Exhibit (d)(4)
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STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of March 29, 2001 (this "Agreement"),
is entered into by and among Hallwood Energy Corporation, a Delaware corporation
(the "Company"), Pure Resources, Inc., a Delaware corporation ("Parent"), and
Pure Resources II, Inc., a Delaware corporation and wholly owned subsidiary of
Parent ("Purchaser").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
the parties hereto are entering into an Agreement and Plan of Merger (as such
agreement may hereafter be amended from time to time, the "Merger Agreement")
which provides, upon the terms and subject to the conditions set forth therein,
for (i) the commencement by Purchaser of a tender offer (the "Common Offer") to
purchase any and all of the outstanding shares of the common stock, par value
$.01 per, of the Company (the "Company Common Stock"), together with the
associated preferred share purchase rights issued pursuant to the Rights
Agreement dated as of June 8, 1999, as amended, between the Company and
Registrar and Transfer Company, as Rights Agent, at a price of $12.50 per share
in cash, net to the seller (such price, or such greater amount which may be paid
pursuant to the Common Offer, the "Common Offer Price"), (ii) the commencement
by Purchaser of a tender offer (the "Preferred Offer", with the Common Offer and
the Preferred Offer collectively being referred to as the "Offer") to purchase
any and all of the outstanding shares of the Series A Cumulative Preferred
Stock, par value $.01 per share, of the Company (the "Company Preferred Stock")
at a price of $10.84 per share in cash, net to the seller (such price, or such
greater amount which may be paid pursuant to the Preferred Offer, the "Preferred
Offer Price") and (ii) the subsequent merger of Purchaser with and into the
Company (the "Merger"), whereby each share of Company Common Stock and each
share of Company Preferred Stock issued and outstanding (other than shares owned
by Parent, Purchaser or the Company and other than shares which are held by
stockholders exercising dissenters' rights pursuant to Section 262 of the
General Corporation Law of the State of Delaware) shall be converted into the
right to receive the Common Offer Price and the Preferred Offer Price,
respectively;
WHEREAS, as a condition to the willingness of Parent and Purchaser to enter
into the Merger Agreement, Parent and Purchaser have required that the Company
agree, and in order to induce Parent and Purchaser to enter into the Merger
Agreement, the Company has agreed, to grant to Purchaser (i) an option to
purchase shares of Company Common Stock and (ii) an option to purchase shares of
Company Preferred Stock upon the terms and subject to the conditions of this
Agreement; and
WHEREAS, capitalized terms used but not defined in this Agreement shall
have the meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
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ARTICLE I
THE COMMON TOP-UP OPTION
Section 1.01. Grant of Top-Up Stock Option for Company Common Stock.
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Subject to the terms and conditions set forth herein, the Company hereby grants
to Purchaser an irrevocable option (the "Common Top-Up Stock Option") to
purchase that number of shares of Company Common Stock (the "Common Top-Up
Option Shares") equal to the number of shares of Company Common Stock that, when
added to the number of shares of Company Common Stock owned by Purchaser and
Parent immediately following consummation of the Offer, shall constitute 90% of
the shares of Company Common Stock then outstanding and shall permit Purchaser
to effect the Merger pursuant to Section 253 of the General Corporation Law of
the State of Delaware (assuming the issuance of the Common Top-Up Option Shares)
at a purchase price per Common Top-Up Option Share equal to the Common Offer
Price; provided, however, that the Common Top-Up Stock Option shall not be
exercisable if the number of shares subject thereto exceeds the number of
authorized shares of Company Common Stock available for issuance. The Company
agrees to provide Parent and Purchaser with information regarding the number of
shares of Company Common Stock available for issuance on an ongoing basis.
Section 1.02. Exercise of Common Top-Up Stock Option.
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(a) Purchaser may, at its election, exercise the Common Top-Up Stock
Option in whole, but not in part, at any one time after the occurrence of a
Common Top-Up Exercise Event (as defined below) and prior to the Common Top-Up
Termination Date (as defined below).
(b) A "Common Top-Up Exercise Event" shall occur for purposes of this
Agreement upon Purchaser's payment pursuant to the Offer of shares of Company
Common Stock constituting, together with shares owned directly or indirectly by
Purchaser and Parent, more than 75% of the shares of Company Common Stock then
outstanding but less than 90% of the shares of Company Common Stock then
outstanding.
(c) Except as provided in the last sentence of this Section 1.02(c), the
"Common Top-Up Termination Date" shall occur for purposes of this Agreement upon
the earliest to occur of: (i) the Effective Time; (ii) the date that is twenty-
five (25) business days after the occurrence of a Common Top-Up Exercise Event;
and (iii) the termination of the Merger Agreement.
Notwithstanding the occurrence of the Common Top-Up Termination Date,
Purchaser shall be entitled to purchase the Common Top-Up Option Shares if it
has exercised the Common Top-Up Stock Option in accordance with the terms hereof
prior to such occurrence, and the occurrence of the Common Top-Up Termination
Date shall not affect any rights hereunder which by their terms do not terminate
or expire prior to or as of such date, unless the Merger Agreement has
terminated by its terms prior to the occurrence of the Common Top-Up Closing.
(d) In the event Purchaser wishes to exercise the Common Top-Up Stock
Option, Purchaser shall send to the Company a written notice (a "Common Top-Up
Exercise Notice," the date of dispatch of which notice is referred to herein as
the "Common Top-Up Notice Date")
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specifying the denominations of the certificate or certificates evidencing the
Common Top-Up Option Shares which Purchaser wishes to receive, the place for the
closing of the purchase and sale pursuant to the Common Top-Up Stock Option (the
"Common Top-Up Closing") and a date not earlier than one day nor later than ten
business days after the Common Top-Up Notice Date for the Common Top-Up Closing;
provided, however, that (i) the Common Top-Up Closing shall occur concurrently
with the consummation of the Offer, (ii) if the Common Top-Up Closing cannot be
consummated by reason of any applicable laws or orders, the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which such restriction on consummation has expired or been terminated and (iii)
without limiting the foregoing, if prior notification to or approval of any
Governmental Entity is required in connection with such purchase, Purchaser and
the Company shall promptly file the required notice or application for approval
and shall cooperate in the expeditious filing of such notice or application, and
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which, as the case may be, (A) any required
notification period has expired or been terminated or (B) any required approval
has been obtained, and in either event, any requisite waiting period has expired
or been terminated. The Company shall, promptly after receipt of the Common Top-
Up Exercise Notice, deliver a written notice to Purchaser confirming the number
of Common Top-Up Option Shares and the aggregate purchase price therefor.
ARTICLE II
PREFERRED TOP-UP OPTION
Section 2.01. Grant of Top-Up Stock Option for Company Preferred Stock.
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Subject to the terms and conditions set forth herein, the Company hereby grants
to Purchaser an irrevocable option (the "Preferred Top-Up Stock Option") to
purchase that number of shares of Company Preferred Stock (the "Preferred Top-Up
Option Shares") equal to the number of shares of Company Preferred Stock that,
when added to the number of shares of Company Preferred Stock owned by
Purchaser, Parent and any other subsidiary of Parent immediately following
consummation of the Offer, shall constitute 90% of the shares of Company
Preferred Stock then outstanding and shall permit Purchaser to effect the Merger
pursuant to Section 253 of the General Corporation Law of the State of Delaware
(assuming the issuance of the Preferred Top-Up Option Shares) at a purchase
price per Preferred Top-Up Option Share equal to the Preferred Offer Price;
provided, however, that the Preferred Top-Up Stock Option shall not be
exercisable if the number of shares subject thereto exceeds the number of
authorized shares of Company Preferred Stock available for issuance. The Company
agrees to provide Parent and Purchaser with information regarding the number of
shares of Company Preferred Stock available for issuance on an ongoing basis.
Section 2.02. Exercise of Preferred Top-Up Stock Option.
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(a) Purchaser may, at its election, exercise the Preferred Top-Up Stock
Option in whole, but not in part, at any one time after the occurrence of a
Preferred Top-Up Exercise Event (as defined below) and prior to the Preferred
Top-Up Termination Date (as defined below).
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(b) A "Preferred Top-Up Exercise Event" shall occur for purposes of this
Agreement upon Purchaser's payment pursuant to the Offer of shares of Company
Preferred Stock constituting, together with shares owned directly or indirectly
by Purchaser, Parent and any other subsidiary of Parent, more than 75% of the
shares of Company Preferred Stock then outstanding but less than 90% of the
shares of Company Preferred Stock then outstanding.
(c) Except as provided in the last sentence of this Section 2.02(c), the
"Preferred Top-Up Termination Date" shall occur for purposes of this Agreement
upon the earliest to occur of: (i) the Effective Time; (ii) the date that is
twenty-five (25) business days after the occurrence of a Preferred Top-Up
Exercise Event; and (iii) the termination of the Merger Agreement.
Notwithstanding the occurrence of the Preferred Top-Up Termination Date,
Purchaser shall be entitled to purchase the Preferred Top-Up Option Shares if it
has exercised the Preferred Top-Up Stock Option in accordance with the terms
hereof prior to such occurrence, and the occurrence of the Preferred Top-Up
Termination Date shall not affect any rights hereunder which by their terms do
not terminate or expire prior to or as of such date, unless the Merger Agreement
is terminated by its terms prior to the occurrence of the Preferred Top-Up
Closing.
(d) In the event Purchaser wishes to exercise the Preferred Top-Up Stock
Option, Purchaser shall send to the Company a written notice (a "Preferred Top-
Up Exercise Notice," the date of dispatch of which notice is referred to herein
as the "Preferred Top-Up Notice Date") specifying the denominations of the
certificate or certificates evidencing the Preferred Top-Up Option Shares which
Purchaser wishes to receive, the place for the closing of the purchase and sale
pursuant to the Preferred Top-Up Stock Option (the "Preferred Top-Up Closing")
and a date not earlier than one day nor later than ten business days after the
Preferred Top-Up Notice Date for the Preferred Top-Up Closing; provided,
however, that (i) the Preferred Top-Up Closing shall occur concurrently with the
consummation of the Offer, (ii) if the Preferred Top-Up Closing cannot be
consummated by reason of any applicable laws or orders, the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which such restriction on consummation has expired or been terminated and (iii)
without limiting the foregoing, if prior notification to or approval of any
Governmental Entity is required in connection with such purchase, Purchaser and
the Company shall promptly file the required notice or application for approval
and shall cooperate in the expeditious filing of such notice or application, and
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which, as the case may be, (A) any required
notification period has expired or been terminated or (B) any required approval
has been obtained, and in either event, any requisite waiting period has expired
or been terminated. The Company shall, promptly after receipt of the Preferred
Top-Up Exercise Notice, deliver a written notice to Purchaser confirming the
number of Preferred Top-Up Option Shares and the aggregate purchase price
therefor.
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ARTICLE III
CLOSING
Section 3.01. Conditions to Closing. The obligation of the Company to
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deliver Common Top-Up Option Shares or Preferred Top-Up Option Shares upon the
exercise of the Common Top-Up Stock Option or Preferred Top-Up Stock Option, as
applicable, is subject to the following conditions:
(a) any applicable waiting period under the HSR Act and any applicable
non-United States laws regulating competition, antitrust, investment or exchange
controls relating to the issuance of the Common Top-Up Option Shares or the
Preferred Top-Up Option Shares, as applicable, hereunder shall have expired or
been terminated;
(b) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the exercise of the Common Top-Up
Stock Option or the Preferred Top-Up Stock Option or the delivery of the Common
Top-Up Option Shares or the Preferred Top-Up Option Shares in respect of any
such exercise; and
(c) delivery of the Common Top-Up Option Shares or the Preferred Top-Up
Option Shares, as applicable, would not violate, or otherwise cause a violation
of the rule of the Nasdaq Stock Market set forth in Section 4350(i)1(D) of the
NASD Manual.
Section 3.02. Closing.
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(a) At the Common Top-Up Closing or the Preferred Top-Up Closing (i) the
Company shall deliver to Purchaser a certificate or certificates evidencing the
applicable number of Common Top-Up Option Shares (in the denominations
designated by Purchaser in the Common Top-Up Exercise Notice) or Preferred Top-
Up Option Shares (in the denominations designated by Purchaser in the Preferred
Top-Up Exercise Notice), as applicable, and (ii) Purchaser shall purchase each
Common Top-Up Option Share or Preferred Top-Up Option Share from the Company at
the Common Offer Price or the Preferred Offer Price, as applicable. Payment by
Purchaser of the purchase price for the Common Top-Up Option Shares or the
Preferred Top-Up Option Shares shall be made by delivery of immediately
available funds by wire transfer to an account designated by the Company.
(b) The Company shall pay all expenses, and any and all federal, state
and local taxes and other charges, that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section
3.02.
(c) Certificates evidencing Common Top-Up Option Shares and Preferred
Top-Up Option Shares delivered hereunder may include legends legally required
including the legend in substantially the following form:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
It is understood and agreed that the foregoing legend shall be removed by
delivery of substitute certificate(s) without such legend upon the sale of the
Common Top-Up Option Shares or the Preferred Top-Up Option Shares pursuant to a
registered public offering or Rule 144 under the Securities Act, or any other
sale as a result of which such legend is no longer required.
ARTICLE IV
ADDITIONAL AGREEMENTS
Section 4.01. Reasonable Best Efforts. Subject to the terms and conditions
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of this Agreement, Parent, Purchaser and the Company will use their reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement.
Section 4.02. Further Assurances. Each party shall perform such further
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acts and execute such further documents and instruments as may reasonably be
required to vest in Purchaser and Parent the power to carry out the provisions
of this Agreement. If Purchaser shall exercise the Common Top-Up Stock Option or
the Preferred Top-Up Stock Option granted hereunder in accordance with the terms
of this Agreement, each party shall, without additional consideration, execute
and deliver all such further documents and instruments and take all such further
action as any other party may reasonably request to carry out the transactions
contemplated by this Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.01. Notices. Any notice, request and other communication to any
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party hereunder shall be in writing (including facsimile transmission) and shall
be given as specified in Section 9.02 of the Merger Agreement.
Section 5.02. Waiver of Conditions. The conditions to each of the parties'
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obligations to consummate this Agreement are for the sole benefit of such party
and may be waived by such party in whole or in part to the extent permitted by
applicable law.
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Section 5.03. Payment of Expenses. Whether or not the transactions
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contemplated by this Agreement shall be consummated, each party hereto shall pay
its own expenses incident to preparing for, entering into and carrying out this
Agreement.
Section 5.04. Entire Agreement. This Agreement and the Merger Agreement (a)
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constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties both written and oral, among the
parties, with respect to the subject matter hereof, and (b) shall not be
assignable by operation of law or otherwise and is not intended to create any
obligations to, or rights in respect of, any person other than the parties
hereto.
Section 5.05. Governing Law. This Agreement shall be governed by and
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construed in accordance with the laws of the State of Delaware regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 5.06. Counterparts. For the convenience of the parties hereto, this
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Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
Section 5.07. Captions. The Article, Section and paragraph captions herein
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are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
Section 5.08. Severability. If any term or other provision of this
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Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
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 hereby are fulfilled to the fullest extent
possible.
Section 5.09. Specific Performance. The parties hereto agree that
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irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof,
in addition to any other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
PURE RESOURCES, INC.
By: /s/ Xxxx Xxxxxxxxx
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Name: Xxxx Xxxxxxxxx
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Title: President
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PURE RESOURCES II, INC.
By: /s/ Xxxx Xxxxxxxxx
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Name: Xxxx Xxxxxxxxx
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Title: President
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HALLWOOD ENERGY CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx
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Name: Xxxxxxx X. Xxxxxxxx
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Title: President
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