to perfect or otherwise shall effectively waive, withdraw or lose the
right to receive payment of the fair value under the Dissenters' Statute, then
the right of such holder to be paid the fair value of such holder's Dissent
Shares shall cease and such Dissent Shares shall be deemed to have been
converted as of the Effective Time into the right to receive the Merger
Consideration, without interest less any required withholding taxes, as provided
in Section 2.01(c). The Company shall give prompt notice to Parent of any
objections or demands received by the Company for payment of the fair value of
Company Common Stock pursuant to the Dissenters' Statute, and Parent shall have
the right to direct all negotiations and proceedings with respect to such
objections or demands. Neither the Company nor the Surviving Corporation shall,
without the prior written consent of Parent, make any payment with respect to,
or settle or offer to settle, any such objections or demands, or agree to do any
of the foregoing.
Section 2.02. Surrender of Certificates; Payment for Shares.
(a) Paying Agent. Prior to the Effective Time, Parent shall select a
bank or trust company reasonably acceptable to the Company to act as paying
agent (the "Paying Agent") for the payment of the Merger Consideration upon
surrender of Certificates (as defined in Section 2.02(b)). At or prior to the
Closing, Parent shall deposit with the Paying Agent for the benefit of the
holders of shares of Company Common Stock the aggregate amount of the Merger
Consideration payable in connection with the Merger (collectively, the "Exchange
Fund"). The expenses of the Paying Agent shall not be paid from the Exchange
Fund, but shall be paid directly by the Surviving Corporation or Parent. The
Paying Agent shall, pursuant to irrevocable instructions, deliver the Merger
Consideration in exchange for surrendered Certificates pursuant to this Section
2.02 out of the Exchange Fund. Except as contemplated by Section 2.02(d), the
Exchange Fund shall not be used for any other purpose.
(b) Surrender and Payment Procedure. Promptly after the Effective Time,
except as otherwise provided in the immediately succeeding sentence, Parent
shall cause the Paying Agent to send to each holder of record of a certificate
or certificates that immediately prior to the Effective Time represented
outstanding shares of Company Common Stock whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 2.01(c) (the
"Certificates"), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in a
form and have such other customary provisions as Parent may reasonably specify
and that are reasonably acceptable to the Company) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for payment of the
Merger Consideration. At least ten (10) days prior to the anticipated Closing
Date, Parent shall make available to the Company a sufficient number of copies
of the letter of transmittal and instructions so that the Company can provide
them to its shareholders in advance of the Closing in order to permit
shareholders, acting through the Company, to deliver their executed letters of
transmittal and to surrender their Certificates to the Parent at the Closing,
and the Paying Agent will not be required to send a letter of transmittal and
instructions in accordance with the immediately preceding sentence to any
shareholders who so deliver their letters of transmittal and surrender their
Certificates at the Closing. Upon surrender of a Certificate for cancellation to
the Parent or the Paying Agent, together with such letter of transmittal, duly
executed, and such
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other documents as may reasonably be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor
cash in an amount equal to the product of (A) the number of shares of Company
Common Stock theretofore represented by such Certificate and (B) the Merger
Consideration, less any applicable withholding taxes, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Company Common Stock that is not registered in the transfer records of the
Company, payment may be made to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of such Certificate or
establish to the satisfaction of Parent that such tax has been paid or is not
applicable. No interest shall be paid or shall accrue on the cash payable upon
surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock; Transfer
Books. The Merger Consideration paid in accordance with the terms of this
Article II upon conversion of any shares of Company Common Stock shall be deemed
to have been paid in full satisfaction of all rights pertaining to such shares
of Company Common Stock. After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of shares of Company Common Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, any Certificates are
presented to the Surviving Corporation or the Paying Agent for any reason, they
shall be canceled upon payment of the Merger Consideration as provided in this
Article II.
(d) Termination of Exchange Fund; Investment of Exchange Fund. Any
portion of the Exchange Fund that remains undistributed to the former holders of
shares of Company Common Stock (who held shares immediately prior to the
Effective Time) on the earlier of (i) the first anniversary of the Effective
Time and (ii) any date at least ninety (90) days after the Effective Time if the
balance of funds in the Exchange Fund is less than $10 million, shall be
returned to the Parent, upon demand, and any such former holder of shares of
Company Common Stock who has not theretofore complied with this Article II shall
thereafter look only to the Parent, as a general creditor thereof, for payment
of such holder's claim for the Merger Consideration. The Paying Agent shall
invest any cash included in the Exchange Fund, as directed by Parent, on a daily
basis. The Exchange Fund may be invested only in short-term deposits with a
federally insured bank or savings and loan association having a net worth of at
least $500 million or in money market funds that only invest in securities rated
A or better by Standard & Poor's or U.S. government securities. Any interest and
other income resulting from such investments shall be Parent's property and
shall be paid to Parent upon request; provided that any losses, expenses, fees
and commissions arising therefrom shall be borne by Parent and not by any such
former holder of shares of Company Common Stock.
(e) No Liability. None of Parent, Sub, the Company, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of any
payments or distributions payable from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar Law.
If any Certificate shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such earlier date on which any
Merger Consideration would otherwise escheat to or become the property of any
governmental body or authority), any such Merger Consideration, to the extent
permitted by
5
applicable Law, shall become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
(f) Withholding Rights. Parent or the Surviving Corporation shall be
entitled to deduct and withhold, or cause the Paying Agent to deduct and
withhold, from the Merger Consideration otherwise payable to any former holder
of shares of Company Common Stock (who held shares immediately prior to the
Effective Time) pursuant to this Agreement, such amounts as may be required to
be deducted and withheld with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or under any provision
of state, local or foreign tax Law. To the extent that amounts are so deducted
and withheld by Parent or the Surviving Corporation, such deducted and withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to such former holder of the shares of Company Common Stock in respect of which
such deduction and withholding was made by Parent or the Surviving Corporation.
(g) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and such person
agreeing to indemnify the Surviving Corporation against any claim that may be
made against Parent or the Surviving Corporation with respect to such
Certificate (unless such Certificate represents more than 1,000 shares, in which
case only upon the posting by such person of a bond in the amount of 3.0% of the
Merger Consideration attributable to such lost Certificates, the Paying Agent
will pay, in exchange for such lost, stolen or destroyed Certificate, the Merger
Consideration to be paid in respect of the shares of Company Common Stock
formerly represented by such Certificate, as contemplated by this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the letter dated as of the date of this
Agreement from the Company to Parent and Sub (the "Company Disclosure Letter")
the Company represents and warrants to Parent and Sub as follows:
Section 3.01. Organization, Standing and Power.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas and has the corporate power
and authority necessary to enable it to own, lease or otherwise hold its
properties and assets and to conduct its business as currently conducted. The
Company is duly qualified to do business in each jurisdiction where (a) the
nature of its business or its ownership or leasing of its properties makes such
qualification necessary or (b) the failure to so qualify would have a Company
Material Adverse Effect (as defined in Section 9.03). The Company has delivered
to Parent true, correct and complete copies of the articles of incorporation of
the Company, as amended to the date of this Agreement (as so amended, the
"Company Charter"), and the Bylaws of the Company, as amended to the date of
this Agreement (as so amended, the "Company Bylaws"). The Company is not in
violation of any provision of the Company Charter or the Company Bylaws.
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Section 3.02. Subsidiaries.
Except for those entities set forth on Schedule 3.02 of the Company
Disclosure Letter (the "Subsidiaries"), the Company has no subsidiaries and does
not own, directly or indirectly, any capital stock, partnership interest, joint
venture interest or other equity or ownership interest in any person. Each of
the Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has the corporate
power and authority necessary to enable it to own, lease or otherwise hold its
properties and assets and to conduct its business as currently conducted. Each
of the Subsidiaries is duly qualified to do business in each jurisdiction where
(a) the nature of its business or its ownership or leasing of its properties
makes such qualification necessary or (b) the failure to so qualify would have a
Company Material Adverse Effect. The Company has delivered to Parent true,
correct and complete copies of the articles of incorporation, as amended to the
date of this Agreement, and bylaws, as amended to the date of this Agreement, of
each of the Subsidiaries. None of the Subsidiaries is in violation of any
provision of its respective articles of incorporation or bylaws. Each of the
representations and warranties made with regard to the Company and contained in
Sections 3.07 through 3.16 shall apply also to its Subsidiaries and the use of
the term "Company" therein shall mean "the Company and/or its Subsidiaries."
Section 3.03. Capital Structure.
The authorized capital stock of the Company consists of 100,000,000
shares of Company Common Stock and 2,000,000 shares of preferred stock, par
value $0.10 per share. At the close of business on May 12, 2003, (i) 14,611,083
shares of Company Common Stock were issued and outstanding, (ii) 472,108 shares
of Company Common Stock were held by the Company in its treasury or by any of
the Subsidiaries, (iii) 1,247,956 shares of Company Common Stock were subject to
issuance upon exercise of outstanding Company Stock Options (as defined in
Section 6.04(c)) under the Company Stock Plans (as defined in Section 6.04(c))
at a weighted average exercise price of $8.44 per share, (iv) 1,110,225
additional shares of Company Common Stock were reserved for issuance pursuant to
the Company Stock Plans, (vi) one common share purchase right (a "Company
Right") for each share of Common Stock outstanding was issued and outstanding in
accordance with that certain Rights Agreement (the "Company Rights Agreement"),
dated as of May 17, 2001, between the Company and A.G. Edwards & Sons, Inc., as
Rights Agent (the "Rights Agent"), and (vii) 40,000,000 shares of Company Common
Stock were reserved for issuance pursuant to the exercise of the Company Rights.
The Company owns, directly or indirectly, all of the outstanding capital stock
of each Subsidiary free and clear of all Liens (as defined in Section 3.05(a)).
Except as set forth above, no other shares of capital stock or other voting
securities of, or equity interests in, the Company are issued, reserved for
issuance or outstanding except shares issued since the date referenced above
upon exercise of outstanding Company Stock Options and Company Rights issued in
connection therewith. All outstanding shares of Company capital stock or of any
Subsidiary's capital stock are, and all such shares of Company capital stock
that may be issued prior to the Effective Time will be when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to or
issued in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of
the TBCA, the Company Charter, the Company Bylaws (or such Subsidiary's charter
or bylaws) or any contract, lease, license, indenture, note, bond, franchise or
other agreement (a "Contract") to which the Company or a Subsidiary is a party
or otherwise bound. Except as set forth above, there are not any options,
warrants, calls, rights,
7
convertible or exchangeable securities, commitments or Contracts to which the
Company or a Subsidiary is a party or by which any of them is bound (x)
obligating the Company or a Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other equity
interests in, or any security convertible or exercisable for or exchangeable
into any capital stock of or other equity interest in, the Company or any of its
Subsidiaries, (y) permitting the holder thereof to vote with shareholders of the
Company or a Subsidiary on any matter or (z) obligating the Company or a
Subsidiary to issue, grant or enter into any such option, warrant, call, right,
security, commitment or Contract. There are not any outstanding contractual
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company. There are no shareholder
agreements, voting trusts or other agreements or understandings to which the
Company or any Subsidiary is a party or to which it or any of them are bound
relating to the holding, voting or disposition of any shares of capital stock of
the Company or a Subsidiary.
Section 3.04. Authority; Execution and Delivery; Enforceability.
(a) The Company has all requisite corporate power and authority to
execute, deliver and perform this Agreement and, subject to receipt of the
Company Shareholder Approval (as defined below), consummate the Merger. The
execution, delivery and performance by the Company of this Agreement and the
consummation by the Company of the Merger have been duly authorized by all
necessary corporate action on the part of the Company, subject to receipt of the
Company Shareholder Approval required by applicable Law. The Company has duly
executed and delivered this Agreement, and this Agreement constitutes its legal,
valid and binding obligation, enforceable against the Company in accordance with
its terms, except as that enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting the
enforcement of creditor's rights generally and the application of general
principles of equity (regardless of whether that enforceability is considered in
a proceeding at law or in equity). The affirmative vote of the holders of
two-thirds of the outstanding shares of Company Common Stock voting as a single
class (the "Company Shareholder Approval") is the only vote of any class or
series of the Company's capital stock required to approve the Merger and adopt
this Agreement.
(b) The Company Board has duly adopted resolutions (i) approving and
declaring the advisability of this Agreement and the Merger in accordance with
the applicable provisions of the TBCA, (ii) determining that the terms of the
Merger are fair to and in the best interests of the Company and its shareholders
and (iii) recommending that the holders of Company Common Stock approve and
adopt this Agreement and the Merger. This Agreement and the Merger do not
violate any state takeover statute or similar statute or regulation that applies
or purports to apply to the Company with respect to this Agreement or the
Merger.
Section 3.05. No Conflicts; Consents.
(a) The execution, delivery and performance by the Company of this
Agreement do not, and the consummation of the Merger and compliance with the
terms of this Agreement will not, (i) conflict with or result in any violation
of any provision of the Company Charter or the Company Bylaws or the equivalent
organizational documents of any of its Subsidiaries, (ii) subject to the filings
and other matters referred to in Section 3.05(b), conflict with, or result in
any violation of or default (with or without notice or lapse of time, or both)
under, or give rise
8
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any pledge, lien,
charge, mortgage, encumbrance or security interest (collectively, "Liens") upon
any of the properties or assets of the Company or any of its Subsidiaries under,
or require the consent of any person under, any provision of any Contract to
which the Company or any of its Subsidiaries is a party or by which any of its
or their properties or assets is bound or affected or (iii) subject to the
filings and other matters referred to in Section 3.05(b), conflict with or
result in any violation of any domestic or foreign judgment, injunction, order
or decree ("Judgment") or domestic or foreign statute, law (including common
law), ordinance, rule or regulation ("Law") applicable to the Company or any of
its Subsidiaries or its or their properties or assets, except in the case of
clauses (ii) and (iii) above, for such matters as, individually or in the
aggregate, would not have a Company Material Adverse Effect.
(b) No consent, approval, license, permit, order or authorization
("Consent") of, or registration, declaration or filing with, or notice to, or
Permit (as defined in Section 3.12(b)) from, any federal, state, local or
foreign government or any court of competent jurisdiction, administrative agency
or other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity") or third person, is required to be obtained or made by or
with respect to the Company in connection with the execution, delivery and
performance of this Agreement or the consummation of the Merger, other than (i)
the filing of the Articles of Merger with the Secretary of State of the State of
Texas and appropriate documents with the relevant authorities of the other
jurisdictions in which the Company is qualified to do business, (ii) such
filings as may be required in connection with the Taxes (as defined in Section
3.08(f)) described in Section 6.08, and (iii) such other items which if not
obtained would not, individually or in the aggregate, have a Company Material
Adverse Effect.
(c) The Company Board has taken all action necessary (x) to cause the
execution of this Agreement and the transactions contemplated hereby, including
delivery of the Support Agreements (as defined in Section 6.09) and consummation
of the Merger, to be exempt from Part Thirteen of the TBCA and Section 5(b) of
that certain Shareholders Agreement by and among the Company and certain of its
shareholders dated July 20, 1998 (the "Shareholders Agreement"), and (y) to (i)
render the Company Rights inapplicable to this Agreement and the Merger and the
execution and delivery of the Support Agreements, (ii) ensure that (A) neither
Parent nor Sub nor any of its "Affiliates" or "Associates" is or will become an
"Acquiring Person" (each as defined in the Company Rights Agreement) by reason
of this Agreement, the Merger and the execution and delivery of the Support
Agreements, and (B) a "Distribution Date" (as defined in the Company Rights
Agreement) will not occur by reason of this Agreement, the Merger or the Proxy
and Support Agreements, and (iii) cause the Company Rights to expire immediately
prior to the Effective Time.
Section 3.06. Financial Statements; Undisclosed Liabilities.
(a) The consolidated financial statements of the Company and its
Subsidiaries for each of the three years ended December 31, 2002 and for the
three months ended March 31, 2003 (the "Company Financial Statements") have been
prepared in accordance with generally accepted accounting principles in the
United States ("GAAP") applied on a consistent basis during the periods involved
(except as may otherwise be indicated in the notes thereto and except that the
March 31, 2003 financial statements have been so prepared to the Company's
9
knowledge) and fairly present in all material respects, in accordance with GAAP,
the consolidated financial position of the Company as of the dates thereof and
the consolidated results of its operations and cash flows for the periods
indicated; provided, however, the financial statements for the three months
ended March 31, 2003 exclude any notes to the financial statements that may be
required by GAAP and are subject to normal year-end audit adjustments, including
adjustments as may be required by SFAS 143.
(b) Except as set forth in the Company Financial Statements, incurred
since March 31, 2003 in the ordinary course of business, or drawn on the
Company's bank line of credit evidenced by that certain Second Amended and
Restated Loan Agreement, dated June 5, 1998, among the Company, certain of its
Subsidiaries and the lenders party thereto (as amended to the date hereof, the
"Credit Facility") in the ordinary course of business, the Company and its
Subsidiaries have no liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that would have a Company Material Adverse
Effect.
Section 3.07. Absence of Certain Changes or Events.
Since December 31, 2002, the Company has conducted its business only in
the ordinary course of business, and there has not been:
(a) any event, change, effect or development that, individually or in
the aggregate, has had or would reasonably be expected to have a Company
Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock, property or otherwise) with respect to any
Company capital stock (other than dividends or distributions by a Subsidiary to
the Company or the regular cash dividends paid with respect to the fourth
quarter of 2002 and the first quarter of 2003 at a quarterly rate of $0.015 per
share on the Company Common Stock) or any repurchase, redemption or other
acquisition or offer to do so by the Company of any capital stock or other
equity securities of, or other ownership interests in, the Company;
(c) any split, combination or reclassification of any Company capital
stock or any issuance of or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, shares of such
capital stock;
(d) any grant by the Company to any director or officer of the Company
of any increase in compensation, bonus or other benefits;
(e) any change in accounting methods, principles or practices, except
for such changes as may have been required by a change in GAAP;
(f) any (i) material elections with respect to Taxes by the Company,
(ii) settlement or compromise by the Company of any material Tax liability or
refund or (iii) assessment of a material Tax against the Company by any
Governmental Entity;
(g) any amendment of any term of any outstanding security of the
Company that would materially increase the obligations of the Company under such
security;
10
(h) any incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money except for borrowings under the Company's Credit
Facility;
(i) any creation or assumption by the Company of any Lien on any asset
of the Company other than a Lien to secure the Company's Credit Facility;
(j) any making of any loan, advance or capital contribution to or
investment in any person by the Company other than (i) in connection with any
acquisition or capital expenditure permitted by Section 5.01, or (ii) loans or
advances to employees of the Company made in the ordinary course of business;
(k) (i) any acquisition by the Company by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof, (ii) any sale, lease, license, encumbrance or other
disposition of material assets of the Company, other than sales of produced
Hydrocarbons (as defined in Section 9.03) or tangible equipment and inventory in
the ordinary course of business and the Lien securing the Company's Credit
Facility, (iii) any capital expenditures by the Company, other than in
connection with its drilling and completion activities (both on Company-operated
and non-operated properties), new oil and gas leases, renewals of oil and gas
leases, non-producing leasehold acquisitions, acquisitions of producing oil and
gas properties and otherwise in the ordinary course of business, or (iv) any
modification, amendment, assignment or termination by the Company of any
Contract, license or other right (other than oil and gas leases or other
Contracts expiring pursuant to their terms) that, individually or in the
aggregate with all such modifications, amendments, assignments and terminations,
has had or would reasonably be expected to have a Company Material Adverse
Effect;
(l) any damage, destruction or loss (whether or not covered by
insurance) with respect to any assets of the Company that, individually or in
the aggregate, has had or would reasonably be expected to have a Company
Material Adverse Effect;
(m) any material downward revaluation by the Company of any of its
material assets, including but not limited to writing down the value of its oil
and gas properties as a whole or writing off notes or accounts receivable, other
than in the ordinary course of business; or
(n) any agreement, commitment or undertaking to take any action
referred to in Sections 3.07(a) through 3.07(m).
Section 3.08. Taxes.
(a) The Company has timely filed, or has caused to be timely filed on
its behalf, all Tax Returns (including those returns requiring estimates of Tax
payments) required to be filed by it, and all such Tax Returns are true,
complete and accurate in all material respects. The Tax Returns have been
prepared in accordance with all applicable Laws. All Taxes shown to be due on
such Tax Returns, or otherwise owed, have been timely paid.
(b) The Company has not requested any extension of time in which to
file any Tax Return, which Tax Return has not since been filed, except for the
Company's federal income tax
11
return and Texas franchise tax returns for 2002 for which extensions of time
have been or will be properly filed. No audits, investigations or other
proceedings by a Governmental Entity are presently pending against the Company
that could materially affect the liability of the Company for Taxes, and no
notification has been received by the Company that any such audit, investigation
or proceeding is threatened.
(c) The Company Financial Statements reflect an adequate reserve for
all Taxes payable by the Company for all taxable periods and portions thereof
through the date of such financial statements. No material deficiency with
respect to any Taxes has been threatened, proposed, asserted or assessed against
the Company, and no waivers or extensions of the statute of limitations with
respect to any Taxes are pending.
(d) There are no material Liens for Taxes (other than for current Taxes
not yet due and payable) on the assets of the Company.
(e) The Company has never been a member of an affiliated, consolidated,
combined or unitary group and has no liability for the payment of Taxes of any
other entity as a result of being a member of such a group or as a result of any
express or implied obligation to indemnify any other person with respect to the
payment of any Taxes.
(f) For purposes of this Agreement:
"Taxes" includes all forms of taxation, whenever created or imposed,
and whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, foreign, federal or other Governmental Entity,
or in connection with any agreement with respect to Taxes, including all
interest, penalties and additions imposed with respect to such amounts.
"Tax Return" means any federal, state, local, provincial or foreign Tax
return, declaration, statement, report, schedule, form or information return or
any amended Tax return relating to Taxes.
Section 3.09. Absence of Changes in Benefit Plans and Agreements.
There has not been any adoption or amendment in any material respect by
the Company of any collective bargaining agreement or any bonus, pension, profit
sharing, deferred compensation, incentive compensation, supplemental income,
stock ownership, stock purchase, stock option, phantom stock, retirement,
thrift, savings, stock bonus, restricted stock, cafeteria, severance, disability
or medical plan, which the Company maintains or contributes to, providing
benefits to any current or former employee, officer or director of the Company
(collectively, "Company Benefit Plans") since December 31, 2002 and, except as
required to comply with applicable Law or to fully vest employees in their
account balances under any Company Pension Plans. Schedule 3.09 of the Company
Disclosure Letter contains a list of each employment, consulting,
indemnification, severance or termination agreement or arrangement, non-compete
agreement, confidentiality agreement, nonsolicitation and business diversion
agreement or tax gross-up agreement between the Company and any current or
former employee, officer or director of the Company for which the Company has
any obligation or liability (collectively, "Company Benefit Agreements") and,
except as required to comply with applicable Law, since December 31, 2002 there
has not been any adoption or amendment (in any material respect with
12
respect to items other than Company Benefit Agreements) of any Company Benefit
Agreement or any personnel policy, vacation policy or other arrangement,
program, practice or understanding providing Company benefits to any current or
former employee, officer or director.
Section 3.10. ERISA Compliance; Excess Parachute Payments.
(a) Schedule 3.10(a) of the Company Disclosure Letter contains a list
of all "employee pension benefit plans" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Company Pension Plans"), "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA) and all other Company
Benefit Plans and Company Benefit Agreements (i) for which the Company has any
obligation or liability and (ii) which the Company has maintained, or
contributed to, or to which the Company is a party, for the benefit of any
current or former employees, officers or directors of the Company, which has
been as maintained or contributed to by the Company within six years prior to
the Effective Time. The Company has made available to Parent true, complete and
correct copies of (i) each Company Benefit Plan and Company Benefit Agreement
including all amendments thereto (or, in the case of any unwritten Company
Benefit Plan or Company Benefit Agreement, a description thereof), (ii) the most
recent annual report on Form 5500 filed with the Internal Revenue Service with
respect to each Company Benefit Plan (if any such report was required), (iii)
the most recent summary plan description for each Company Benefit Plan for which
such summary plan description is required, (iv) each trust agreement and group
annuity contract relating to any Company Benefit Plan and (v) each employment
and consulting agreement to which the Company is a party or is bound.
(b) Each Company Pension Plan has received a favorable opinion,
advisory, notification or determination letter from the Internal Revenue Service
to the effect that such Company Pension Plan (and the underlying prototype or
model document) is qualified in form under Sections 401(a) and 501(a),
respectively, of the Code, and no such opinion, advisory, notification or
determination letter has been revoked nor, to the knowledge of the Company, has
revocation been threatened, nor except as required to comply with applicable Law
or to the knowledge of the Company, has any such Company Pension Plan been
amended since the date of its most recent opinion, advisory, notification or
determination letter or application therefor in any respect that would
materially adversely affect its qualification. The Company has substantially
complied with all obligations, whether by operation of law or contract,
including reporting and disclosure requirements, relating to the Company Benefit
Plans or Company Benefit Agreements. There is no material pending or, to the
knowledge of the Company, threatened litigation relating to the Company Benefit
Plans. There are no matters, to the knowledge of the Company, pending before the
Internal Revenue Service, the Department of Labor, the Pension Benefit Guaranty
Corporation or any other Governmental Entity with respect to any Company Benefit
Plan.
(c) No Company Pension Plan that is a defined benefit plan subject to
Title IV of ERISA other than any Company Pension Plan that is a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA (a "Company
Multiemployer Pension Plan"), had, as of the respective last annual valuation
date for each such Company Pension Plan, any "unfunded benefit liabilities" (as
such term is defined in Section 4001(a)(18) of ERISA), based on reasonable
actuarial assumptions that have been furnished to Parent by the actuary for such
13
Company Pension Plan, and there has been no material adverse change in the
financial condition of any Company Pension Plan since its last such annual
valuation date. Except for premiums due under Section 4007 of ERISA, no
liability under Subtitle C or D of Title IV of ERISA has, in the six years
before the Effective Time, been or is expected to be incurred by the Company
with respect to any ongoing, frozen or terminated Company Pension Plan that is a
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by it, or the single-employer plan of any
entity which is considered one employer with the Company under Section 4001(b)
of ERISA or Section 414 of the Code (an "ERISA Affiliate"), which has been
maintained or contributed to by such ERISA Affiliate within six years prior to
the Effective Time (an "ERISA Affiliate Pension Plan"). None of the Company, any
officer of the Company or any of the Company Benefit Plans which are subject to
ERISA, including the Company Pension Plans, any trusts created thereunder, or,
to the knowledge of the Company, any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section 406 of
ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility that subjects the Company or any officer of the Company to any
material tax or penalty on prohibited transactions imposed by such Section 4975
or to any material liability under Section 502(i) or 502(l) of ERISA. In the six
years before the Effective Time, none of such Company Benefit Plans which are
single-employer plans and their corresponding trusts has been terminated, nor
has there been any "reportable event" (as that term is defined in Section 4043
of ERISA) for which the 30-day reporting requirement has not been waived with
respect to any Company Benefit Plan, and no notice of a reportable event will be
required to be filed in connection with the Merger. Neither the Company nor any
ERISA Affiliate has incurred a "complete withdrawal" or a "partial withdrawal"
(as such terms are defined in Sections 4203 and 4205, respectively, of ERISA)
during the last six years with respect to any Company Multiemployer Pension Plan
or any Multiemployer plan which has been maintained or contributed to by such
ERISA Affiliate within six years prior to the Effective Time. As to each Company
Multiemployer Pension Plan, Schedule 3.10(c) of the Company Disclosure Letter
accurately describes the withdrawal liability which would be owed by the Company
if the Company ceased contributing thereto as of the Effective Time. All
contributions and premiums which are due and payable under the terms of any
Company Benefit Plan and the provisions of the Code, ERISA and other applicable
law as of the date hereof have been timely made or have been reflected on the
most recent balance sheet of the Company furnished to Parent. Neither any
Company Pension Plan nor any ERISA Affiliate Pension Plan has an "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, and all contributions required by
Section 302 of ERISA and Section 412 of the Code have been timely made thereto.
(d) With respect to any Company Benefit Plan that is an employee
welfare benefit plan, (i) no such Company Benefit Plan is funded through a
"welfare benefit fund" (as such term is defined in Section 419(e) of the Code),
(ii) each such Company Benefit Plan that is a "group health plan" (as such term
is defined in Section 5000(b)(1) of the Code) complies substantially with the
applicable requirements of Section 4980B(f) of the Code and (iii) each such
Company Benefit Plan (including any such Company Benefit Plan covering retirees
or other former employees) may be amended or terminated without material
liability to the Company on or at any time after the Effective Time. Except as
may be required by Section 4980B(f) of the Code, or applicable state health
continuation laws, the Company has no obligations for retiree health and life
benefits under any Company Benefit Plan or Company Benefit Agreement.
14
(e) The consummation of the Merger will not (x) entitle any employee,
officer or director of the Company to severance pay or an election to terminate
and receive severance pay, (y) accelerate the time of payment or vesting or
trigger any payment or funding (through a grantor trust or otherwise) of
compensation or benefits under, increase the amount payable or trigger any other
material obligation pursuant to, any of the Company Benefit Plans or Company
Benefit Agreements or (z) result in any breach or violation of, or a default
under, any of the Company Benefit Plans or Company Benefit Agreements.
(f) Other than payments that may be made to the persons and in the
amounts listed in Schedule 3.10(f) of the Company Disclosure Letter, (i) any
amount or economic benefit that is received or owed (whether in cash or property
or the vesting of property) under any Company Benefit Plan or Company Benefit
Agreement or otherwise as a result of the Merger or, to the Company's knowledge,
any other event prior to the Effective Time (including upon, as a result of or
in connection with a termination of employment on or following the Effective
Time), by any employee, officer or director of the Company or any of its
affiliates who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) will not be characterized as an
"excess parachute payment" (as defined in Section 280G(b)(1) of the Code), and
(ii) no disqualified individual is entitled to receive any additional payment
from the Company or any other person under any Company Benefit Plan or Company
Benefit Agreement or otherwise as a result of the Merger in the event that the
excise tax under Section 4999 of the Code is imposed on such disqualified
individual.
Section 3.11. Litigation.
There is no suit, action, proceeding or investigation pending against,
or to the knowledge of the Company threatened against, the Company or any of the
Company's properties or rights before any arbitrator, court or other
Governmental Entity that, individually or in the aggregate, would reasonably be
expected to have a Company Material Adverse Effect. There are no suits, claims,
actions, proceedings or investigations pending or, to the knowledge of the
Company, threatened, seeking to prevent, hinder, modify or challenge the
transactions contemplated by this Agreement. The Company is not subject to any
outstanding Judgment against the Company or naming the Company as a party that,
individually or in the aggregate, would reasonably be expected to have a Company
Material Adverse Effect.
Section 3.12. Compliance With Applicable Laws.
(a) The Company is, and the Company's operations have been conducted,
in compliance with all applicable Laws, except for such failures to comply as,
individually or in the aggregate, would not have a Company Material Adverse
Effect. The Company has not received any written notice: (i) of any
administrative, civil or criminal investigation or audit (other than Tax or
government royalty audits) by any Governmental Entity relating to the Company or
(ii) during the past two years, from any Governmental Entity alleging that the
Company is not in compliance in any material respect with any applicable Law
that has not otherwise been cured to the satisfaction of such Governmental
Entity.
(b) The Company has in full force and effect all approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits,
exemptions, exceptions, registrations and rights of or with all Governmental
Entities ("Permits") necessary for the Company to own,
15
lease or otherwise hold and to operate the Company's properties and assets and
to carry on the Company's business and operations as now conducted, except for
the failure to have such Permits that, individually or in the aggregate, has not
had and would not have a Company Material Adverse Effect. There have occurred no
defaults under, or violations of, any such Permit, except for such defaults and
violations that, individually and in the aggregate, have not had and would not
reasonably be expected to have a Company Material Adverse Effect. There is no
action, proceeding or investigation pending or to the knowledge of the Company,
threatened, that could reasonably be expected to result in suspension,
revocation or cancellation of any Permits. The Merger, in and of itself, would
not cause the revocation or cancellation of any such Permit that, individually
or in the aggregate, would reasonably be expected to have a Company Material
Adverse Effect.
(c) This Section 3.12 does not relate to matters with respect to Taxes,
which are the subject of Section 3.08, or to environmental matters, which are
the subject of Section 3.13.
Section 3.13. Environmental Matters.
Except for such matters as, individually or in the aggregate, have not
had and would not have a Company Material Adverse Effect, (i) the Company and
its operations and properties are, and within the period of all applicable
statutes of limitation have been, in compliance with all applicable
Environmental Laws, (ii) the Company is not currently subject to an
Environmental Claim, and the Company has no knowledge of any such Environmental
Claim being threatened, (iii) no material Lien has been placed upon any of the
Company's properties under any Environmental Law, (iv) the Company has not
entered into or agreed to any Governmental Entity decree, order or agreement and
is not subject to any judgment relating to compliance with any Environmental Law
and, to the Company's knowledge, no reasonable basis for believing that
circumstances currently exist whereby such decrees, orders, agreements, or
judgments will be sought against the Company; (v) all Permits required of the
Company under applicable Environmental Laws for conducting its operations have
been obtained, the terms and conditions of all such Permits are being complied
with, and all such Permits are currently valid and in full force and effect;
(vi) to the knowledge of the Company, there have been no releases of Hazardous
Substances on, under or from the Company's properties as a result of the
Company's operations or, to the knowledge of the Company, there have been no
releases or threatened releases of Hazardous Substances resulting from
operations of the Company at locations offsite the Company's properties; (vii)
to the knowledge of the Company, there has not been exposure of any person or
property to Hazardous Substances as a result of the Company's operations that
would reasonably be expected to form the basis for a claim for damages or
compensation; and (viii) the Company has provided to Parent and Sub all internal
and external environmental audits, studies, documents, and correspondence on
environmental matters, Hazardous Substances, and compliance with applicable
Environmental Laws relating to the Company's operations and properties that are
in the possession or control of the Company. "Environmental Claim" means any
claim, demand, action, suit, complaint, proceeding, directive, environmental
information request, investigation, Lien, demand letter or notice (written or
oral) of noncompliance, violation or liability by any person asserting liability
or potential liability (including, without limitation, liability or potential
liability for enforcement, investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property damage, personal injury,
fines or penalties) arising out of, based on or resulting from (i) the presence,
discharge, emission, transportation, release or threatened release of any
Hazardous Substance at any location, (ii) circumstances
16
forming the basis of any violation or alleged violation of any Environmental Law
or any Permit issued under any Environmental Law, or (iii) otherwise relating to
obligations or liabilities under any Environmental Law, which has had or would
reasonably be expected to result in a Company Material Adverse Effect.
"Environmental Laws" means any and all applicable federal, state or local
statutes, laws, rules, regulations, ordinances, guidelines, codes, decrees, or
other legally enforceable requirement (including common law) of any foreign
government, the United States, or any state, local, municipal or other
Governmental Entity, regulating, relating to or imposing liability or standards
of conduct concerning protection of the environment (including, without
limitation, indoor air, ambient air, surface water, groundwater, land surface,
subsurface strata, or plant or animal species), Hazardous Substances (including,
without limitation, any generation, use, storage, treatment, transportation,
release, discharge or emission thereof), or human health as affected by the
environment or Hazardous Substances (including, without limitation, employee
health and safety). "Hazardous Substance" means all petroleum hydrocarbons,
petroleum products, natural gas, crude oil and any components, fractions, or
derivatives thereof, explosive or radioactive substances, materials or wastes,
hazardous or toxic substances, materials or wastes, asbestos,
asbestos-containing materials, pollutants and contaminants and all other
substances, materials or wastes, whether or not defined as such, that are
regulated pursuant to or that could result in liability under any applicable
Environmental Law.
Section 3.14. Contracts.
Except for Contracts listed on Schedule 3.14 of the Company Disclosure
Letter, the Company is not a party to or bound by or otherwise subject to any
Contracts of the following nature (collectively, the "Material Contracts"): (i)
any Contract which restricts the Company or any of its affiliates from competing
in any line of business or with any person in any geographical area; (ii) any
Contract involving (A) the acquisition, merger or purchase of all or
substantially all the assets or business of a third party, (B) the sale of
assets other than sales of produced Hydrocarbons or tangible equipment or
inventory in the ordinary course of business, (C) the purchase of any real
property or oil and gas properties involving consideration of $0.5 million or
more or (D) the grant to any person of any preferential right to purchase any
material asset or assets of the Company; (iii) any Contract which contains a
"change in control" or similar provision pursuant to which the execution and
delivery of this Agreement, or the consummation of the Merger or execution of
the Support Agreements would give rise to any right (including any right of
termination, cancellation, acceleration or vesting) or benefit; (iv) any
Contract, including any mortgage or other grant of security interests, guarantee
or note, relating to the borrowing of money; (v) any Contract which would
prohibit or materially delay the consummation of the Merger; (vi) any Contract
not entered into in the ordinary course of business involving in excess of
$100,000; (vii) any Contract containing covenants purporting to limit the
freedom of the Company or any of its Subsidiaries to hire an individual or group
of individuals; (viii) any Contract relating to any outstanding commitment for
capital expenditures in excess of $0.5 million other than Contracts relating to
its ongoing drilling and completion operations in the ordinary course of
business; (ix) any Contract requiring contingent payments by the Company or any
of its Subsidiaries in connection with the purchase of oil and gas properties;
(x) confidentiality or standstill agreements with any person (the effectiveness
of which extends beyond the date that is six months following the date hereof)
that restrict the Company or any of its Subsidiaries in the use of any
information or the taking of any actions by the Company or its Subsidiaries
entered into in connection with the consideration by the Company or any of its
Subsidiaries of any acquisition of equity interests or assets; (xi) any Contract
in favor of directors
17
or officers that provide rights to indemnification and (xii) any Contract that
is material to the Company and its Subsidiaries taken as a whole other than
those that are covered by (i) through (xii) of this Section 3.14. Except as,
individually or in the aggregate, would not have a Company Material Adverse
Effect, each Material Contract is valid, binding and enforceable in accordance
with its terms and is in full force and effect, the Company is not in breach or
default under any Material Contract nor has the Company received any notice that
it is in breach or default and, to the Company's knowledge, no event has
occurred which, with notice, or lapse of time or both, would constitute a breach
or default by the Company thereunder and to the knowledge of the Company, no
other party to any Material Contract is in breach or default thereunder.
Section 3.15. Labor and Employment Matters.
(a) The Company has provided to Parent a true, correct and complete
list of the Employees employed by the Company as of May 12, 2003, their
employment classification and their level of compensation. There are no
collective bargaining or other labor union agreements to which the Company is a
party or by which it is bound and none are being negotiated. To the knowledge of
the Company, there have been no labor union organizing activities involving the
Company, the Company has not agreed to recognize any union or collective
bargaining representative, and the Company has not had any actual or threatened
employee strike, work stoppage, slowdown or lockout. To the knowledge of the
Company, the Company has not engaged in any unfair labor practice and has not
received any notice of any claim with respect thereto and has no charges of
unfair labor practices pending against it.
(b) All employees of the Company have been paid in full wages,
salaries, commissions, bonuses, vacation pay, severance and termination pay,
sick pay and other compensation for all services performed by them that has
accrued to them, payable in accordance with the obligations of the Company under
any employment or labor practices and policies, or individual agreement to which
the Company is a party, or by which the Company may be bound. All employees of
the Company are lawfully authorized to work in the United States according to
federal immigration laws. There are no agreements, labor practices, policies or
procedures, or other representations, whether written or, to the knowledge of
the Company, oral, which have been made to the employees of the Company that
commit the Parent and Sub to retain them as employees for any period of time
subsequent to Closing. The Company is not a party to any agreements or
arrangements or subject to any requirement that in any manner requires or may
require the Parent or the Sub to hire any employee of the Company or restrict
the Parent or the Sub from relocating, consolidating, merging or closing, in
whole or in part, any portions of the Company's business, subject to applicable
Law.
(c) There are no non-competition or confidentiality agreements between
the Company and its employees that may interfere with the employees performing
their job duties for the Parent or the Sub. There are no claims, lawsuits,
petitions, charges, investigations, complaints, proceedings, suits, demands or
actions which are pending against the Company before any Governmental Entity or
arbitrator, or which have been asserted or threatened against the Company,
including without limitation, those for: (i) wages, salaries, commissions,
bonuses, vacation pay, severance or termination pay, sick pay or other
compensation or benefits; (ii) alleged unlawful, unfair, wrongful or
discriminatory employment or labor practices; (iii) alleged breach of contract
or other claim arising under a collective bargaining agreement or individual
agreement or any other employment covenant whether expressed or implied;
18
(iv) alleged violation of a statute, ordinance, contract or regulation relating
to minimum wages or maximum hours of work; (v) alleged violation of Occupational
Safety and Health Standard; or (vi) alleged violation of plant closing and mass
layoff, immigration, worker's compensation, disability, unemployment
compensation, whistleblower laws, or other employment or labor relations law;
and to the knowledge of the Company no reasonable basis therefor exists.
Section 3.16. Brokers; Fees and Expenses.
No broker, investment banker, financial advisor or other person, other
than Lehman Brothers Inc. and A.G. Edwards & Sons, Inc., the fees and expenses
of which will be paid by the Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
Merger based upon arrangements made by or on behalf of the Company. The Company
has furnished to Parent a true and complete copy of all agreements between the
Company and Lehman Brothers Inc. and between the Company and A.G. Edwards &
Sons, Inc. relating to the Merger. Schedule 3.16 of the Company Disclosure
Letter sets forth the maximum amount of expenses and fees that have been paid or
will be payable by the Company or any of its Subsidiaries to all attorneys,
accountants and other service providers in connection with the Merger (or the
matters related thereto).
Section 3.17. Opinion of Financial Advisor.
The Company has received the written opinion of Lehman Brothers Inc.,
dated the date of this Agreement, to the effect that, as of such date, the
consideration to be received in the Merger by the holders of Company Common
Stock is fair to the holders of Company Common Stock from a financial point of
view and has provided a copy of such letter to Parent.
Section 3.18. Reserve Information.
The underlying factual information provided to DeGolyer and MacNaughton
("D&M") by or on behalf of the Company or its Subsidiaries in connection with
their Reserve Report dated December 31, 2002 (the "Reserve Report"), to the
extent that it was relied upon by D&M in the preparation of its report on the
Company's proved reserves as of December 31, 2002, was, at the time of delivery,
true and correct in all material respects. The Company has no knowledge of any
material errors in such underlying factual information supplied to D&M for
purposes of preparing such report and the conclusions in such report are not in
any material way unreasonable when compared with the Company's own evaluation of
the properties included in such report as of December 31, 2002 taken as a whole.
The Company has provided Parent with a true, correct and complete copy of the
D&M Reserve Report. Except for changes (including changes in commodity prices or
service costs) generally affecting the oil and gas industry and disposition of
oil and gas properties since the date thereof, there have been no changes in
respect of the oil and gas properties covered by the Reserve Report that,
individually or in the aggregate, have had or could reasonably be expected to
have a Company Material Adverse Effect; provided further that changes in
evaluation methods, criteria or techniques used by Purchaser will not constitute
such a change. Set forth in Schedule 3.18 of the Company Disclosure Letter is a
list of all material oil and gas properties that were included in the Reserve
Report that have been disposed of prior to the date of this Agreement.
19
Section 3.19 Intellectual Property.
The Company and its Subsidiaries own or possess all necessary licenses
or other valid rights to use all patents, patent rights, trademarks, trademark
rights and proprietary information used or held for use in connection with their
respective businesses as currently being conducted, free and clear of material
Liens, except where the failure to own or possess such licenses and other rights
would not have, individually or in the aggregate, a Company Material Adverse
Effect, and there are no assertions or claims challenging the validity of any of
the foregoing which would be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Except in the ordinary course of
business, neither the Company nor any of its Subsidiaries has granted to any
other person any license to use any of the foregoing. The conduct of the
Company's and its Subsidiaries' respective businesses as currently conducted
does not conflict with any patents, patent rights, licenses, trademarks,
trademark rights, trade names, trade name rights or copyrights of others in a
way which would be reasonably expected to have, individually or in the
aggregate, a Company Material Adverse Effect. There is no infringement of any
proprietary right owned by or licensed by or to the Company or any of its
Subsidiaries in a way which would be reasonably expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
Section 3.20 Related Party Transactions.
Except as set forth in Schedule 3.20 of the Company Disclosure Letter,
to the knowledge of the Company no shareholder nor any officer or director of
the Company or any of its Subsidiaries owns or holds, directly or indirectly,
any interest in (excepting holdings solely for passive investment purposes of
securities of publicly held and traded entities constituting less than 5% of the
equity of any such entity), or is an officer, director, employee or consultant
of any person that is, a competitor, lessor, lessee, customer or supplier of the
Company or any of its Subsidiaries. No shareholder, officer or director of the
Company or any of its Subsidiaries (a) to the knowledge of the Company has any
claim, charge, action or cause of action against the Company or any of its
Subsidiaries, except for claims for reasonable unreimbursed travel or
entertainment expenses, accrued vacation pay or accrued benefits under any
Company Pension Plan, Company Benefit Plan or Company Benefit Agreement existing
on the date hereof, (b) to the knowledge of the Company, has made, on behalf of
the Company or any of its Subsidiaries, any payment or commitment to pay any
commission, fee or other amount to, or to purchase or obtain or otherwise
contract to purchase or obtain any goods or services from, any other person of
which any shareholder owning more than 1% of the outstanding Company Common
Stock or any officer or director of the Company or any of its Subsidiaries is a
partner or shareholder (except holdings solely for passive investment purposes
of securities of publicly held and traded entities constituting less than 5% of
the equity of any such entity), (c) owes any money to the Company or any of its
Subsidiaries or (d) has any interest in any property, real or personal, tangible
or intangible, used in or pertaining to the business of the Company or any of
its Subsidiaries.
Section 3.21 Oil and Gas Properties.
(a) Except for property sold, used or otherwise disposed of since
December 31, 2002 in the ordinary course of business for fair value, the Company
has defensible title in respect of oil and gas properties, of a type and nature
customarily acceptable to the reasonably prudent oil
20
and gas operator of oil and gas interests for all oil and gas properties,
interests in properties and assets, real and personal, reflected in the
Company's December 31, 2002 financial statements, free and clear of any Lien,
except: (i) Liens securing the Company's Credit Facility and industrial revenue
bonds reflected in the balance sheet of the Company as of December 31, 2002;
(ii) Liens for current taxes not yet due and payable; (iii) statutory liens and
operator's liens incurred in the ordinary course of business in connection with
the Company's oil and gas business; and (iv) such imperfections of title,
easements and Liens that would not have, individually or in the aggregate, a
Company Material Adverse Effect.
(b) All leases and other agreements pursuant to which the Company or
any of its Subsidiaries lease or otherwise acquire or obtain operating rights
affecting any real or personal property are in good standing, valid, and
effective, except where the failure to be in good standing, valid or effective
would not have, individually or in the aggregate, a Company Material Adverse
Effect; and there is not, under any such leases, any default or event of default
or event which with notice or lapse of time, or both, would constitute a default
by the Company or any of its Subsidiaries that would be reasonably expected to
have, individually or in the aggregate, a Company Material Adverse Effect. All
significant operating equipment related to the wells and gathering systems owned
by the Company and its Subsidiaries is in good operating condition, ordinary
wear and tear excepted, except where the failure to maintain such operating
equipment in such condition would not have, individually or in the aggregate, a
Company Material Adverse Effect. The Company has not received any material
advance, take-or-pay or other similar payments that entitle purchasers of
production to receive deliveries of hydrocarbons without paying therefor. Set
forth on Schedule 3.21(b) of the Company Disclosure Letter is a statement of the
Company's net overproduction, determined on a Company-wide basis.
Section 3.22 Insurance.
The Company and its Subsidiaries own and are beneficiaries under
insurance policies underwritten by reputable insurers that, as to risks insured,
coverages and related limits and deductibles, are customary in the industry in
which the Company and its Subsidiaries operate. All premiums due with respect to
all such insurance policies that are material have been paid and, to the
knowledge of the Company, all such policies are in full force and effect. There
is no material claim by the Company or any of its Subsidiaries pending under any
of the Company's insurance policies as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. Neither the
Company nor any of its Subsidiaries has received any notice, which remains
outstanding, of cancellation or termination with respect to any material
insurance policy.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub, jointly and severally, represent and warrant to the
Company as follows:
Section 4.01. Organization, Standing and Power.
Each of Parent and Sub is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and has full corporate power
21
and authority necessary to enable it to own, lease or otherwise hold its
properties and assets and to conduct its businesses as presently conducted.
Section 4.02. Sub.
Since the date of its incorporation, Sub has not carried on any
business or conducted any operations other than the execution of this Agreement,
the performance of its obligations hereunder and matters ancillary thereto. Sub
is a wholly-owned subsidiary of Parent.
Section 4.03. Authority; Execution and Delivery; Enforceability.
Each of Parent and Sub has all requisite corporate power and authority
to execute, deliver and perform this Agreement and to consummate the Merger. The
execution, delivery and performance by each of Parent and Sub of this Agreement
and the consummation by it of the Merger have been duly authorized by all
necessary corporate and shareholder action on the part of Parent and Sub.
Parent, as sole shareholder of Sub, has adopted this Agreement and approved the
Merger. Each of Parent and Sub has duly executed and delivered this Agreement,
and this Agreement constitutes its legal, valid and binding obligations,
enforceable against it in accordance with its terms, except as that
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar Laws affecting the enforcement of
creditor's rights generally and the application of general principles of equity
(regardless of whether that enforceability is considered in a proceeding at law
or in equity). The affirmative vote of the holders of two-thirds of the
outstanding shares of common stock of Sub voting as a single class is the only
vote of any class or series of Sub's capital stock required to approve the
Merger and adopt this Agreement.
Section 4.04. No Conflicts; Consents.
(a) The execution, delivery and performance by each of Parent and Sub
of this Agreement do not, and the consummation of the Merger and compliance with
the terms of this Agreement will not, conflict with, or result in any violation
of or default (with or without notice or lapse of time, or both) under, any
provision of (i) the charter or organizational documents of Parent or any of its
subsidiaries, (ii) other than the Parent's credit facility, any Contract to
which Parent or any of its subsidiaries is a party or by which any of their
respective properties or assets is bound or (iii) subject to the filings and
other matters referred to in Section 4.04(b), any Judgment or Law applicable to
Parent or any of its subsidiaries or their respective properties or assets,
except in the case of clauses (ii) and (iii) above, for such matters as,
individually or in the aggregate, would not have a Parent Material Adverse
Effect (as defined in Section 9.03).
(b) No Consent of, or registration, declaration or filing with, or
notice to, or Permit from any Governmental Entity is required to be obtained or
made by or with respect to Parent or any of its subsidiaries in connection with
the execution, delivery and performance of this Agreement or the consummation of
the Merger, other than (i) the filing of the Articles of Merger with the
Secretary of State of the State of Texas, (ii) such filings as may be required
in connection with the Taxes described in Section 6.08, (iii) such filings as
may be required under federal or state securities Laws, and (iv) such other
items as, individually or in the aggregate, would not reasonably be expected to
have a Parent Material Adverse Effect.
22
Section 4.05. Financing.
Parent will have as of the Closing Date (through cash on hand and
existing credit arrangements or otherwise) all of the funds necessary for the
payment of the aggregate amount of Merger Consideration payable pursuant to the
Merger, as and when required hereunder, and to perform its and Sub's obligations
under this Agreement. Parent has provided to the Company a true and complete
copy of the commitment letter from JP Morgan Chase Bank evidencing the
availability to Parent of the bridge facilities necessary to fund the aggregate
Merger Consideration, and such commitment letter shall remain effective through
the Closing, or, if it expires or is terminated prior to Closing, it shall be
promptly replaced with one or more substantially equivalent funding commitments
in favor of Parent sufficient to fund fully the aggregate Merger Consideration,
which shall remain effective through the Closing or be replaced by substantially
equivalent commitments. Parent shall promptly provide a true and complete copy
of all such replacement funding commitments, if any, to the Company.
Section 4.06. Litigation.
There is no suit, action, proceeding or investigation pending against,
or to the knowledge of Parent threatened against or affecting, Parent or any of
its subsidiaries before any Governmental Entity that questions the validity of
this Agreement or any action to be taken by Parent or Sub in connection with the
consummation of the Merger or would otherwise prevent or delay the consummation
of the Merger.
Section 4.07. Ownership of Company Common Stock.
As of the date hereof, neither Parent nor any of its subsidiaries
beneficially owns any shares of Company Common Stock.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.01. Conduct of Business.
(a) Conduct of Business by the Company. Except for matters set forth in
Schedule 5.01(a) of the Company Disclosure Letter or otherwise expressly
permitted by this Agreement, from the date of this Agreement to the Effective
Time, the Company shall, and shall cause its Subsidiaries to, conduct its
business in the ordinary course of business and use its commercially reasonable
best efforts to preserve intact its current business organization, keep
available the services of its current officers and key employees, preserve its
relationships with third parties and maintain its material rights and
franchises. In addition, and without limiting the generality of the foregoing,
except for matters set forth in Schedule 5.01(a) of the Company Disclosure
Letter or except as otherwise expressly contemplated or permitted by this
Agreement, from the date of this Agreement to the Effective Time, the Company
shall not do, and will not permit any of its Subsidiaries to do (x) anything or
take any action not in the ordinary course of business or (y) any of the
following without the prior written consent of Parent:
23
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock, property or otherwise) in respect of, any
of the Company's or any Subsidiary's capital stock (other than dividends or
distributions by a Subsidiary to the Company), (B) effect any reorganization or
recapitalization or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or (C) directly or
indirectly offer to or purchase, redeem or otherwise acquire any shares of its
capital stock or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(ii) offer, issue, deliver, sell, grant, pledge, transfer or otherwise
encumber or dispose of or subject to any Lien or limitation on voting rights (A)
any shares of its capital stock or capital stock of any Subsidiary, (B) any
securities convertible into or exchangeable for, or any options, warrants,
commitments or rights of any kind to acquire, any such shares, voting securities
or convertible or exchangeable securities or (C) any "phantom" stock, "phantom"
stock rights, stock appreciation rights or stock-based performance units, other
than the issuance of Company Common Stock upon the exercise of Company Stock
Options outstanding on the date of this Agreement and in accordance with their
terms as in effect on the date of this Agreement;
(iii) propose or adopt any amendments to the Company Charter or the
Company Bylaws or amend or otherwise modify the terms of any outstanding capital
stock, securities convertible into or exchangeable for, or any options,
warrants, commitments or rights of any kind to acquire such securities the
effect of which will make such terms more favorable to the holders thereof;
(iv) expand, or fail to maintain, its planned level of drilling and
completion activities at seven drilling rigs with respect to properties that it
operates in accordance with the drilling schedule covering the next 90 days that
the Company has provided to Parent and that identifies the wells to be drilled
during such period, except to the extent the Company reasonably believes such
activities would result in a default of a covenant under the Company's Credit
Facility or where it would be reasonable for a prudent operator to change
drilling locations, delay or accelerate drilling of specific wells or change the
order of drilling of wells to maximize the efficiency of the drilling program
and/or to minimize risks and/or costs of such program provided that such change,
delay or acceleration in such program is discussed at an operational meeting of
the Company at which Parent has a representative and reasonable operational
consensus is achieved, or fail to continue to participate in the ordinary course
of business in drilling, workover, completion and recompletion activities with
respect to properties it does not operate without prior notification to Parent;
(v) (A) merge, consolidate, combine, dissolve or liquidate or resolve
to or publicly announce an intention to do any of the foregoing, (B) acquire or
agree to acquire, directly or indirectly by merger, consolidation, equity
interest purchase or otherwise, any producing oil and gas properties in excess
of $1.0 million individually or in the aggregate, or enter into or acquire any
new non-producing oil and gas leases in excess of $0.5 million individually or
$1.5 million in the aggregate, or (C) enter into or acquire any renewals of
non-producing oil and gas leases in excess of $0.5 million individually or $1.5
million in the aggregate;
24
(vi) (A) grant to any employee, officer or director of the Company or
any Subsidiary any increase in compensation or pay any bonus, except to the
extent required under agreements in effect as of the date of this Agreement, (B)
establish, adopt, enter into or amend any Company Benefit Agreement, any
collective bargaining agreement, other labor union agreement or Company Benefit
Plan or (C) grant any severance or termination pay (other than pursuant to
Company Benefit Plans listed on Schedule 3.10 to the Company Disclosure Letter);
(vii) make any change in accounting methods, principles or practices in
effect at December 31, 2002, except as required by a change in GAAP;
(viii) sell, lease (as lessor), license, farm out, encumber or
otherwise dispose of or subject to any Lien any properties or assets, except for
sales of produced Hydrocarbons or for sales of tangible equipment or inventory
of not more than $0.5 million and except for the Lien securing the Company's
Credit Facility;
(ix) (A) incur, create, assume, guaranty or otherwise become liable for
any indebtedness except (x) trade debt in the ordinary course of business and
(y) pursuant to existing credit facilities or arrangements or any extensions,
renewals or redeterminations thereof, or (B) make or forgive any loans, advances
or capital contributions to, or investments in, any other person;
(x) make or change any material Tax election or settle or compromise
any material Tax liability or refund or change any of its methods of reporting
income or deductions for U.S. federal tax purposes except as may be required by
Law;
(xi) (A) pay, discharge, settle or satisfy any claims, liabilities,
obligations or litigation other than insured claims or liabilities, repayments
of borrowings under the Company's Credit Facility or the payment, discharge,
settlement or satisfaction, in accordance with their terms, of liabilities
reflected or reserved against in the most recent financial statements (or the
notes thereto) of the Company provided to Parent prior to the date hereof or
incurred since the date of such financial statements in the ordinary course of
business or (B) cancel or forgive any indebtedness to the Company or any
Subsidiary;
(xii) permit any material insurance policy naming it as a beneficiary
or a loss payable payee to lapse, be cancelled or expire unless a new policy
with substantially identical coverage is in effect as of the date of lapse,
cancellation or expiration; or
(xiii) except as otherwise permitted by Section 5.02, enter into,
renew, modify, amend or terminate, or waive, assign or release any material
rights or claims, or grant any consent under, any confidentiality agreement
relating to a Company Takeover Proposal (as defined in Section 5.02(c)) or under
any standstill or similar agreement or fail to fully enforce any such agreement
upon the request of Parent;
(xiv) enter into, renew, modify, amend or terminate any Material
Contract, or waive, delay the exercise of, assign or release any material rights
or claims thereunder, except as otherwise permitted above in this Section 5.01,
or enter into or amend in any material manner any Contract or commitment with
any former or present director, officer or employee of the Company or any
Subsidiary or with any affiliate of any of the foregoing persons;
25
(xv) amend, modify, terminate or propose to amend, modify or terminate
the Company's Rights Agreement or redeem any rights issued pursuant to the
Company's Rights Agreement except to the extent required under this Agreement or
by a court of competent jurisdiction, or take any action to exempt or make not
subject to (1) the Company's Rights Agreement, (2) the provisions of Part
Thirteen of the TBCA, or (3) any other state takeover statute or state Law that
purports to limit or restrict business combinations or the ability to acquire or
vote shares, any person (other than Parent and its subsidiaries) or any action
taken thereby, which person or action would have otherwise been subject to the
restrictive provisions thereof and not exempt therefrom; or
(xvi) authorize, or commit or agree to take, any of the foregoing
actions or take any action that would (y) make any representation or warranty in
Article III hereof untrue or incorrect in any material respect, or (z) result in
any of the conditions to the Merger set forth in Article VII hereof not being
satisfied.
(b) Advice of Changes. The Company shall promptly advise Parent of any
change or event that has had or would reasonably be expected to have a Company
Material Adverse Effect.
Section 5.02. No Solicitation.
(a) From the date hereof, the Company shall not (whether directly or
indirectly through advisors, agents, representatives or other intermediaries),
and the Company shall not authorize or permit its officers, directors, advisors,
representatives and other agents (collectively, its "Representatives") to,
directly or indirectly, (i) continue any discussions or negotiations, if any,
with any persons, other than Parent and Sub, conducted heretofore with respect
to any Company Takeover Proposal (as hereinafter defined) or which could
reasonably be expected to lead to a Company Takeover Proposal, (ii) solicit,
initiate or knowingly encourage any inquiries relating to, or the submission of,
any Company Takeover Proposal, (iii) participate in any discussions or
negotiations regarding any Company Takeover Proposal, (iv) furnish to any person
any information, data or access to the properties of the Company in connection
with, or take any other action to facilitate, the making of any proposal that
constitutes, or may reasonably be expected to lead to, a Company Takeover
Proposal, (v) approve or recommend or propose publicly to approve or recommend
any Company Takeover Proposal or (vi) enter into any agreement, arrangement or
understanding contemplating or with respect to any Company Takeover Proposal or
requiring the Company to abandon, terminate or fail to consummate the Merger.
Notwithstanding the foregoing, the Company may, with respect to any written bona
fide Company Takeover Proposal made after the date hereof which was not
solicited, encouraged or facilitated after the date hereof in breach of this
Section 5.02 or did not otherwise result from a breach of this Section 5.02, at
any time prior to the Company Shareholder Approval being obtained, furnish
information to, negotiate with or otherwise engage in discussions with any
person who has made such Company Takeover Proposal provided that (i) a majority
of the entire Company Board determines in good faith, after consultation with
its independent financial advisors and upon written advice of its outside legal
counsel, that (A) such Company Takeover Proposal provides for a payment or value
to the Company's shareholders which is greater than the Merger Consideration and
is otherwise reasonably expected to result in (in all cases taking into account
any adjustments to the terms and conditions of this Agreement or the Merger
offered in writing by Parent in response to such Company Takeover Proposal) a
Superior
26
Company Proposal and (B) such action is necessary to comply with its fiduciary
duties to the Company's shareholders under applicable Law, and (ii) no
disclosure of any information shall be made to such person prior to entering
into a confidentiality agreement containing provisions substantially identical
to those contained in the Confidentiality Agreement (as defined in Section
6.02(b)) and no negotiations or discussions shall commence or information be
provided to any such person until 72 hours after the Company shall have advised
Parent of its intention to do so and provided Parent with a copy of (or an
accurate and complete description of all material terms of ) such proposal. The
Company shall as promptly as possible (but in no case later than 24 hours after
actual receipt by a director or officer of the Company) provide Parent with a
copy of any written Company Takeover Proposal received and a written statement
with respect to any non-written Company Takeover Proposal received or any
inquiries or requests for information related to a Company Takeover Proposal,
which statement shall include the material terms thereof and the identity of the
person making the Company Takeover Proposal. The Company shall keep Parent fully
informed on a reasonably current basis of any proposals, inquiries or material
developments with respect to any proposals, inquiries or discussions. Any
information provided to Parent by the Company under this subsection (a) shall be
maintained confidential in the same manner as other information furnished by the
Company pursuant to the Confidentiality Agreement. If the Company or any of its
Subsidiaries or its or their representatives receives a request for information
from a person who has made an unsolicited bona fide written Company Takeover
Proposal involving the Company and the Company is permitted to provide such
person with information, the Company will provide to Parent a copy of the
confidentiality agreement with such person promptly upon its execution and
provide to the Parent a list of, and copies of, the information provided to such
person concurrently with its delivery to such person and promptly provide Parent
with access to all information to which such person was provided access, in each
case only to the extent not previously provided to the Parent.
(b) Nothing contained in Section 5.02(a) shall prohibit the Company or
the Company Board from making any disclosure to the Company's shareholders
required by applicable Law.
(c) For purposes of this Agreement:
"Company Takeover Proposal" means any proposal or offer (other than by
Parent, Sub or any of their affiliates) for or any public announcement of an
intention to complete (i) a merger, consolidation, share exchange, dissolution,
recapitalization, liquidation or other business combination involving the
Company or any of its Subsidiaries, (ii) the acquisition in any manner, directly
or indirectly, of beneficial ownership of a number of shares of any class of
equity securities of the Company (other than a change in ownership of Union Oil
Company of California) equal to or greater than 15% of the number of such shares
outstanding before such acquisition, or (iii) the acquisition (including any
lease, long-term supply agreement, mortgage, pledge or other arrangement having
similar economic effect) in any manner, directly or indirectly, of any business
or assets that generate 15% or more of the Company's consolidated net revenues
or net income or constitute more than 15% of the Company's assets, in each case
other than the Merger and whether in a single transaction or a series of related
transactions.
"Superior Company Proposal" means any bona fide written proposal made
by a third party (other than by Parent, Sub or any of their affiliates) to
acquire directly or indirectly (i) all the equity securities or (ii) all or
substantially all assets of the Company and its Subsidiaries, whether by merger,
consolidation, share exchange, dissolution, recapitalization, liquidation or
27
otherwise, if the Company Board determines in good faith by a vote of a majority
of its members (based on, among other things, the written advice of its
independent financial advisors and outside counsel), taking into account all
legal, financial, regulatory and other aspects of the proposal and the person
making such proposal, that such proposal (x) would, if consummated in accordance
with its terms, be more favorable, from a financial point of view, to the
holders of Company Common Stock than the Merger (taking into account any
adjustments to the terms and conditions of this Agreement or the Merger offered
in writing by Parent) and (y) is reasonably likely to be consummated without
undue delay.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.01. Shareholders Meeting.
(a) The Company shall take all action in accordance with the Company
Charter, Company Bylaws and applicable Laws necessary to call, give notice of,
convene and hold a special meeting of its shareholders (the "Company
Shareholders Meeting") for the purpose of seeking the Company Shareholder
Approval of this Agreement and the Merger at the earliest practicable date and
in any event before June 16, 2003. The Company Board shall recommend to
shareholders of the Company that they give the Company Shareholder Approval and
the Company will use its commercially reasonable best efforts (including the
solicitation of proxies) to solicit and obtain such approval; provided, however,
that, the Company Board shall be permitted to modify or withdraw its
recommendation (but not its approval) and to not recommend a vote for the Merger
or to advise against voting for the Merger (each a "Change in Recommendation")
in each case in a manner adverse to Parent and in such case not solicit votes in
favor of approval if after the date of this Agreement the Company has received a
Superior Company Proposal and a majority of the full Company Board determines in
good faith, after receipt of written advice from its outside legal counsel, that
such action is necessary for the Company Board to comply with its fiduciary
duties to the Company's shareholders under applicable Law, but only after the
third business day following Parent's receipt of written notice that the Company
Board is prepared to withdraw or modify its recommendation. Unless this
Agreement is terminated in accordance with Section 8.01, the obligation of the
Company Board to cause this Agreement and the Merger to be submitted to the
Company's shareholders for approval at the Company Shareholders Meeting will not
be limited or affected by any Change in Recommendation; provided that if there
has been a Change in Recommendation in accordance with this Section 6.01, the
Company Board may submit the Merger and this Agreement, "without
recommendation," in accordance with Article 5.03 of the TBCA. Unless this
Agreement is terminated in accordance with Section 8.01, the Company Board will
not, in connection with any Change in Recommendation, take any action to
withdraw the approval of the Company Board of this Agreement or the Merger,
including for purposes of causing the Company Rights Agreement, Part 13 of the
TBCA or any state takeover statute or state law that purports to limit or
restrict business combinations or the ability to acquire or vote shares to be
inapplicable to this Agreement and the transactions contemplated hereby,
including the Merger and the Support Agreements. As promptly as practicable
after the execution of this Agreement, the Company shall prepare solicitation
materials for the Company Shareholders Meeting. The Company and Parent shall
cooperate with each other in preparation of such solicitation materials. The
Company shall give Parent the opportunity to review and comment on the
solicitation materials
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and any amendments or supplements thereto prior to them being sent or
distributed to the Company's shareholders. Subject to the foregoing, as promptly
as practicable, and in any event before May 25, 2003, the Company shall mail a
notice of special meeting and solicitation materials (including proxies) to its
shareholders entitled to notice of and to vote at the Company Shareholders
Meeting.
(b) The information supplied by the Company in the solicitation
materials sent to the shareholders of the Company in connection with the Company
Shareholders Meeting shall not, at the date such materials (or any supplement
thereto) are first mailed to such shareholders, at the time of the Company
Shareholders Meeting or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event or circumstance relating to the Company or any of
its Subsidiaries or affiliates, should be discovered by the Company that should
be set forth in a supplement to the solicitation materials, the Company shall
promptly inform Purchaser and promptly supplement such material.
(c) The information supplied by Parent for inclusion in the
solicitation materials to be sent to the shareholders of the Company in
connection with the Company Shareholders Meeting shall not, at the date the
solicitation materials (or any supplement thereto) is first mailed to such
shareholders, at the time of the Company Shareholders Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event or
circumstance relating to Parent or any of its subsidiaries or affiliates should
be discovered by Parent that should be set forth in a supplement to the
solicitation materials, Parent shall promptly inform the Company.
Section 6.02. Access to Information; Confidentiality.
(a) The Company shall and shall cause its Subsidiaries to (i) afford to
Parent, and to Parent's officers, employees, accountants, counsel, financial
advisors and other representatives, access during reasonable business hours
during the period prior to the Effective Time to (x) all of the Company's
properties, books, contracts, commitments, personnel and records and other
information and business documents, (y) by appointment, the Company's
independent reserve engineers and accountants and (z) the premises and
facilities of the Company, provided that access to the premises and facilities
shall be permitted only at times and upon conditions reasonably acceptable to
Parent and the Company (consent by the Company not to be unreasonably withheld),
and (ii) promptly furnish such information as may be reasonably requested from
time to time by Parent or its representatives. During the period prior to the
Effective Time, Parent shall not contact any of the Company's customers, working
interest owners, contractors, lenders, lessors, parties to contracts with the
Company and suppliers, except at such times and upon such conditions as may be
reasonably agreed upon by the Company and Parent, and Company's agreement shall
not be unreasonably withheld. The Company shall have the right to have
representatives present at all times of any such inspections, interviews and
communications conducted by Parent or its representatives.
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(b) Neither any investigation conducted by Parent or its
representatives pursuant to this Section 6.02 or otherwise nor the results
thereof shall affect any representation or warranty of the Company contained in
this Agreement or the ability of Parent to rely thereon. All information
exchanged pursuant to this Section 6.02 shall be subject to the confidentiality
agreement dated February 17, 2003, between the Company and Parent (the
"Confidentiality Agreement").
Section 6.03. Commercially Reasonable Best Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties shall use its commercially reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger, including (i) determining whether
any action by or in respect of or filing with any Governmental Entities is
required or any actions, consents, approvals or waivers are required to be
obtained from third parties in connection with the Merger, (ii) the obtaining of
all necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
avoid an action or proceeding by, any Governmental Entity, (iii) the obtaining
of all necessary, proper or advisable consents, approvals or waivers from third
parties, (iv) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the Merger, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (v)
the execution and delivery of any additional instruments necessary to consummate
the Merger and to fully carry out the purposes of this Agreement.
(b) Nothing in this Agreement shall require Parent or Sub to agree to,
or permit the Company to agree to, the imposition of conditions, the payment of
any material amounts or any requirement of divestiture to obtain any approval or
consent, and in no event shall any party take, or be required to take, any
action that would or could reasonably be expected to have a Company Material
Adverse Effect.
(c) The Company shall give prompt notice to Parent, and Parent or Sub
shall give prompt notice to the Company, of (i) any representation or warranty
made by it contained in this Agreement becoming untrue or inaccurate or any
event or condition that could reasonably be expected to cause any representation
or warranty made by it not to be true and correct at the Effective Time, (ii)
the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, (iii) any notice or other communication it receives from any
person alleging that the consent of such person is or may be required in
connection with the Merger, (iv) any notice or other communication it receives
from any Governmental Entity in connection with the Merger, or (v) any action,
suit, claim, investigation or proceeding commenced or, to its knowledge,
threatened against, relating to or involving or otherwise affecting it that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 3.11 or 4.07, as applicable, or that relate to the
consummation of the Merger; provided, however, that no
30
such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
Section 6.04. Stock Options.
(a) At the Effective Time, each holder (an "Optionholder") of a then
outstanding Company Stock Option (whether or not vested or exercisable) shall be
entitled to receive from the Company, in cancellation of such Company Stock
Option, for each share of Company Common Stock subject to such Company Stock
Option, an amount (subject to any applicable withholding tax) in cash equal to
the excess, if any, of the Merger Consideration over the per share exercise
price of such Company Stock Option (such amount being hereinafter referred to
as, the "Option Consideration"). Prior to the Effective Time, the Company shall
use commercially reasonable best efforts to obtain an option cancellation
agreement (in form reasonably satisfactory to Parent) executed by each such
Optionholder that requires the cancellation of the Company Stock Options of such
Optionholder in exchange for receipt by the Optionholder of the Option
Consideration ("Option Cancellation Agreement")(or a written release of the
Optionholder's rights under any Company Stock Option in form reasonably
satisfactory to Parent).
(b) All amounts payable to each Optionholder pursuant to this Section
6.04 shall be subject to any required withholding of Taxes and shall be paid as
soon as practicable, but in any event within seven (7) days, following the later
of the Effective Time and delivery by the Optionholder of his or her executed
Option Cancellation Agreement (or a written release of the Optionholder's rights
under any Company Stock Options in form reasonably satisfactory to the Parent)
without interest. The cancellation of a Company Stock Option in exchange for the
cash payment described in this Section 6.04 shall be deemed a release of any and
all rights the holder had or may have had in respect thereof.
(c) In this Agreement:
"Company Stock Option" means any option to purchase Company Common
Stock granted under any of the Company Stock Plans.
"Company Stock Plans" means the Company's (i) 1998 Omnibus Stock and
Incentive Plan, as amended, (ii) Non-Statutory Director Stock Option Plan, as
amended, and (iii) 1987 Incentive Stock Option Plan, as amended.
(d) To the extent that Parent, at Parent's sole option, directs the
Company prior to the Effective Time to terminate the Matador Petroleum
Corporation 401(k) Profit Sharing Plan and in sufficient time to provide any
required advance notices to participants in such plan with respect to such
termination, the Company shall terminate such plan immediately prior to the
Effective Time in the manner reasonably requested by Parent; provided, however,
the Company shall not be required to prepare or make any filings with the
Internal Revenue Service in connection with such termination prior to the
Effective Time.
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Section 6.05. Indemnification.
(a) After the Effective Time, Parent will cause the Surviving
Corporation to indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof, a director or officer of the
Company or any of its Subsidiaries (individually, an "Indemnified Party" and,
collectively, the "Indemnified Parties") with respect to any liability, loss,
damage, judgment, fine, penalty, amount paid in settlement or compromise with
the approval of the Parent (which approval shall not be unreasonably withheld or
delayed), cost or expense (including reasonable fees and expenses of legal
counsel) incurred in connection with any threatened or actual action, suit or
proceeding based on, or arising out of, the fact that such person is or was a
director or officer of the Company or any of its Subsidiaries ("Indemnified
Liabilities"), in each case, to the full extent that the Surviving Corporation
is permitted under applicable Texas Law to so indemnify. Any Indemnified Party
desiring to claim indemnification under this Section 6.05(a), upon learning of
any such claim, action, suit, proceeding or investigation, shall promptly notify
Parent and the Surviving Corporation (but the failure so to notify shall not
relieve the indemnifying party from any liability which it may have under this
Section 6.05(a) except to the extent such failure materially prejudices such
indemnifying party). After the Surviving Corporation's receipt of such notice
with respect to any such claim, action, suit, proceeding or investigation, the
Surviving Corporation shall have the right to assume and direct all aspects of
the defense thereof, including settlement, and the Indemnified Party shall
cooperate in the vigorous defense of any such matter. In no event shall Parent
or the Surviving Corporation be liable for any settlement effected without its
prior written consent. If any determination that an Indemnified Party's conduct
complies with the standards set forth in the TBCA is required to be made, such
determination 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.
The Surviving Corporation shall promptly advance all reasonable out-of-pocket
expenses of each Indemnified Party in connection with any such action, suit or
proceedings described above, as such expenses are incurred, to the fullest
extent permitted by the TBCA, 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. The rights to
indemnification under this Section 6.05(a) shall continue in full force and
effect for a period of six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any Indemnified Liabilities
asserted or made within such period shall continue until the final disposition
of such Indemnified Liabilities.
(b) For a period of six years after the Effective Time, Parent shall
cause to be maintained, to the extent such coverage is then reasonably
available, policies of directors' and officers' liability insurance providing
coverage with respect to matters occurring prior to the Effective Time that is
substantially equal to the coverage provided under the Company's directors' and
officers' liability insurance policies existing on the date of the Agreement
with respect to claims arising from facts or events which occurred before the
Effective Time; provided, however, that in no event shall this covenant require
annual expenditures of more than 150% of the last annual premiums paid prior to
the date hereof by the Company for such insurance.
32
(c) Parent shall assume by written instrument delivered at the Closing
each indemnification agreement between the Company and any of its former and
existing officers and directors which was in force and effect immediately prior
to the date of this Agreement and is listed on Schedule 3.14 of the Company
Disclosure Letter.
(d) In the event Parent or the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person and
is not the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of Parent or the
Surviving Corporation shall assume the obligations set forth in this Section
6.05.
(e) The provisions of this Section 6.05 are (i) intended to be for the
benefit of, and to be enforceable by, each Indemnified Party, his or her heirs
and his or her representatives and (ii) in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such person
may have by contract or otherwise. Parent agrees to pay all expenses (including
fees and expenses of counsel) that may be incurred by any Indemnified Party in
successfully enforcing the indemnity or other obligations under this Section
6.05.
Section 6.06. Fees and Expenses.
(a) Except as provided below, all fees and expenses incurred in
connection with the Merger and this Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is consummated.
(b) In the event that this Agreement is terminated (i) by the Company
pursuant to Section 8.01(d) (superior proposal), (ii) by Parent pursuant to
Section 8.01(c)(i) (change in recommendation) or (iii) by Parent or the Company
pursuant to Section 8.01(b)(iii) (failure to obtain Company Shareholder
Approval) after a Change in Recommendation, then the Company shall promptly, but
in no event later than the date of such termination (or one business day after
such termination if terminated by Parent), pay to Parent a fee equal to $20.0
million (the "Termination Fee"), by wire transfer of same day funds to an
account designated by Parent, which shall be deemed to be sole and exclusive
remedy and liquidated damages payable to Parent for such termination because
Parent's actual damages would be difficult to ascertain.
(c) In the event there has not been a Change in Recommendation prior to
the Company Shareholder Meeting and this Agreement is terminated by Parent or
the Company pursuant to Section 8.01(b)(iii) (failure to obtain Company
Shareholder Approval) or Section 8.01(b)(ii) (expiration date of this Agreement)
and (x) within one hundred eighty (180) days after the date of such termination,
the Company or any of its Subsidiaries enters into an agreement for or
consummates a transaction that constitutes a Company Takeover Proposal, or (y)
after the date of this Agreement and prior to such termination, there shall have
been made a Company Takeover Proposal or any proposal or expression of interest
by a third party regarding a Company Takeover Proposal shall have been disclosed
publicly or generally to the Company's shareholders and within twelve (12)
months of the date of such termination the Company or any of its Subsidiaries
enters into any agreement for or consummates a transaction that constitutes a
Company Takeover Proposal with the person (or one of its affiliates) who made
(or expressed interest in) a Company Takeover Proposal as described in this
clause (y), then in either case the
33
Company will prior to the earlier of consummation of a transaction that
constitutes a Company Takeover Proposal or execution of a definitive agreement
with respect thereto, pay to Parent an amount equal to the Termination Fee less
any amount previously paid to Parent pursuant to Section 6.06(d), by wire
transfer of same day funds to an account designated by Parent, which shall be
deemed to be the sole and exclusive remedy and liquidated damages payable to
Parent for such termination because Parent's actual damages would be difficult
to ascertain.
(d) In the event there has not been a Change in Recommendation prior to
the Company Shareholder Meeting and this Agreement is terminated by Parent or
the Company pursuant to Section 8.01(b)(iii) (failure to obtain Company
Shareholder Approval) and after the date hereof and prior to such termination
there shall not have been made a Company Takeover Proposal and no proposal or
expression of interest by a third party regarding a Company Takeover Proposal
shall have been disclosed publicly or generally to the Company's shareholders,
then the Company shall promptly, but in no event later than the date of such
termination (or one business day after such termination if terminated by
Parent), pay to Parent $4.0 million as payment in full of Parent's estimated
expenses, by wire transfer of same day funds to an account designated by Parent.
Section 6.07. Public Announcements.
Parent and Sub, on the one hand, and the Company, on the other hand,
shall consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any press release or otherwise making
any such public statements with respect to the Merger and shall not issue any
such press release or make any such public statement prior to such consultation,
except after reasonable attempts to provide notice have been undertaken and if
such release or statement is required by applicable Law.
Section 6.08. Transfer Taxes.
All stock transfer, real estate transfer, documentary, stamp, recording
and other similar Taxes (including interest, penalties and additions to any such
Taxes) ("Transfer Taxes") incurred in connection with the Merger shall be paid
by the party upon whom the primary burden is placed by the applicable Law. Each
party shall cooperate with the other in preparing, executing and filing any Tax
Returns with respect to such Transfer Taxes, including supplying in a timely
manner a complete list of all real property interests held by the Company or any
of its Subsidiaries and any information with respect to such property that is
reasonably necessary to complete such Tax Returns.
Section 6.09. Support Agreements.
Contemporaneously with the execution of this Agreement, each of the
shareholders of the Company listed in Schedule 6.09 of the Company Disclosure
Letter shall execute and deliver a Voting and Support Agreement (collectively,
the "Support Agreements"), which shall become effective as of the date hereof.
34
Section 6.10. Tax Certificates.
On or before the Closing Date, the Company shall (i) use commercially
reasonable best efforts to provide to Parent a certificate of non-foreign status
for each Company shareholder which meets the requirements of Treasury Regulation
Section 1.1445-2(b)(2), or (ii) provide to Parent a certification by the Company
with respect to the shares of the Company which meets the requirements of
Treasury Regulation Section 1.1445-2(c)(3) dated within 30 days prior to the
Closing Date.
Section 6.11. Further Assurances.
At and after the Effective Time, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of the Company or Sub, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of the Company or Sub,
any other actions and things to vest, perfect or confirm of record or otherwise
in the Surviving Corporation any and all right, title and interest in, to and
under any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with, the
Merger.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.01. Conditions to Each Party's Obligation to Effect the
Merger.
The respective obligation of each party to effect the Merger is subject
to the satisfaction or, if permitted by applicable Law, waiver of the following
conditions:
(a) Shareholder Approval. The Company shall have obtained the Company
Shareholder Approval of this Agreement and the Merger in the manner required by
applicable Law.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order or decree issued by any court
of competent jurisdiction preventing the consummation of the Merger shall be in
effect.
(c) Statutory Restraints. No statute, code or regulation shall have
been enacted or promulgated by any Governmental Entity and be in effect that
prohibits consummation of the Merger.
Section 7.02. Conditions to the Obligations of Parent and Sub.
The obligations of Parent and Sub to effect the Merger is subject to
the satisfaction or waiver of the following conditions:
(a) Representations and Covenants. Company shall have performed or
complied in all material respects with all obligations under this Agreement
required to be performed or complied with by it at or prior to the Effective
Time. The representations and warranties of
35
Company contained in this Agreement (except for those in Sections 3.03 and
3.04), disregarding all qualifications and exceptions contained therein relating
to materiality or Company Material Adverse Effect, shall be true and correct in
all respects, in each case as of the date hereof and as of the Effective Time as
if made as of such time, except that representations and warranties expressly
made only as of the date hereof or another date specified therein shall be true
and correct as of such date and except in any case for failures of such
representations and warranties to be true and correct that would not,
individually or in the aggregate, have a Company Material Adverse Effect. Each
of the representations and warranties of the Company set forth in Sections 3.03
and 3.04 shall be true and correct as of the date of this Agreement and as of
the Effective Time as if made at and as of such time (except to the extent that
such representations and warranties are expressly made only as of the date
hereof or another date specified therein, in which case such representations and
warranties shall be true and correct as of such date); provided, however, errors
in represented numbers of outstanding shares or Company Stock Options that would
result in Parent paying less than an aggregate of $50,000 in additional Option
Consideration or Merger Consideration shall not render the representation and
warranty contained in Section 3.03 not true and correct; provided further,
however, that any such errors shall be considered for purposes of determining
whether failure of the representations and warranties of the Company to be true
and correct in the aggregate would have a Company Material Adverse Effect.
Parent shall have received a certificate of the Chief Executive Officer and
Chief Financial Officer of Company as to the satisfaction of this condition
dated as of the Closing Date.
(b) Non-Compete Agreements. Parent shall have received non-competition
agreements executed by each of Joseph Wm. Foran, Jeffrey L. Ventura and Roger S.
Manny in the respective forms attached hereto as Exhibit 7.02(b) for such
officers of the Company.
(c) Legal Opinion. Parent shall have received the legal opinion, dated
as of the Closing Date, of Jenkens & Gilchrist, P.C. in substantially the form
attached hereto as Exhibit 7.02.
(d) Option Cancellations. Parent shall have received an Option
Cancellation Agreement (or a written release by the Optionholder of any rights
under such Company Stock Options in form reasonably satisfactory to Parent) from
each Optionholder who has not exercised prior to the Effective Time all
outstanding Company Stock Options held by such Optionholder.
(e) Dissent Shares. Holders of no more than 10% of the outstanding
Company Common Stock (on a fully diluted basis) shall have exercised (and not
withdrawn) their dissenter's rights with respect to the Merger.
(f) Shareholder Consent. Parent shall have received the consent of
Joseph Wm. Foran pursuant to the Shareholders Agreement in the form attached to
the letter of Mr. Foran dated May 13, 2003 to Unocal Corporation.
(g) Unocal Funding. Unocal Corporation shall have contributed to the
Company the amount specified in the letter of Mr. C. Barry Osborne dated May 13,
2003 to Unocal Corporation.
36
(h) KPMG Opinion. Parent shall have received the "should" letter
opinion of KPMG in form reasonably satisfactory to Parent respecting certain
matters under Section 280G of the Code in accordance with the letter of KPMG LLP
dated May 13, 2003 to Parent.
Section 7.03. Conditions to the Obligations of Company.
The obligation of the Company to effect the Merger is subject to the
satisfaction or waiver of the following conditions:
(a) Representations and Covenants. Parent and Sub shall have performed
or complied in all material respects with all obligations under this Agreement
required to be performed or complied with by them at or prior to the Effective
Time. The representations and warranties of Parent contained in this Agreement,
disregarding all qualifications and exceptions contained therein relating to
materiality or Parent Material Adverse Effect, shall be true and correct in all
respects, in each case as of the date hereof and as of the Effective Time as if
made as of such time, except that representations and warranties that are
expressly made only as of the date hereof or another date specified therein
shall be true and correct as of such date and except in any case for failures of
such representations and warranties to be true and correct that would not,
individually or in the aggregate, have a Parent Material Adverse Effect. The
Company shall have received a certificate of the Chief Executive Officer and
Chief Financial Officer of Parent as to the satisfaction of this condition dated
as of the Closing Date.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.01. Termination.
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the shareholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if a statute, rule or executive order shall have been
enacted, entered or promulgated prohibiting the transactions contemplated hereby
on the terms contemplated by this Agreement or if any Governmental Entity shall
have issued an order, decree or ruling or takes any other action permanently
enjoining, restraining or otherwise prohibiting consummation of the Merger or
the acceptance for payment of, or payment for, shares of Company Common Stock
pursuant to the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
(ii) if the Merger shall not have been consummated within 120
days after the date hereof (or such later date to which Parent and the Company
may have extended the Closing deadline); provided, however, that a party may not
terminate pursuant to this clause (b)(ii) if the terminating party shall have
breached in any material respect its obligations under this
37
Agreement in any manner that shall have been the cause of, or resulted in, the
occurrence of the failure referred to in this clause; or
(iii) if the Company Shareholder Approval is not obtained upon
a vote at a duly held meeting of the shareholders of the Company held for that
purpose or at any adjournment or postponement thereof;
(c) by Parent:
(i) if, prior to the Effective Time, the Company Board shall
have made a Change in Recommendation or shall have recommended or approved a
Company Takeover Proposal or shall have resolved to do any of the foregoing;
(ii) if there shall have been a breach by the Company of any
provision of Section 5.02;
(iii) if (A) there shall be a breach of any representation or
warranty of the Company in this Agreement or any representation or warranty of
the Company in this Agreement shall have become untrue, or (B) there shall be a
breach by the Company of any of its covenants or agreements contained in this
Agreement, in either case only if the condition in Section 7.02(a) would be
incapable of being satisfied as a result and in the case of such a breach or
untruth described in clause (A) above, either is not capable of being cured or,
if it is capable of being cured, has not been cured within thirty (30) days
following written notice to the Company from Parent or Sub of such breach; or
(iv) if any shareholder shall have (A) failed to vote for the
Merger as required by a Support Agreement or (B) breached any of its other
obligations under a Support Agreement if such breach either is not capable of
being cured or, if it is capable of being cured, has not been cured within three
(3) days following notice to the Company from Parent or Sub of such breach.
(d) by the Company if prior to obtaining the Company Shareholder
Approval (A) the Company Board, by majority vote of the entire Company Board,
determines in good faith, based upon (among other things) the written advice of
outside counsel to the Company, with respect to a Superior Company Proposal
received after the date hereof that was not solicited or encouraged in violation
of Section 5.02 of this Agreement, that acceptance of such Superior Company
Proposal is necessary to comply with the fiduciary duties of the Company Board
under applicable Law, (B) the Company, at the direction of the Company Board,
notifies Parent in writing that it intends to terminate this Agreement and enter
into an agreement with respect to such Superior Company Proposal, which
notification identifies the person making the Superior Company Proposal and
attaches the most current version of all proposed agreements related thereto (or
a complete and accurate description of all material terms and conditions
thereof), (C) Parent does not make, within three (3) full business days of
receipt of the Company's written notification of its intention to enter into a
binding agreement for a Superior Company Proposal, an offer that the Company
Board, by majority vote of the entire Company Board, determines in good faith
after consultation with its financial advisors, is at least as favorable to the
shareholders of the Company as such Superior Company Proposal, it being
understood that the Company shall not enter into any binding agreement with
respect to such Superior Company Proposal during such three-business day period
(which period shall be extended for one (1) business day after the
38
Company notifies Parent of any material change in the terms of such Superior
Company Proposal that occurs after the initial notification to Parent), (D)
prior to such termination, the Company shall, and shall cause its financial and
legal advisors to, negotiate in good faith with Parent to make such adjustments
to the terms and conditions of this Agreement as would enable the Company to
proceed with the transactions contemplated herein and (E) the Company
concurrently with termination pursuant to this clause (d) pays to Parent the
Termination Fee (as provided in Section 6.06(b)). The Company agrees to notify
Parent promptly of any material change in such proposal or if its intention to
enter into a written agreement referred to in its notification shall change at
any time after giving such notification; or
(e) by the Company prior to the Effective Time, if (A) there shall be a
breach of any representation or warranty of Parent or Sub in this Agreement or
any representation or warranty of the Company in this Agreement shall become
untrue, or (B) there shall be a breach by Parent or Sub of any of its covenants
or agreements contained in this Agreement, in either case only if the condition
in Section 7.03(a) would be incapable of being satisfied as a result and in the
case of such a breach or untruth described in clause (A) above either is not
capable of being cured or, if it is capable of being cured, has not been cured
within thirty (30) days following written notice to Parent from the Company of
such breach.
Section 8.02. Effect of Termination.
(a) In the event of termination of this Agreement by either the Company
or Parent or Sub as provided in Section 8.01, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the part
of Parent, Sub or the Company, other than Section 6.06, this Section 8.02 and
Article IX, which provisions shall survive such termination, and except that
nothing in this Section 8.02 shall relieve a party from liability for fraud, the
breach of such party's covenants or agreements contained in this Agreement or
the willful breach by a party of any representation or warranty set forth in
this Agreement and such party shall be fully liable for any and all liabilities
and damages incurred or suffered by the other party as a result thereof, except
as otherwise provided in Section 6.06. The Confidentiality Agreement shall
survive any termination.
(b) In the event of termination of this Agreement other than pursuant
to Section 8.01(e), within three (3) business days after the termination, the
Hedge Contracts (as defined below) to which Parent or any of its affiliates is a
party will be transferred and assigned to the Company or, at the Company's
election, to the Bank of Oklahoma as the Company's designee and the Company
agrees to fully assume or, at the Company's election, cause Bank of Oklahoma as
its designee to assume such contracts. For purposes of this Section 8.02(b), the
Hedge Contracts are the contracts described on Exhibit 8.02 hereto and in the
volumes shown thereon. The Hedge Contracts may be entered into by Parent
promptly after execution of this Agreement. To the extent that the Company
enters into any portion of the Hedge Contracts within 24 hours after execution
of this Agreement at prices and on terms reasonably acceptable to Parent, then
the Company shall not be required to assume such amount of Hedge Contracts from
Parent. Any costs or expenses incurred by Parent or its affiliates to enter into
or put in place the Hedge Contracts shall be borne by Parent or its affiliates.
Any costs or expenses incurred in connection with the assumption or transfer of
the Hedge Contracts by or to the Company or its designee shall be borne by the
Company or its affiliates.
39
Section 8.03. Amendment.
This Agreement may be amended, supplemented or modified by the parties
at any time prior to the Effective Time, whether before or after receipt of the
Company Shareholder Approval only by an instrument in writing signed on behalf
of each of the parties; provided, however, that after receipt of the Company
Shareholder Approval, there shall be made no amendment, supplement or
modification that by Law requires further approval by the shareholders of the
Company without such further approval of such shareholders.
Section 8.04. Extension; Waiver.
At any time prior to the Effective Time, any party (a) may extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) may waive any inaccuracies in the representations and warranties of
another party contained in this Agreement or in any document delivered pursuant
to this Agreement or (c) subject to the proviso of Section 8.03, may waive
compliance with any of the agreements of another party or any conditions to its
own obligations contained in this Agreement. Any agreement on the part of a
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure or delay of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not impair such right or constitute a waiver of, or the
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, and any single or partial exercise of any such right shall not
preclude other or further exercise thereof or of any other right. Except as set
forth in Sections 6.06 and 8.02, all rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
Section 8.05. Procedure for Termination, Amendment, Extension or
Waiver.
A termination of this Agreement pursuant to Section 8.01, an amendment,
modification or supplement of this Agreement pursuant to Section 8.03 or an
extension or waiver pursuant to Section 8.04 shall, in order to be effective,
require in the case of Parent, Sub or the Company, action by its Board of
Directors or the duly authorized designee of its Board of Directors.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 9.01 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
Section 9.02. Notices.
All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given upon receipt (or
upon the next succeeding business
40
day if received after 5:00 p.m. local time on a business day or if received on a
Saturday, Sunday or United States holiday) by the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Sub, to:
Tom Brown, Inc.
555 Seventeenth Street
Suite 1850
Denver, CO 80202
Attention: Bruce R. DeBoer
Facsimile: (303) 260-5161
(b) if to the Company, to:
Matador Petroleum Corporation
8340 Meadow Road
Suite 150, Pecan Creek
Dallas, Texas 75231
Attention: Joseph Wm. Foran, Chief Executive Officer
Facsimile: (214) 691-1415
with a copy to:
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: Daryl B. Robertson
Facsimile: (214) 855-4300
Section 9.03. Definitions.
For purposes of this Agreement:
An "affiliate," when used with reference to any person, shall have the
meaning ascribed to such term in Rule 12b-2 of the Securities and Exchange Act
of 1934, as amended, as in effect on the date of this Agreement.
A "business day" means any day other than Saturday, Sunday or any other
day on which banks in Dallas, Texas are required or permitted by applicable Law
to close.
The phrase "Company knowledge" or "knowledge of the Company" means that
which is known by an officer of the Company or any division land manager,
properties administration manager, engineering manager, operations manager,
geological manager or geophysical manager after reasonable inquiry or which
should have been known by such person in the prudent exercise of the
responsibilities of their job function.
41
A "Company Material Adverse Effect" means any event, circumstance or
occurrence that, individually or together with any other event, circumstance or
occurrence, (i) is, or would be reasonably expected to be, materially adverse to
the business, operations, assets, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole, or (ii) is preventing or
materially impairing, or would be reasonably expected to prevent or materially
impair, the ability of the Company to perform its obligations under this
Agreement or to consummate the Merger; provided, however, that events,
circumstances or occurrences resulting from (a) changes in the economy in
general, (b) changes in Hydrocarbon prices or other changes affecting the oil
and gas industry generally and not specifically relating to or having a
materially disproportionate effect (relative to most other exploration and
production companies of a similar size to the Company and a majority of whose
reserves are natural gas) on the Company and its Subsidiaries, or (c) the
announcement of the transactions contemplated hereby shall not be deemed to
constitute a Company Material Adverse Effect or be considered in determining
whether a Company Material Adverse Effect has occurred.
The term "Hydrocarbon" means oil, natural gas and related products.
The phrase "in the ordinary course of business," with respect to any
action, means such action is:
(a) consistent with the past custom and practices of such person
(including with respect to quantity and frequency) and is taken in the ordinary
course of the normal day-to-day operations of such person; and
(b) not required to be authorized by the Board of Directors of such
person.
A "Parent Material Adverse Effect" means any event, circumstance or
occurrence that is preventing or materially impairing, or would be reasonably
expected to prevent or materially impair, the ability of Parent to perform its
obligations under this Agreement or to consummate the Merger; provided, however,
that events, circumstances or occurrences resulting from (a) changes in the
economy in general, (b) changes in Hydrocarbon prices or other changes affecting
the oil and gas industry generally and not specifically relating to or having a
materially disproportionate effect (relative to most other exploration and
production companies of a similar size to Parent and a majority of whose
reserves are natural gas) on the Parent and its subsidiaries, or (c) the
announcement of the transactions contemplated hereby shall not be deemed to
constitute a Parent Material Adverse Effect or be considered in determining
whether a Parent Material Adverse Effect has occurred.
A "person" means any individual, firm, corporation, partnership,
company, limited liability company, trust, joint venture, association, or other
form of business entity of any kind or any "group" for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934.
Words and terms used in this Agreement which are defined in other
Sections of this Agreement are used throughout this Agreement as therein
defined.
42
Section 9.04. Interpretation.
When a reference is made in this Agreement to a Section or an Article,
such reference shall be to a Section or Article of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
Section 9.05. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule or Law, or public policy, all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic and legal substance of the Merger is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
by this Agreement are fulfilled to the extent possible.
Section 9.06. 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 counterparts have been signed by each of the parties and
delivered to the other parties.
Section 9.07. Entire Agreement; No Third-Party Beneficiaries.
Except for the Confidentiality Agreement, which continues in full force
and effect, this Agreement, taken together with the Company Disclosure Letter,
(a) constitutes the entire agreement of, and supersedes all prior agreements and
understandings, both written and oral, among, the parties with respect to the
transactions contemplated by, and the subject matter of, this Agreement and (b)
this Agreement will be binding upon, inure solely to the benefit of, and be
enforceable by, the parties and their respective permitted successors, except
for the provisions of Section 2.02 and Section 6.05 which may be also enforced
by the persons intended to be benefited thereby. The Company agrees that nothing
contained in this Agreement, or the transactions contemplated hereby, shall be
deemed to violate the Confidentiality Agreement.
Section 9.08. Governing Law; Submission to Jurisdiction.
This Agreement shall be governed by, and construed in accordance with,
the Laws of the State of Texas, regardless of the Laws that might otherwise
govern under applicable principles of conflicts of laws thereof. Each party to
this Agreement submits to the exclusive jurisdiction of any state or federal
court sitting in Dallas County, Texas 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 in any
43
other jurisdiction by suit on the judgment or 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. Each
of the parties hereto irrevocably consents to service of any summons and
complaint and any other process in any other action or proceeding relating to
the Merger, on behalf of itself or its property, by personal delivery of such
summons, complaint or process to such party. Nothing in this Section 9.08 shall
affect the right of any party hereto to serve legal process in any other manner
permitted by Law.
Section 9.09. 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.
Section 9.10. Company Disclosure Letter.
The disclosures made on the Company Disclosure Letter with respect to
any representation or warranty shall be deemed to be made with respect to any
other 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 Company Material Adverse Effect.
Section 9.11. Assignment.
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law
or otherwise by any of the parties without the prior written consent of the
other parties. Any purported assignment without such consent shall be void.
Section 9.12. Limitations on Warranties.
(a) Except for the representations and warranties contained in this
Agreement, the Company Disclosure Letter and any agreements or certificates
delivered pursuant to this Agreement, the Company makes no other express or
implied representation or warranty to Parent or Sub. Parent and Sub each
acknowledge that, in entering into this Agreement, it has not relied on any
representations or warranties of the Company other than the representations and
warranties of the Company set forth in this Agreement, the Company Disclosure
Letter or any agreements or certificates delivered pursuant to this Agreement.
(b) Except for the representations and warranties contained in this
Agreement and any agreements or certificates delivered pursuant to this
Agreement, Parent and Sub make no other express or implied representation or
warranty to the Company. The Company acknowledges that, in entering into this
Agreement, it has not relied on any representations or warranties of Parent and
Sub other than the representations and warranties of Parent and Sub set forth in
this Agreement or any agreements or certificates delivered pursuant to this
Agreement.
44
Section 9.13. Specific Performance.
The parties hereby acknowledge and agree that the failure of any party
to perform its agreements and covenants hereunder, including its failure to take
all actions as are necessary on its part to the consummation of the Merger, will
cause irreparable injury to the other parties for which damages, even if
available, will not be an adequate remedy. Accordingly, each party hereby
consents to the issuance of injunctive relief by any court of competent
jurisdiction to compel performance of such party's obligations and to the
granting by any court of the remedy of specific performance of its obligations
hereunder.
Section 9.14. Waiver of Trial by Jury.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
[SIGNATURE PAGE FOLLOWS]
45
IN WITNESS WHEREOF, Parent, Sub and the Company have duly executed this
Agreement, all as of the date first written above.
PARENT:
TOM BROWN, INC.
By: /s/ JAMES D. LIGHTNER
-------------------------------------
Name: James D. Lightner
Title: Chairman, CEO and President
SUB:
MAVERICK ACQUISITION CORPORATION
By: /s/ DANIEL G. BLANCHARD
-------------------------------------
Name: Daniel G. Blanchard
Title: President
MATADOR PETROLEUM CORPORATION
By: /s/ JEFFREY L. VENTURA
-------------------------------------
Name: Jeffrey L. Ventura
Title: President and COO
46
EXHIBIT 7.02(b)
FORMS OF NONCOMPETITION AGREEMENTS FOR
MESSRS. FORAN, VENTURA AND MANNY
[SEPARATE ATTACHMENT]
EXHIBIT 7.02(c)
OPINIONS TO BE ADDRESSED BY JENKENS & GILCHRIST OPINION LETTER
1. The Company has been duly incorporated, is validly existing and in
good standing under the laws of the State of Texas and has the corporate power
and authority necessary to own, lease or otherwise hold its properties and
assets and to conduct its business as currently conducted.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Merger Agreement and to
consummate the Merger. The execution, delivery and performance by the Company of
the Merger Agreement and the consummation by the Company of the Merger have been
duly authorized by all necessary corporate action on the part of the Company.
Except for the filing of the Articles of Merger with the Secretary of State of
the State of Texas, no other proceedings on the part of the Company are
necessary to authorize the Merger Agreement or to consummate the Merger.
3. The Company has duly executed and delivered the Merger Agreement.
The Merger Agreement constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
4. The authorized capital stock of the Company consists of 100,000,000
shares of common stock, par value $0.10 per share, and 2,000,000 shares of
preferred stock, par value $0.10 per share. Of the authorized capital stock, (i)
________ shares of Company Common Stock are issued and outstanding, and (ii)
_______shares of Company Common Stock are held by the Company in its treasury or
by one of the Subsidiaries. All of the outstanding shares of Company Common
Stock and of the capital stock of the Subsidiaries are duly authorized and
validly issued and, except for shares of Company Common Stock issued pursuant to
the Company's 2002 Matador Employee Incentive Loan Program, are fully paid and
nonassessable. None of the outstanding shares of Company Common Stock or of the
capital stock of the Subsidiaries are subject to or have been issued in
violation of any preemptive or similar right under any provision of the TBCA,
the Articles of Incorporation or Bylaws of the Company, any Subsidiary's charter
or bylaws or, to our knowledge, any contract or agreement to which the Company
or any Subsidiary is a party or otherwise bound.
5. Except for (i) outstanding options to purchase a total of ______
shares of Company Common Stock, (ii) outstanding rights to purchase Company
Common Stock under the Rights Agreement dated as of May 17, 2001 between the
Company and A.G. Edwards & Sons, Inc., as Rights Agent, and (iii) the matters
described on Schedule 3.03 of the Company's Disclosure Letter, to our knowledge,
there are not any options, warrants, calls, rights, convertible or exchangeable
securities or commitments to which the Company or a Subsidiary is a party or by
which any of them is bound (x) obligating the Company or a Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity interests in, or any security convertible or
exercisable for or exchangeable into any capital stock of or other equity
interest in, the Company or any of its Subsidiaries or (y) obligating the
Company or a Subsidiary to issue, grant or enter into any such option, warrant,
call, right, security or commitment. To our knowledge, the Company owns
beneficially or of record all of the outstanding capital stock of each
Subsidiary free and clear of all Liens.
EXHIBIT 8.02
HEDGE CONTRACTS
[SEPARATE ATTACHMENT]