AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENERGY MERCHANT CORP.,
POC ACQUISITION CORPORATION,
POWERINE HOLDING CORP.,
CASTLE ENERGY CORPORATION
AND
POWERINE OIL COMPANY
January 10, 1996
TABLE OF CONTENTS
Page
I. DEFINITIONS........................................................ 1
1.1 Definitions............................................... 1
II. THE MERGER......................................................... 6
2.1 The Merger................................................ 6
2.2 Effective Time............................................ 6
2.3 Effect of the Merger...................................... 6
2.4 Articles of Incorporation and By-laws..................... 7
2.5 Directors................................................. 7
2.6 Officers.................................................. 8
III. CONVERSION OF SECURITIES........................................... 8
3.1 Conversion of Capital Stock............................... 8
3.2 Delivery of Certificates.................................. 9
IV. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER, THE
COMPANY AND CASTLE................................................. 9
4.1 Organization and Good Standing............................ 9
4.2 Authorization; Enforceability............................. 10
4.3 Consents and Approvals.................................... 10
4.4 No Violation.............................................. 10
4.5 Capitalization............................................ 10
4.6 Taxes..................................................... 11
4.7 No Broker................................................. 11
V. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND SUB............... 11
5.1 Organization and Good Standing........................... 11
5.2 Authorization; Enforceability............................ 12
5.3 Consents and Approvals................................... 12
5.4 No Violation............................................. 12
5.5 No Broker................................................ 12
5.6 Capitalization; Total Assets or Annual Net Sales......... 13
5.7 Financial Condition...................................... 14
5.8 Irrevocable Subscription................................. 14
5.9 Prior Asset Sales ....................................... 15
VI. TAX MATTERS....................................................... 15
6.1 Tax Treatment of Merger.................................. 15
6.2 Access to Information.................................... 16
6.3 Certain Consolidated Return Matters...................... 17
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6.4 Sales and Transfer Taxes................................ 17
6.5 Cooperation on Tax Matters.............................. 17
VII. COVENANTS OF THE COMPANY, THE SHAREHOLDER AND CASTLE............ 18
7.1 Access to Information................................... 18
7.2 Actions Prior to Closing Date........................... 18
7.3 Confidentiality......................................... 19
7.4 Insurance............................................... 19
VIII. COVENANTS OF THE PARENT AND SUB.................................. 20
8.1 Confidentiality......................................... 20
8.2 Additional Covenants.................................... 20
8.3 Outside Management...................................... 21
8.4 Subscription............................................ 22
8.5 Prior Asset Sale........................................ 22
8.6 Legal Fees.............................................. 23
8.7 Cooperation in Arbitration.............................. 23
IX. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB...................... 24
9.1 Truth of Representations and Warranties................. 24
9.2 Compliance with Covenants............................... 24
9.3 Absence of Suit......................................... 24
9.4 Proceedings and Instruments Satisfactory; Certificates.. 24
9.5 Intercompany Indebtedness............................... 25
9.6 Deliveries at Closing................................... 25
X. CONDITIONS TO OBLIGATIONS OF THE COMPANY, THE
SHAREHOLDER AND CASTLE........................................... 26
10.1 Truth of Representations and Warranties................. 26
10.2 Compliance with Covenants............................... 26
10.3 Absence of Suit......................................... 26
10.4 Proceedings and Instruments Satisfactory; Certificates.. 26
10.5 Waivers, Releases, and Resignations..................... 27
10.6 Deliveries at Closing................................... 27
10.7 Intercompany Indebtedness............................... 27
10.8 Tax Clearance Certificate............................... 27
10.9 Subscription............................................ 27
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XI. INDEMNIFICATION.................................................. 27
11.1 Requirement of Indemnification.......................... 27
11.2 Procedures Relating to Indemnification.................. 29
11.3 Defense of Third-Party Claim............................ 30
11.4 Payment................................................. 30
XII. CLOSING.......................................................... 31
12.1 Time and Place.......................................... 31
12.2 Items to be Delivered by Castle and the Company......... 31
12.3 Items to be Delivered by Parent and Sub................. 32
XIII. TERMINATION...................................................... 34
13.1 Termination............................................. 34
13.2 Survival after Termination.............................. 34
XIV. AMENDMENT AND WAIVER............................................. 34
14.1 Amendment............................................... 34
14.2 Extension; Waiver....................................... 34
XV. MISCELLANEOUS.................................................... 35
15.1 Notices................................................. 35
15.2 Expenses................................................ 36
15.3 Governing Law........................................... 36
15.4 Successors and Assigns.................................. 36
15.5 Partial Invalidity...................................... 37
15.6 Execution in Counterparts............................... 37
15.7 Titles and Headings..................................... 37
15.8 Entire Agreement........................................ 37
15.9 Announcements........................................... 37
15.10 Construction............................................ 38
15.11 Jurisdiction............................................ 38
15.12 Further Actions......................................... 38
15.13 Cancellation of Insurance Policies...................... 38
15.14 No Third Party Beneficiaries............................ 39
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AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (the "Merger Agreement"), dated as of
January 10, 1996, by and among CASTLE ENERGY CORPORATION, a Delaware corporation
("Castle"), POWERINE HOLDING CORP., a Delaware corporation (the "Shareholder"),
POWERINE OIL COMPANY, a California corporation (the "Company"), ENERGY MERCHANT
CORP., a Delaware corporation ("Parent") and POC ACQUISITION CORPORATION, a
California corporation and wholly-owned subsidiary of the Parent ("Sub").
WITNESSETH:
-----------
WHEREAS, Castle owns, beneficially and of record, all of the
outstanding capital stock of the Shareholder, which in turn owns of record all
of the outstanding capital stock of the Company;
WHEREAS, the Boards of Directors of Castle, the Parent, Sub, the
Shareholder and the Company deem it advisable and in the best interests of their
respective shareholders and corporations to consummate and have approved the
business combination provided for herein in which the Company would merge with
and into Sub and Sub, as the surviving corporation, would remain a wholly owned
subsidiary of the Parent (the "Merger");
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants and agreements set forth herein, and
intending to be legally bound, Castle, the Shareholder, the Company, the Parent
and Sub hereby agree as follows:
I. DEFINITIONS
Section 1.1 Definitions. When used in this Merger Agreement, the
following words or phrases have the following meanings:
"Affiliate" shall mean a Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with another Person or beneficially owns or has the power to vote or
direct the vote of 50% or more of any class of voting stock or of any form of
voting equity interest of such other
Person in the case of a Person that is not a corporation. For purposes of this
definition, "control," including the terms "controlling" and "controlled,"
means the power to direct or cause the direction of the management and
policies of a Person, directly or indirectly, whether through the ownership
of securities or partnership or other ownership interests, by contract or
otherwise.
"Arbitration" shall have the meaning set forth in Section 9.5 hereof.
"Asset Agreement" shall have the meaning set forth in Section 5.9
hereof.
"Assets" shall mean all rights, titles, franchises and interests in
and to every species of property, real, personal and mixed, tangible and
intangible, including, without limitation, cash and cash equivalents,
receivables, real property, together with buildings, structures and the
improvements thereon, fixtures contained therein and appurtenances thereto, and
easements and other rights relating thereto, machinery, equipment, furniture,
fixtures, leasehold improvements, vehicles and other assets or property, leases,
licenses, permits, approvals, authorizations, joint venture agreements,
contracts or commitments, whether written or oral, processes, trade secrets,
know-how, computer software, computer programs and source codes, protected
formulae, all other Intellectual Property, goodwill, prepaid expenses, records,
files, invoices, claims and privileges, and any other assets whatsoever.
"Assigned Interests" shall have the meaning set forth in Section 9.5
hereof.
"Balance Sheet" shall have the meaning set forth in Section 5.7
hereof.
"Castle" shall have the meaning set forth in the preamble hereto.
"Castle Indemnitees" shall mean Castle, any present or future parent
or subsidiary of Castle and their respective shareholders, officers, directors,
employees, counsel, agents, investment bankers, accountants and Affiliates.
"Closing" and "Closing Date" shall have the respective meanings set
forth in Section 12.1 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the preamble hereto.
"Company Common Stock" shall have the meaning set forth in Section 3.1
hereof.
"Consolidated Group" shall mean the affiliated group of corporations
within the meaning of Section 1504 of the Code in which the Company is included.
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"Contract" shall mean a contract, indenture, bond, note, mortgage,
deed of trust, lease, agreement or commitment, whether written or oral.
"Damages" shall mean losses, costs, liabilities, reasonable expenses
or other damages (including, without limitation, reasonable attorneys' fees and
expenses and any and all reasonable expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation).
"Effective Time" shall have the meaning set forth in Section 2.2
hereof.
"Environmental Claim" shall mean any claim by a Person alleging actual
or potential Liability of the Company, or of any other Castle Indemnitee
relating to the businesses of the Company, for any investigatory cost, cleanup
cost, governmental response cost, natural resources damage, property damage,
personal injury or penalty, arising out of, based on or resulting from (a) the
presence, transport, disposal, discharge or release of any Materials of
Environmental Concern at any location, whether or not owned by Castle or the
Company, as the case may be, or (b) circumstances forming the basis of any
violation or alleged violation of any Environmental Law.
"Environmental Law" shall mean all Laws relating to pollution or
protection of human health or the environment, including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata, and
including, without limitation, Laws relating to emissions, discharges, releases
or threatened releases, or the presence of Materials of Environmental Concern,
or otherwise relating to the manufacture, processing, distribution, use,
existence, treatment, storage, disposal, transport, recycling, reporting or
handling of Materials of Environmental Concern.
"Financing" shall have the meaning set forth in Section 8.3 hereof.
"GAAP" shall mean United States generally accepted accounting
principles consistently applied.
"GCL" shall have the meaning set forth in Section 2.1 hereof.
"Governmental Entity" shall mean a court, legislature, governmental
agency, commission, or administrative or regulatory authority or
instrumentality, domestic or foreign.
"Xxxxxx" shall have the meaning set forthin Section 8.3 hereof.
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"Xxxxxx Note" shall have the meaning set forth in Section 5.7 hereof.
"Intellectual Property" shall mean marks, names, trademarks, service
marks, patents, patent rights, assumed names, logos, copyrights, trade names,
inventions, protected formulae, processes, proprietary information, trade
secrets, computer software, as well as related documentation and manuals, all
applications for registration of such items with any Governmental Entity, and
all licenses and research and development relating thereto.
"IRS" shall mean the Internal Revenue Service.
"Kenyen Note" shall have the meaning set forth in Section 6.1 hereof.
"Knowledge" of or with respect to (a) any individual shall mean the
actual knowledge of such individual and any knowledge such individual reasonably
should have had under the circumstances; (b) Castle or the Company shall mean
the Knowledge of the individuals listed on Schedule 4; and (c) the Parent shall
mean the Knowledge of the individual listed on Schedule 5.
"Law" shall mean a law, ordinance, rule, or regulation enacted or
promulgated, or an Order issued or rendered, by any Governmental Entity.
"Liability" shall mean a liability, obligation, claim or cause of
action of any kind or nature whatsoever, whether absolute, accrued, contingent
or other and whether known or unknown.
"License" shall mean a license, certificate of authority, permit or
other authorization to transact an activity or business or to use an asset or
process issued or granted by a Governmental Entity.
"Lien" shall mean a lien, mortgage, deed to secure debt, pledge,
security interest, lease, sublease, charge, levy or other encumbrance of any
kind.
"Materials of Environmental Concern" shall mean chemicals, pollutants,
contaminants, wastes, toxic or hazardous substances, petroleum, petroleum
additives, petroleum intermediates and petroleum products.
"MG" shall have the meaning set forth in Section 9.5 hereof.
"Merger" shall have the meaning set forth in the preamble hereto.
"Merger Agreement" shall mean this Agreement and Plan of Merger,
including the Short Form Agreement.
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"Officer's Certificate" shall have the meaning set forth in Section
2.2 hereof.
"Order" shall mean an order, writ, ruling, judgment, injunction or
decree of, or any stipulation to or agreement with, any arbitrator, mediator or
Governmental Entity.
"Parent" shall have the meaning set forth in the preamble hereto.
"Parent Indemnitees" shall mean the Parent, any present or future
parent or subsidiary of Parent, and their respective shareholders, officers,
directors, employees, counsel, agents, investment bankers, accountants, and
Affiliates.
"Payment" shall have the meaning set forth in Section 3.1 hereof.
"Person" shall mean an individual, corporation, partnership, limited
liability company, association, joint stock company, Governmental Entity,
business trust, unincorporated organization or other legal entity.
"Refinery" shall mean the Powerine Refinery located in Santa Fe
Springs, California and the LB Marine Terminal and offsite pipelines.
"Required Filings and Approvals" of a party shall mean any filing of
this Agreement with and the approval of such by all Governmental Entities and
such other applications, registrations, declarations, filings, authorizations,
Orders, consents and approvals as may be required to be made or obtained by such
party from any Person prior to consummation of the Merger.
"Shareholder" shall have the meaning set forth in the preamble hereto.
"Short Form Agreement" shall have the meaning provided in Section 2.2.
"Sub" shall have the meaning set forth in the preamble hereto.
"Sub Common Stock" shall have the meaning set forth in Section 3.1
hereof.
"Subscription" shall have the meaning set forth in Section 5.8 hereof.
"Surviving Corporation" shall have the meaning set forth in Section
2.1 hereof.
"Tax" shall mean any Federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, capital stock, franchise, profits,
gains, withholding, social security, unemployment, disability, real property,
personal property, sales, use, rental, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
5
"Tax Return" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto or amendment thereof.
"Third Party Claim" shall have the meaning as set forth in Section
11.2.
"Treasury Regulations" shall mean the regulations promulgated by the
Secretary of the Treasury pursuant to the Code and any predecessor and successor
thereto.
II. THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions
set forth in this Merger Agreement and in accordance with the California General
Corporation Law (the "GCL"), the Company shall be merged with and into Sub at
the Effective Time. Following the Effective Time, the separate corporate
existence of the Company shall cease and Sub shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to all rights and
property of the Company and shall become subject to all debts and liabilities of
the Company in accordance with the GCL.
Section 2.2 Effective Time. Subject to the provisions of this Merger
Agreement, as soon as practicable following the satisfaction or waiver of the
conditions set forth in Article IX and Article X hereof (to the extent permitted
therein), Sub and the Company shall execute and file a short form of merger
agreement in the form attached hereto as Schedule 2.2 ("Short Form Agreement")
together with a certificate of an appropriate officer of each of Sub and the
Company executed in accordance with the GCL (the "Officer's Certificate") and
shall make all other filings or recordings required by or under the GCL to
effectuate the Merger. The Merger shall become effective at such time as the
Short Form Agreement and the aforementioned Officer's Certificate for each of
the Company and Sub are duly filed by Sub with the Secretary of State of
California (the "Effective Time").
Section 2.3 Effect of the Merger. The Merger shall have the effects
set forth in the GCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time:
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(a) the Company shall be merged with and into Sub, which shall survive as the
Surviving Corporation, and the separate corporate existence of the Company shall
thereupon cease and (b) all of the rights, property, privileges, powers and
franchises and all property and assets of every kind and description of the
Company and Sub shall vest in and be held and enjoyed by the Surviving
Corporation, without further act or deed, and all the estates and interests of
every kind of the Company and the Sub shall be as effectively the property of
the Surviving Corporation as they were of the Company and the Sub immediately
prior to the Merger and all rights of creditors and liens upon any property of
the Company and Sub shall be debts, liabilities and duties of the Surviving
Corporation and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it, and none of such
debts, liabilities or duties shall be expanded, increased, broadened or enlarged
by reason of the Merger.
Section 2.4 Articles of Incorporation and By-laws. (a) The Articles of
Incorporation of Sub as in effect immediately prior to the Effective Time shall
be the Articles of Incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law, except that Article
I of the Articles of Incorporation of the Surviving Corporation shall be amended
to provide as follows:
"I.
The name of this corporation is Powerine Oil Company."
(b) The By-laws of Sub as in effect at the Effective Time shall be the
By-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
Section 2.5. Directors. The directors of Sub at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
from the Effective Time in accordance with the Articles of Incorporation and
By-laws of the Surviving Corporation and until his or her successor is duly
elected and qualified.
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Section 2.6. Officers. The officers of Sub at the Effective Time shall
be the initial officers of the Surviving Corporation, each to hold office from
the Effective Time in accordance with the Articles of Incorporation and By-laws
of the Surviving Corporation and until his or her successor is duly appointed
and qualified.
III. CONVERSION OF SECURITIES
Section 3.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock, par value $1.00 per share, of the Company (the "Company
Common Stock") or the holder of any shares of capital stock, par value $.01 per
share, of Sub (the "Sub Common Stock"):
(a) Capital Stock of Sub. Each issued and outstanding share of Sub
Common Stock shall remain issued and outstanding and be unaffected by the Merger
and shall represent one fully paid and nonassessable share of capital stock, par
value $.01 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock. All shares of Company Common
Stock, if any, that are owned by the Company shall be cancelled and retired and
shall cease to exist and no consideration shall be delivered in exchange
therefor.
(c) Payment for Company Common Stock. Each issued and outstanding
share of Company Common Stock, other than shares to be cancelled in accordance
with Section 3.1(b) hereof, if any, shall be converted into the right to receive
approximately $.3002205 in cash, for an aggregate of $1,000,000 (the "Payment").
All such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the Payment
upon the surrender of such certificate in accordance with Section 3.2 hereof,
without interest.
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Section 3.2 Delivery of Certificates. (a) Immediately after the
Effective Time and in connection with the Closing of the Merger, and upon
surrender by the Shareholder of a certificate representing all of the 3,330,885
outstanding shares of Company Common Stock, the Shareholder shall be entitled to
receive in exchange therefor the Payment and the certificate so surrendered
shall forthwith be cancelled.
(b) No Further Ownership Rights in Company Common Stock. The Payment
made upon the surrender of shares of Company Common Stock in accordance with the
terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time.
IV. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER, THE
COMPANY AND CASTLE
The Shareholder, the Company and Castle jointly and severally
represent and warrant to the Parent and Sub as follows, subject to and qualified
by any fact or facts disclosed in this Merger Agreement or the Schedules hereto:
Section 4.1 Organization and Good Standing. Each of the Company and
the Shareholder is a corporation duly organized, validly existing and in good
standing under the Laws of the State of its incorporation or organization, with
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. Each of the
Company and the Shareholder is qualified or otherwise authorized to transact
business, and is in good standing, as a foreign corporation or in the respective
jurisdictions set forth in Schedule 4.1 attached hereto. The Company does not
directly or indirectly own any interest in any subsidiary or any other Person.
The Company has made available to Parent and Sub true, correct and complete
copies of its Articles of Incorporation, bylaws and minute books.
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Section 4.2 Authorization; Enforceability. Each of the Company, the
Shareholder and Castle has the requisite corporate power and authority to enter
into this Merger Agreement and consummate the Merger. The execution and delivery
of this Merger Agreement and the consummation of the Merger have been duly
approved and authorized by the Board of Directors of the Shareholder and by the
Board of Directors and sole stockholder of the Company and by the Board of
Directors and stockholders of Castle. No other corporate proceedings on the part
of the Company, the Shareholder or Castle will be necessary to authorize this
Merger Agreement and the Merger. The Merger Agreement has been duly executed and
delivered by the Company, the Shareholder and Castle and, assuming the Merger
Agreement is a legal, valid and binding obligation of the Parent and Sub,
constitutes a legal, valid and binding obligation of each of the Company, the
Shareholder and Castle, enforceable against each of them in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, moratorium or other similar Laws now or hereafter in
effect affecting the enforceability of creditor's rights or by general
principles of equity.
Section 4.3 Consents and Approvals. Assuming the accuracy of the
Parent's representation in Section 5.6 hereof, there are no Required Filings and
Approvals of the Company, the Shareholder or Castle in connection with the
execution and delivery of this Merger Agreement and the consummation of the
Merger.
Section 4.4 No Violation. The execution, delivery and performance of
this Merger Agreement by the Company, the Shareholder and Castle and the
consummation by them of the Merger contemplated hereby will not violate any
provision of the Certificate or Articles of Incorporation or by-laws of the
Company, the Shareholder or Castle.
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Section 4.5 Capitalization. The authorized capital stock of the
Company and the number of shares of Company Common Stock that are issued and
outstanding are set forth on Schedule 4.5 hereof. All of the shares of Company
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record as set forth in Schedule 4.5. There are no
other shares of the capital stock of the Company authorized, issued or
outstanding or reserved for issuance, no outstanding preemptive rights or
subscription rights with respect to any such shares and no outstanding options,
warrants, rights, voting trusts, convertible securities or other agreements or
commitments with respect to any such shares. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation or similar
rights with respect to the Company.
Section 4.6 Taxes. (a) The Company has joined in the filing of
consolidated Federal income Tax Returns by the Consolidated Group, and the
Company will continue to be included as a member of the Consolidated Group for
Federal income Tax purposes up to and including the Closing Date, including for
purposes of filing the consolidated Federal income Tax Return of the
Consolidated Group for its tax year which includes the Closing Date.
(b) The Consolidated Group has filed all material income and franchise
Tax Returns that it was required to file, and the Company has filed all material
income and franchise Tax Returns that it was required to file prior to the
Closing Date, and has paid any Taxes shown as due on such Tax Returns and all
property Taxes required to be paid prior to the Closing Date.
Section 4.7 No Broker. None of the Company, the Shareholder or Castle
has engaged or authorized any broker, investment banking firm, finder, agent or
other Person to act on its behalf, directly or indirectly, as a broker or finder
in connection with the Merger.
V. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND SUB
The Parent and Sub jointly and severally represent and warrant to the
Company, the Shareholder and Castle as follows:
Section 5.1 Organization and Good Standing. Each of the Parent and Sub
is a corporation duly organized, validly existing and in good standing under the
Laws of its respective state of organization, and is duly qualified and in good
standing in each jurisdiction in which the ownership of its Assets or the
conduct of its business makes such qualification necessary.
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Section 5.2 Authorization; Enforceability. Each of the Parent and Sub
has the requisite corporate power and authority to enter into this Merger
Agreement and to consummate the Merger. The execution and delivery of this
Merger Agreement and the consummation of the Merger have been duly approved and
authorized by the Board of Directors and the stockholders entitled to vote
thereon of each of the Parent and Sub. No other corporate proceedings on the
part of either the Parent or Sub are necessary to authorize this Merger
Agreement and the Merger. This Merger Agreement has been duly authorized,
executed and delivered by the Parent and the Sub. Assuming this Merger Agreement
is a legal, valid and binding obligation of the Company and Castle, this Merger
Agreement constitutes a legal, valid and binding obligation of each of the
Parent and Sub, enforceable against each of the Parent and Sub in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar Laws now or
hereafter in effect affecting the enforceability of creditor's rights or by
general principles of equity.
Section 5.3 Consents and Approvals. There are no Required Filings and
Approvals of either the Parent or Sub in connection with the execution and
delivery of this Merger Agreement and the consummation of the Merger.
Section 5.4 No Violation. The execution, delivery and performance of
this Merger Agreement by the Parent and Sub and the consummation by each of them
of the Merger will not (a) violate any provision of the charter or the by-laws
of either the Parent or Sub or (b) violate, conflict with, result in a breach of
any provision of, constitute a default or an event which, with notice or lapse
of time or both, would constitute a default under, result in the termination of
or accelerate the performance required by, result in a right of termination or
acceleration under or result in the creation of any Lien upon any of the Assets
of either the Parent or Sub under the terms of any Contract to which either the
Parent or Sub is a party or to which it or any of its respective Assets may be
subject.
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Section 5.5 No Broker. As of the date hereof, neither the Parent nor
Sub has engaged or authorized any broker, investment banking firm, finder, agent
or other Person to act on its behalf, directly or indirectly, as a broker or
finder in connection with the Transactions, except Pennsylvania Merchant Group.
The Parent shall be responsible for and agrees to indemnify the Company and
Castle from and against any fees or commissions payable to Pennsylvania Merchant
Group in connection with the Merger.
Section 5.6 Capitalization; Total Assets or Annual Net Sales. (a) All
of the issued and outstanding shares of Sub Common Stock are owned of record by
Parent. Except for the Parent and Xxxxxxxxx X. Xxxxxx, no Person beneficially
owns, directly or indirectly, 50% or more of the outstanding voting securities
of Sub or has the contractual power presently to designate 50% or more of the
directors of Sub.
(b) Except for Xxxxxxxxx X. Xxxxxx, no Person beneficially owns,
directly or indirectly, 50% or more of the outstanding voting securities of the
Parent or has the contractual power presently to designate 50% or more of the
directors of the Parent.
(c) The sum of (i) the value of all investment assets, voting
securities and income producing property beneficially owned, directly or
indirectly, by Xx. Xxxxxx (including without limitation any such assets,
securities or property beneficially owned, directly or indirectly, by Xx.
Xxxxxx'x spouse or minor children, if any) plus (ii) the aggregate value of all
assets held, directly or indirectly, by any Person as to which Xx. Xxxxxx (A)
either (1) beneficially owns 50% or more of the outstanding voting securities or
(2) if such Person does not have outstanding voting securities, has the right to
50% or more of the profits of the Person or has the right to 50% or more of the
assets of the Person in liquidation or (B) has the contractual power presently
to designate 50% or more of the directors or, in the case of unincorporated
Persons, individuals exercising similar functions, is less than $10 million.
(d) The aggregate annual net sales of all Persons as to which Xx.
Xxxxxx (i) either (A) beneficially owns 50% or more of the outstanding voting
securities or (B) if such Person does not have outstanding voting securities,
has the right to 50% or more of the profits or 50% or more of the assets in
liquidation or (ii) has the contractual power presently to designate 50% or more
of the directors or, in the case of unincorporated Persons, individuals
exercising similar functions, is less than $10 million.
13
(e) The Parent and Sub understand that the Company and Castle are
relying on this representation, among other things, in determining whether any
notice must be filed with the United States Department of Justice and Federal
Trade Commission in connection with the Merger.
Section 5.7 Financial Condition. (a) At Closing, the Parent shall
deliver to the Company an unaudited balance sheet dated as of such date, which
balance sheet (the "Balance Sheet") shall reflect assets consisting of (i) at
least $1 million in cash, (ii) either (A) a promissory note jointly made by
Xxxxxxxxx X. Xxxxxx and Xxxxxxx X. Xxxxxx, his spouse, in the original principal
amount of $2 million payable to the order of Parent (the "Xxxxxx Note") or (B)
other assets which Castle, the Shareholder and the Company agree have a fair
market value of at least $2 million and (iii) other assets with a value at least
equal to any liabilities reflected thereon. The Balance Sheet was prepared
substantially in accordance with GAAP and presents fairly the financial
condition, assets, liabilities and stockholders' equity of the Parent as of its
date.
(b) Xx. Xxxxxx has delivered to the Company an unaudited balance sheet
as of the date immediately prior to the date hereof and an unaudited statement
of income for the twelve months ended December 31, 1994, which balance sheet and
income statement reflect the assets referenced in Section 5.6(c) hereof and the
net sales, if any, referenced in Section 5.6(d) hereof. Such balance sheet and
income statement were prepared in accordance with the accounting principles
normally used by Xx. Xxxxxx and present fairly the financial condition, assets,
liabilities and net sales of Xx. Xxxxxx as of the date and for the period
covered thereby.
Section 5.8 Irrevocable Subscription. Parent has received from W.
Xxxxxx Xxxxxx an irrevocable subscription (the "Subscription") to purchase
shares of Parent's capital stock for a purchase price equal to not less than the
lesser of (a) $2 million or (b) the aggregate net proceeds to Xx. Xxxxxx of (a)
the arbitration award issued with respect to the matter captioned Benson v.
Metallgesellschaft Corp. or (ii) any settlement to which Xx. Xxxxxx becomes a
party in connection therewith. Such Subscription requires Xx. Xxxxxx to complete
the purchase of such shares on demand or within five business days after the
receipt of such proceeds. A true, correct and complete copy of such Subscription
has been delivered to Castle. Parent covenants and agrees that it will demand
that Xx. Xxxxxx complete such purchase within five business days after the
receipt by Xx. Xxxxxx of such proceeds.
14
Section 5.9 Prior Asset Sales. Parent and Sub acknowledge and
represent that they have been advised by Castle, the Shareholder and the Company
that the Company has previously sold substantially all of the equipment and
machinery and certain related assets necessary for the operation of the Refinery
to Kenyen Projects Limited pursuant to the terms and provisions of an Asset
Purchase Agreement between the Company and Kenyen Projects Limited dated
September 29, 1995 (the "Asset Agreement") and that the Company has sold other
material assets related to the operation of the Refinery to other third parties.
Parent and Sub acknowledge and represent that, in order for the Refinery to be
restarted, the Surviving Corporation will be required to acquire the requisite
equipment, machinery and related assets from Kenyen Projects Limited or an
unrelated third party.
VI. TAX MATTERS
Section 6.1 Tax Treatment of Merger. Notwithstanding that the Merger
qualifies as a statutory merger of the Company into Sub under Sections 1100-1305
of the California Corporation Code, the parties acknowledge that under the Code
the Merger for Federal income Tax and California income tax purposes is treated
as a taxable sale of the assets of the Company, including without limitation a
promissory note from Kenyen Projects Limited dated September 29, 1995, in the
original principal amount of $19,763,000 (the "Kenyen Note") by the Company to
Sub in consideration for the assumption of all of the liabilities of the
Company, including without limitation estimated liabilities of approximately
$32.1 million as of December 31, 1995 on a GAAP basis (including environmental
liabilities which Parent and Sub acknowledge to be approximately $23.6 million
as of December 31, 1995) and all liabilities of the Company for state and local
Taxes regardless of the party against whom such Taxes are assessed, by Sub and
$1 million in cash to be transferred by Sub to the Company for distribution to
the Shareholder. The Federal income Tax consequences of the sale of the
Company's assets will be reported on the consolidated Federal income Tax Return
of the Consolidated Group for the taxable year of the Consolidated Group in
which the sale of assets by the Company occurs and the California income tax
consequences of the sale of the Company's assets will be reported on the
Company's final California income tax return for the taxable year in which the
sale of assets by the Company occurs. Parent and Sub acknowledge and agree that
for all purposes, including but not limited to Tax reporting purposes, the
Kenyen Note will be given effect at its fair market value of $19,763,000 and
that neither of them will take or permit to be taken any action inconsistent
with such value. The consideration for the assets deemed to be sold by the
Company to Sub for Federal income Tax purposes shall be allocated among such
assets as set forth on Schedule 6.1 attached hereto, and the parties shall use
such allocation for all Tax reporting and other purposes, including without
limitation the preparation of Form 8594.
15
Section 6.2 Access to Information. (a) Following the Closing, Castle
and Shareholder will make available to the Parent any information relating to
the Company which has been included in the consolidated Federal income Tax
Returns filed by the Consolidated Group for the taxable years up to and
including the Closing Date that is relevant for purposes of determining the tax
liabilities and attributes of the Company up to and including the Closing Date,
as is reasonably necessary for the preparation of any Tax Return, and for
purposes of dealing with any examination by or controversy with the IRS or any
other taxing authority. Castle and Shareholder agree to retain all books and
records with respect to tax matters pertinent to the Company relating to any
period beginning before the Closing Date until the expiration of the statute of
limitations and any extension thereof.
(b) Following the Closing, the Parent agrees to make available to
Castle and Shareholder any information relating to the Company (including, but
not limited to, its books and records and work papers for all periods in which
the Company has been included as a member in the Consolidated Group for purposes
of filing consolidated Federal income Tax Returns) that is relevant for purposes
of determining the tax liability of the Consolidated Group for all periods up to
and including the Closing Date, as is reasonably necessary for the preparation
of any Tax Return, and for purposes of dealing with any examination by or
controversy with the IRS or any other taxing authority.
16
Section 6.3 Certain Consolidated Return Matters. (a) Any tax sharing
agreement between Castle, the Shareholder and the Company shall be terminated as
of the Closing Date, and shall have no further effect for any taxable year.
(b) Castle shall include the income or loss of the Company for periods
through the Closing Date in the consolidated Federal income Tax Return filed by
the Consolidated Group for the period including the Closing Date. Castle shall
prepare books and working papers which will clearly demonstrate the income and
activities of the Company for the period ending on the Closing Date.
(c) Castle at its sole cost and expense shall be responsible for the
preparation and filing of all state income tax returns for the Company for
taxable periods ending on the Closing Date in states the income tax laws of
which require income tax returns for such periods. Castle shall permit the
Parent and Sub to review and comment on each such tax return described in the
preceding sentence.
(d) Castle hereby represents and warrants that it has paid and
covenants that it will pay all Federal income Taxes due by any member of the
Consolidated Group for all periods during which the Company was a member of such
Consolidated Group. Castle further covenants that the Company shall have no
responsibility for any liability for any such Federal income Taxes, whether
pursuant to treasury Regulation Section 1.1502-6, any successor provisions
thereto, or otherwise.
Section 6.4 Sales and Transfer Taxes. Castle and Shareholder shall pay
one-half of, and Parent and Sub shall pay one-half of, (i) any and all sales and
use taxes and transfer taxes attributable to the transactions contemplated by
this Agreement, and (ii) any expenses (including reasonable attorney's fees)
incurred by any of the parties in defending any claim for such Taxes, and in the
event such Taxes are assessed against any of such parties after the Merger, the
other parties shall reimburse and indemnify the party making payment thereof in
order to carry out this agreement.
Section 6.5 Cooperation on Tax Matters. Each of the parties shall
cooperate fully, as and to the extent reasonably requested by any other party,
in connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to any Tax or Taxes,
including specifically any administrative or judicial proceeding regarding any
state or local tax consequences arising as a result of the Merger.
17
VII. COVENANTS OF THE COMPANY, THE SHAREHOLDER AND CASTLE
The Company, the Shareholder and Castle covenant and agree with the
Parent as follows:
Section 7.1 Access to Information. From and after the date of this
Merger Agreement, the Parent and its authorized representatives shall upon
reasonable notice have access during normal business hours to all properties,
books, records, Contracts, and documents of the Company, the Shareholder and of
Castle relating to the Company, including without limitation all such
consolidating financial statements and financial statements of the Company as
are prepared in the normal course of the preparation of Castle's audited
financial statements and Castle, the Shareholder and the Company shall furnish
or cause to be furnished to the Parent and its authorized representatives
information with respect to the affairs and business of the Company as the
Parent may reasonably request.
Section 7.2 Actions Prior to Closing Date. From and after the date of
this Merger Agreement and until the Closing Date or termination of this Merger
Agreement:
(a) Neither the Company nor Castle shall undertake or
institute any action other than in the ordinary course of business of the
Company which could reasonably be expected to have a material adverse effect on
the assets, properties, financial condition, or operating results of the Company
taken as a whole.
(b) Castle shall not and shall not permit the Company to sell
or issue any shares of capital stock of the Company or any securities
convertible or exchangeable for, or options, warrants, commitments, or rights of
any kind to acquire, any such shares of capital stock.
18
(c) Castle shall promptly notify the Parent of any material lawsuits,
claims, proceedings, or investigations of which Castle has Knowledge that may be
threatened, brought, asserted, or commenced against or involving the Company or
the Merger.
Section 7.3 Confidentiality. Castle shall use its commercially
reasonable efforts to insure that all confidential information which Castle, the
Company, their Affiliates or any of their respective officers, directors,
employees, counsel, agents, investment bankers, or accountants may now possess
or may hereafter create or obtain relating to the financial condition, results
of operations, business, properties, assets, liabilities, or future prospects of
the Company, the Parent or Sub or any customer or supplier of any of them shall
not be published, disclosed, or made accessible by any of them to any other
Person at any time or used by any of them except pending the Closing in the
business and for the benefit of the Company, in each case without the prior
written consent of the Parent; provided, however, that the restrictions of this
sentence shall not apply (a) after this Merger Agreement is terminated, but only
to the extent such confidential information relates to the financial condition,
results of operations, business, properties, assets, liabilities, or future
prospects of the Company, of any affiliate of any of them, or any customer or
supplier of any of them, (b) to disclosure to existing or prospective lenders or
other investors or to others whose consent may be required or desirable in
connection with obtaining the consents which are required or desirable to
consummate the transactions contemplated by this Merger Agreement, (c) as may
otherwise be required by law, (d) as may be necessary or appropriate in
connection with the enforcement of this Merger Agreement, or (e) to the extent
such information shall have otherwise become publicly available not in violation
of the provisions of this Merger Agreement. Castle further agrees that it shall
not disclose the existence of or the terms and provisions of the Joinder and
Guaranty attached to this Merger Agreement to any other Person without the prior
written consent of Parent, except that the foregoing shall not apply to any
disclosure which a party may make to any Governmental Entity or as required by
Law.
Section 7.4 Insurance. Castle shall use its commercially reasonable
efforts to maintain in effect until the Closing Date insurance covering the
Company, of the types and in the approximate amounts in effect at the date of
this Merger Agreement, and shall notify the Parent if Castle receives written
notice that any such policy has been cancelled or has lapsed.
19
VIII. COVENANTS OF THE PARENT AND SUB
The Parent and Sub covenant and agree with Castle and the Company as
follows:
Section 8.1 Confidentiality. The Parent and Sub shall use their
commercially reasonable efforts to insure that all confidential information
which the Parent, its Affiliates or any of their respective officers, directors,
employees, counsel, agents, investment bankers or accountants may now possess or
may hereafter create or obtain relating to the financial condition, results of
operations, business, properties, assets, liabilities or future prospects of the
Company or any customer or supplier of any of them shall not be published,
disclosed or made accessible by any of them to any other Person at any time or
used by any of them except pending the Closing in the business and for the
benefit of the Company, in each case without the prior written consent of the
Company and Castle; provided, however, that the restrictions of this sentence
shall not apply (a) after the Closing, (b) to disclosure to (i) existing or
prospective lenders, (ii) other investors, or (iii) to others whose consent may
be required or desirable in connection with obtaining the financing or consents
which are required or desirable to consummate the transactions contemplated by
this Merger Agreement, (c) as may otherwise be required by law, (d) as may be
necessary or appropriate in connection with the enforcement of this Merger
Agreement or (e) to the extent such information shall have otherwise become
publicly available not in violation of the provisions of this Merger Agreement.
Section 8.2 Additional Covenants. Until the earlier of (a) three years
from the Closing Date, or (b) the date on which Parent obtains equity capital of
not less than $15 million to support the proposed refinery operations of Parent
and Sub, Parent and Sub (as the Surviving Corporation) agree as follows: (i)
neither of them shall declare or pay any dividends on, make any other
distributions with respect to or redeem or purchase any shares of their
respective capital stock; (ii) neither of them shall make any loans or otherwise
extend any credit on behalf of any Affiliate, except loans and extensions of
credit from Parent to Sub; (iii) neither of them shall enter into any other
agreement or engage in any other transaction with an Affiliate which is less
favorable to Parent or Sub than would be available from a third-party on an arms
20
length basis; (iv) neither of them shall sell or otherwise dispose of any real
estate, equipment or other assets which are necessary or useful in a material
way in connection with the proposed operations of the Refinery, except in
accordance with Section 8.3; (v) each of them will use any insurance proceeds
received from the settlement of Environmental Claims and violations of
Environmental Laws for the payment and discharge (or establishment of segregated
cash deposits to assure future payment and discharge) of Liabilities of Sub in
connection with such Environmental Claims and violations of Environmental Laws
provided that any proceeds of insurance in excess of the estimated claims
related thereto may be used as provided in subparagraphs (A) and (C) of clause
(vi) below; (vi) Parent will use the sum of approximately $5 million of initial
capital contributed and to be contributed pursuant to the payment of the Xxxxxx
Note, if applicable, and the Subscription by its shareholders or otherwise
solely for the purpose of (A), provided Parent and Sub are able to reach
agreement with Kenyen Projects Limited or are otherwise able to acquire
equipment, machinery and other assets necessary to restart the Refinery,
preparing to restart the Refinery and re-establish the refinery business to be
conducted in connection with the Refinery, (B) payment of reasonable expenses
incurred in connection with the foregoing, including without limitation expenses
incurred in connection with the Merger, (C) payment of Liabilities of the
Company, including Liabilities related to Environmental Claims and (D) payment
of expenses to develop a reserve and marketing program; and (vii) each of them
shall cause the equipment and other assets acquired pursuant to the Merger to be
insured at all times by financially sound and reputable insurers against such
hazards as are usually insured against by business entities of established
reputation engaged in like businesses and similarly situated and pay all
premiums on the policies for all such insurance when and as they become due.
Section 8.3 Outside Management.
(a) In the event Parent does not reach agreement with Kenyen Projects
Limited or otherwise acquire equipment, machinery and assets as contemplated by
Section 8.2(vi) hereof and obtain binding commitments for equity financing in a
minimum amount of $15 million (the "Financing") by October 1, 1996, and
accordingly has not restarted the Refinery, Parent shall use its best efforts to
enter into an agreement with Xxxxxxx Xxxxxx, or his nominee ("Xxxxxx") on terms
mutually acceptable to Parent, Sub and Xxxxxx whereby Xxxxxx will participate in
the management and control of the ongoing operations of Sub and during this
period Xxxxxx shall have the authority to cause the Sub to sell assets and to
use the proceeds from the sale of such assets and other funds available to Sub
and Parent first for paying or otherwise providing for the discharge of
Liabilities of the Sub for Environmental Claims, with any balance to be used as
Parent and Sub shall determine in their sole discretion.
21
(b) In the event that prior to October 1, 1996 Parent or Sub wishes to
dispose of assets of Sub which are necessary or useful in a material way for the
operation of the Refinery, Parent shall obtain the prior written approval of
Xxxxxx or his nominee to such disposition of assets.
(c) The parties understand and agree that the agreement with Xxxxxx
will require provisions acceptable to Xxxxxx regarding compensation and
insulation from liabilities of Parent and/or Sub.
(d) If Parent is unable to obtain the Financing and is also unable to
enter into an agreement with Xxxxxx, and Parent and Sub determine to liquidate
and sell the assets acquired from the Company in the Merger, Parent and Sub
shall use their best efforts to sell such assets for the maximum available price
and will use the net proceeds received from such sales to pay or otherwise
satisfy and discharge all obligations of Sub with respect to Environmental
Claims, with any balance to be used as Parent and Sub shall determine in their
sole discretion.
Section 8.4 Subscription. Parent shall not modify or release the
Subscription and shall enforce the terms thereof, and use its best efforts to
collect all monies due thereunder.
Section 8.5 Prior Asset Sale. Parent and Sub acknowledge that the
Company has previously sold substantially all of the equipment and machinery and
certain related assets necessary for the operation of the Refinery pursuant to
the terms and conditions of the Asset Agreement and a related Agreement and
Security Agreement, each of which is dated as of September 29, 1995 and is
between the Company and Kenyen Projects Limited. True, correct and complete
copies of the foregoing have been delivered by the Company to Parent and Sub.
Parent and Sub further acknowledge that the Company has certain ongoing
obligations under such agreements. Pursuant to Section 17.4 of the Asset
Agreement, the Surviving Corporation shall, as of the Effective Time, assume
22
any such obligations of the Company, and the Parent covenants to cause the
Surviving Corporation to take all such action as is necessary to perform such
obligations, and Parent shall not take or omit to take any action the effect of
which is to prevent or inhibit the Surviving Corporation's ability to perform
any such obligations. Parent and Sub agree that Kenyen Projects Limited is an
intended third party beneficiary of the terms of this Section 8.5 and shall be
entitled to enforce its rights hereunder directly against Parent and the
Surviving Corporation. Parent and Sub acknowledge and agree that the Company's
treatment of the transactions consummated pursuant to the Asset Agreement for
Federal income tax purposes as a sale of the assets specified therein for
consideration consisting of the Kenyen Note and the other consideration
specified in the Asset Agreement is proper and that neither Parent nor Sub will
take or permit to be taken any action inconsistent with the Company's treatment
of the transaction consummated pursuant to the Asset Agreement as such a sale of
assets in the Federal income Tax Return of the Consolidated Group for the fiscal
year ended September 30, 1995.
Section 8.6 Legal Fees. Parent and Sub further acknowledge the
Company's obligations for legal fees and expenses owing to Jenner & Block for
services rendered to the Company, which fees and expenses were approximately
$330,000 as of December 1, 1995. Parent agrees to cause the Surviving
Corporation to pay all such fees and expenses on or before December 15, 1996, of
which at least $125,000 shall be paid on or before June 30, 1996.
Section 8.7 Cooperation in Arbitration. Parent shall cause the
Surviving Corporation to provide to Castle such assistance as Castle shall
reasonably request in connection with the Arbitration, which assistance shall
include without limitation making available to Castle the individuals who served
as officers or employees of the Company during any periods covered by or
relevant to the Arbitration and providing access to all documents, records and
other information of the Company with respect to the matters related to the
Arbitration. Castle shall reimburse Parent or the Surviving Corporation for
reasonable out-of-pocket expenses actually incurred in connection with
furnishing such assistance to Castle.
23
IX. CONDITIONS TO OBLIGATIONS OF PARENT AND SUB
The obligations of the Parent and Sub to effect the Merger are subject
to the fulfillment at or prior to the Closing of each of the following
conditions, unless waived in writing by the Parent.
Section 9.1 Truth of Representations and Warranties. The
representations and warranties made by the Company and Castle in this Merger
Agreement shall be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made or given on and as of such date.
Section 9.2 Compliance with Covenants. The Company and Castle shall
have performed and complied in all material respects with all of its respective
covenants and obligations under this Merger Agreement which are to be performed
or complied with by it prior to or at the Closing.
Section 9.3 Absence of Suit. No action, suit, proceeding, or
investigation shall have been commenced or threatened by any Person against the
Parent, Sub, the Company, Castle or any of their respective officers, directors,
or Affiliates seeking to modify in any material respect, or to restrain or
prevent, and no Law shall have been enacted, issued or promulgated which has the
effect of modifying in any material respect or restraining or preventing, the
Merger or questioning the validity or legality of the Merger or the ability of
the Company to restart the Refinery.
Section 9.4 Proceedings and Instruments Satisfactory; Certificates.
All proceedings, corporate or otherwise, to be taken by the Company in
connection with the Merger shall have occurred and all certificates and other
documents reasonably incident thereto as the Parent may reasonably request shall
have been delivered to the Parent.
24
Section 9.5 Intercompany Indebtedness. At Closing, Castle shall have
executed and delivered to the Company a release and discharge of all Liabilities
of the Company to Castle or any affiliate of Castle existing prior to Closing,
including any obligation of the Company to pay or reimburse Castle for any
claims arising out of the arbitration proceeding involving Metallgesellschaft
Corp. and/or one of its Affiliates ("MG") (the "Arbitration"). To the extent
that MG is successful in the Arbitration proceeding, a promissory note in the
principal sum of $10 million payable by MG to Castle (previously pledged by
Castle to MG to provide security to MG in the event it is successful in the
Arbitration) is reduced, but Castle shall have no claim against the Company as a
result of such reduction. To the extent that Castle is successful in the
Arbitration proceeding, all net proceeds received by Castle in such Arbitration,
after deducting all fees and expenses of whatsoever nature incurred by Castle or
any of its Affiliates as a result of or related to the Arbitration, shall be
payable to the Surviving Corporation as and only to the extent that such net
proceeds exceed $10 million. Castle shall have the exclusive right to conduct
and control the Arbitration, and Sub and Parent shall cooperate in the conduct
of such proceeding, including without limitation making available at their
expense witnesses and books and records. Castle has included or will include in
the consolidated Federal income Tax Return filed by the Consolidated Group
(including the Company) all income, if any, resulting from any payments made by
MG related to the Arbitration (approximately $10 million) for the periods up to
and including the Effective Time.
Section 9.6 Deliveries at Closing. All documents and instruments
required to be delivered by Castle and the Company at the Closing shall have
been delivered to the Parent as provided in Section 12.2.
25
X. CONDITIONS TO OBLIGATIONS OF THE COMPANY, THE SHAREHOLDER AND
CASTLE
The obligations of the Company, the Shareholder and Castle to be
performed hereunder shall be subject to the satisfaction prior to or at the
Closing of the following conditions unless waived in writing by Castle, the
Shareholder and the Company.
Section 10.1 Truth of Representations and Warranties. The
representations and warranties of the Parent and Sub in this Merger Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
or given on and as of such date.
Section 10.2 Compliance with Covenants. The Parent and the Sub shall
have performed and complied in all material respects with all of their
respective covenants and obligations under this Merger Agreement which are to be
performed or complied with by the Parent or Sub prior to or at the Closing.
Section 10.3 Absence of Suit. No action, suit, proceeding or
investigation shall have been commenced or threatened by any Person against the
Parent, Sub, the Company, the Shareholder, Castle or any of their respective
officers, directors or Affiliates seeking to modify in any material respect, or
to restrain or prevent, and no Law shall have been enacted, issued or
promulgated which has the effect of modifying in any material respect or of
restraining or preventing, the Merger or questioning the validity or legality of
the Merger.
Section 10.4 Proceedings and Instruments Satisfactory; Certificates.
All proceedings, corporate or otherwise, to be taken by the Parent or Sub in
connection with the Merger shall have occurred and all certificates and other
documents reasonably incident thereto as Castle or the Company may reasonably
request shall have been delivered to Castle and the Company.
26
Section 10.5 Waivers, Releases, and Resignations. Castle shall have
received an agreement, in form and substance acceptable to Castle, executed by
each individual who is an employee, officer, or director of Castle or its
Affiliates and who is or is anticipated to become an officer, director, or
stockholder of the Parent, Sub or any of their respective Affiliates, agreeing,
as of the Closing, (a) to waive and release (i) any payments which may be or
become due to such individual as a result of this Merger Agreement or the
consummation of the Merger and (ii) such other rights as Castle may reasonably
request and (b) to resign as an officer and director of Castle or its
Affiliates.
Section 10.6 Deliveries at Closing. All documents and instruments
required to be delivered by the Parent and Sub at the Closing shall have been
delivered to Castle or the Company as provided in Section 12.3.
Section 10.7 Intercompany Indebtedness. At Closing, the Company shall
have executed and delivered to Castle a release and discharge of all Liabilities
of Castle or any Affiliate of Castle to the Company existing prior to the
Closing.
Section 10.8 Tax Clearance Certificate. The Company shall have
obtained a tax clearance certificate from the California Franchise Tax Board.
Section 10.9 Subscription. The Parent shall have received the
Subscription, satisfactory in form and substance to Castle and the Company.
27
XI. INDEMNIFICATION
Section 11.1 Requirement of Indemnification. (a) Castle shall defend,
indemnify and hold the Parent Indemnitees harmless from and against any Damages
suffered by them resulting from, arising out of or incurred with respect to, or
(in the case of claims asserted against any Parent Indemnitee by a third party)
alleged to result from, arise out of or have been incurred with respect to (i)
the falsity, breach or inaccuracy of any of the warranties, representations,
covenants or agreements of Castle and/or Shareholder contained in this Merger
Agreement or in any schedule, exhibit, document or instrument delivered in
connection herewith, (ii) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses relating to Federal Tax
liability of Castle, any Affiliate of Castle or other person or entity which
arises by reason of the Company having been joined in the filing of consolidated
Federal income Tax returns by the Consolidated Group, (iii) any and all claims
against the Company arising out of or in connection with the Arbitration
(exclusive of claims for Taxes) and (iv) any and all actions, suits,
proceedings, claims, demands, assessments, judgments, costs and expenses,
including, without limitation, legal fees and expenses, incurred in enforcing
this indemnity.
(b) The Parent shall indemnify and hold the Castle Indemnitees
harmless from and against any Damages suffered by them resulting from, arising
out of or incurred with respect to, or (in the case of claims asserted against
any Castle Indemnitee by a third party) alleged to result from, arise out of or
have been incurred with respect to (i) the falsity, breach or inaccuracy of any
representation, warranty, covenant or agreement of the Parent or Sub contained
in this Merger Agreement or in any schedule, exhibit, document or instrument
delivered in connection herewith, (ii) any and all actions, suits, proceedings,
claims, demands, assessments, judgments, costs and expenses brought or asserted
by Kenyen Projects Limited, any affiliate of Kenyen Projects Limited or any
other person or entity claiming by, through or under any of the foregoing
respecting or involving (A) the Company, (B) the Assets of the Company or (C)
the transactions contemplated by the Asset Agreement or this Merger Agreement,
(iii) any Environmental Claims, including without limitation any Environmental
Claims alleging Liability of the Company, (iv) any Liability whatsoever of the
Parent, Sub or the Company which are not specifically subject to indemnification
under Section 11.1(a) above, whether arising prior to, on or after the Closing
Date, including without limitation, any Liability arising out of the Parent's
conduct of the business of the Company as the Surviving Corporation on or after
the Closing and (v) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including without limitation legal
fees and expenses, incurred in enforcing this indemnity.
28
Section 11.2 Procedures Relating to Indemnification. (a) A party (the
"indemnified party") seeking indemnification under this Merger Agreement in
respect of, arising out of or involving a claim or demand made by any Person
against the indemnified party (a "Third Party Claim") shall notify the
indemnifying party in writing of the Third Party Claim within 20 days after
receipt by the indemnified party of written notice of the Third Party Claim;
provided, however, that failure to give such notification shall not affect the
indemnification provided under this Merger Agreement, except to the extent the
indemnifying party shall actually have been prejudiced by the failure.
Thereafter, the indemnified party shall deliver to the indemnifying party,
promptly after the indemnified party's receipt thereof, copies of all notices
and documents (including court papers) received by the indemnified party
relating to the Third Party Claim.
(b) The indemnifying party shall have the right, within 30 days after
being so notified, to assume the defense of such Third Party Claim with counsel
reasonably satisfactory to the indemnified party. In any such proceeding, the
defense of which the indemnifying party shall have so assumed, the indemnified
party shall have the right to participate therein and retain its own counsel at
its own expense unless (i) the indemnified party and the indemnifying party
shall have mutually agreed to the retention of such counsel, (ii) the
indemnified party shall have received a written opinion of counsel to the effect
that there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party (iii) the named
parties to any such proceeding (including the impleaded parties) include both
the indemnifying party and the indemnified party, and representation of both
parties by the same counsel would be inappropriate in the opinion of the
indemnified party's counsel due to actual or potential differing interests
between them; in any such case, such separate counsel may be retained by the
indemnified party at the indemnifying party's expense (provided that the
indemnifying party shall not be required to bear the fees and expenses of more
than one such counsel). To the extent that the settlement of such a Third Party
Claim, the defense of which has been assumed by the indemnifying party, involves
the payment of money only, the indemnifying party shall have the right, in
consultation with the indemnified party, to settle those aspects dealing only
with the payment of money, provided that the indemnifying party pays such money.
In connection with any such defense or settlement, the indemnifying party shall
not enter into a consent decree involving injunctive or non-monetary relief or
consent to an injunction without the indemnified party's prior written consent.
If the indemnifying party shall have assumed the defense of a Third Party Claim,
the indemnified party shall not, without first waiving the indemnity as to such
claim, admit any liability with respect to, or settle, compromise or discharge,
the Third Party Claim without the indemnifying party's prior written consent.
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(c) With respect to all Third Party Claims, the indemnified party
shall cooperate in all reasonable respects with the indemnifying party in
connection with such claims and the defense or compromise of the claims. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
reasonably relevant to the Third Party Claim, making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided under this Merger Agreement.
Section 11.3 Defense of Third-Party Claim. The failure by the
indemnifying party to notify the indemnified party of its election to defend any
Third Party Claim within 30 days after written notice thereof shall have been
given to the indemnifying party shall be deemed a waiver by the indemnifying
party of its right to defend such Third Party Claim. If the indemnifying party
shall not assume the defense of any such Third Party Claim, the indemnified
party may defend against and, subject to obtaining the consent of the
indemnifying party, which shall not be unreasonably delayed or denied, settle
such Third Party Claim in such manner as it may deem appropriate.
Section 11.4 Payment. The indemnifying party shall pay directly all
Damages or shall, if the indemnified party elects to pay any Damages directly,
promptly reimburse the indemnified party for any Damages paid by the indemnified
party that is the subject of an indemnification given under this Article XI. The
indemnifying party shall reimburse the indemnified party promptly upon demand
for the amount of any judgment rendered or settlement entered into with respect
to any Third Party Claim, the defense of which was not assumed by the
indemnifying party, and, promptly upon demand, for all Damages paid by the
indemnified party in connection with the defense against such Third Party Claim.
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XII. CLOSING
Section 12.1 Time and Place. The Closing of the Transactions shall
take place at the offices of Duane, Morris & Heckscher, Xxx Xxxxxxx Xxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 at 3:00 P.M. (Eastern standard time) on January
____, 1996, or at such other date and place as may be agreed upon by the parties
(the "Closing Date").
Section 12.2 Items to be Delivered by Castle and the Company. At the
Closing, Castle, the Shareholder and the Company shall deliver in accordance
with this Merger Agreement, among other things, the following:
(a) Certificates representing the Company Common Stock for surrender
pursuant to Section 3.2 hereof.
(b) A certificate, signed by an officer of each of Castle, the
Shareholder and the Company, stating that the representations and warranties
made by Castle, the Shareholder and the Company in this Merger Agreement are
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on or
given on and as of the Closing Date, that each of Castle, the Shareholder and
the Company has in all material respects performed and complied with all of its
respective obligations under this Merger Agreement which are to be performed or
complied with by it prior to or on the Closing Date and that to the Knowledge of
each of Castle, the Shareholder and the Company all conditions to the
obligations of the Parent and Sub to be performed hereunder have been satisfied
or waived. The delivery of such certificate shall be and constitute a
representation and warranty of each of Castle, the Shareholder and the Company
as of the Closing Date to each of the facts stated therein.
(c) A written opinion or opinions of counsel for each of Castle, the
Shareholder and the Company, dated as of the Closing Date, addressed and
reasonably satisfactory to the Parent, covering the following matters:
(i) the corporate existence and good standing of Castle, the
Shareholder and the Company;
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(ii) the due authorization, execution and delivery by Castle, the
Shareholder and the Company of this Merger Agreement and the legal, valid and
binding effect of Castle's, the Shareholder's and the Company's obligations
hereunder enforceable in accordance with the terms hereof, except as may be
limited by Laws affecting bankruptcy, insolvency, fraudulent conveyance and
creditors' rights generally and subject to equitable principles and the
discretion of a court to grant equitable remedies; and
(iii) that the execution and delivery of this Merger Agreement do not,
and the consummation of the Merger will not, violate any provision of the
organizational documents of Castle, the Shareholder or the Company.
(d) A certified copy of the duly adopted resolutions of the Board of
Directors of the Company and the Shareholder authorizing and recommending the
Merger.
(e) The Short Form Agreement.
(f) Such other documents, instruments or certificates as the Parent
may reasonably request.
Section 12.3 Items to be Delivered by Parent and Sub. At the Closing,
the Parent and Sub shall deliver, among other things:
(a) A certificate, signed by an officer of each of the Parent and Sub,
stating that the representations and warranties made by each of the Parent and
Sub in this Merger Agreement are true and correct in all material respects on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on or given on and as of the Closing Date, that
each of the Parent and Sub has in all material respects performed and complied
with all of its respective obligations under this Merger Agreement which are to
be performed or complied with by it prior to or on the Closing Date and that to
the Knowledge of each of the Parent and Sub all conditions to the obligations of
Castle and the Company to be performed hereunder have been satisfied or waived.
The delivery of such certificate shall be and constitute a representation and
warranty of each of the Parent and Sub as of the Closing Date to each of the
facts stated therein.
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(b) A written opinion of counsel for the Parent and Sub, dated as of
the Closing Date, addressed and reasonably satisfactory to the Company and
Castle covering the following matters:
(i) the corporate existence, good standing and qualification of each
of the Parent and Sub;
(ii) the due authorization, execution and delivery by Parent and Sub
of this Merger Agreement and the legal, valid and binding effect of each of the
Parent's and Sub's respective obligations hereunder in accordance with the terms
hereof, except as may be limited by Laws affecting bankruptcy, insolvency,
fraudulent conveyance and creditors' rights generally and subject to the
discretion of a court to grant equitable remedies; and
(iii) that the execution and delivery of this Merger Agreement do not,
and the consummation of the Merger will not, violate any provision of the
certificate of incorporation or bylaws of either the Parent or Sub.
(c) A certified copy of the duly adopted resolutions of the Parent's
and the Sub's Board of Directors authorizing the Merger.
(d) The Short Form Agreement.
(e) The Subscription.
(f) Evidence that the sum of $1 million in cash has been received by
Parent.
(g) Evidence that the Parent has received either (1) the Xxxxxx Note,
secured by a pledge of marketable securities with a fair market value not less
than $2 million, with the form and substance of the Xxxxxx Note and such pledge
agreement having been determined to be acceptable to Castle and its counsel, or
(2) such other assets with a fair market value of at least $2 million as
contemplated by Section 5.7(a) hereof.
(h) Such other documents, instruments, and certificates as Castle or
the Company may reasonably request.
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XIII. TERMINATION
Section 13.1 Termination. This Merger Agreement may be terminated and
the Merger abandoned at any time prior to the Closing Date:
(a) by mutual consent of Castle, the Company and the Parent;
(b) by the Parent, if within 20 calendar days of the date of this
Agreement, or any later date to which the Closing is extended as provided in
Section 12.1 hereof, any of the conditions provided in Article IX of this Merger
Agreement have not been met and have not been waived in writing by the Parent,
except as a result of the willful acts or omissions of the Parent; or
(c) by Castle, if within 20 calendar days of the date of this
Agreement, or any later date to which the Closing is extended as provided in
Section 12.1 hereof, any of the conditions provided in Article X of this Merger
Agreement have not been met and have not been waived in writing by Castle,
except as a result of the willful acts or omissions of Castle.
Section 13.2 Survival after Termination. The obligations contained in
Sections 7.4, 8.1, 15.2, and 15.9 hereof shall survive any termination of this
Merger Agreement.
XIV. AMENDMENT AND WAIVER
Section 14.1 Amendment. This Merger Agreement may be amended or
modified in whole or in part at any time by an agreement in writing executed in
the same manner as this Merger Agreement.
Section 14.2 Extension; Waiver. At any time prior to the Closing Date,
Castle or the Parent may:
(a) extend the time for the performance of any of the obligations or
other acts of the other,
(b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or
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(c) waive compliance with any of the agreements or conditions
contained herein.
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 duly executed and delivered
on behalf of such party. The failure of any party hereto to enforce at any time
any provision of this Merger Agreement shall not be construed to be a waiver of
such provision, nor in any way to affect the validity of this Merger Agreement
or any part hereof or the right of such party hereafter to enforce each and
every such provision. No waiver of any breach of this Merger Agreement shall be
held to constitute a waiver of any other or subsequent breach.
XV. MISCELLANEOUS
Section 15.1 Notices. All notices or other communications required or
permitted hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, sent by Federal Express, Express Mail or similar
overnight delivery or courier service, or delivered (in person or by telecopy,
telex or similar communications equipment) against receipt to the party to whom
it is given, addressed as follows:
if to Castle, the Shareholder or the Company to:
Castle Energy Corporation
One Radnor Corporate Center
Xxxxx 000
000 Xxxxxxxxxx Xxxx
Xxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, XX, Chairman
Telecopy No: (000) 000-0000
with a copy to:
Duane, Morris & Heckscher
0000 Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxx, Esquire
35
Telecopy No.: (000) 000-0000
if to the Parent or Sub:
Energy Merchant Corp.
c/o PMG Capital Corp.
General Motors Building
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxxx Xxxxxx, President
with a copy to:
PMG Capital Corp.
General Motors Building
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxx, Esquire
and
Loeb & Loeb LLP
0000 Xxxxxxxx Xxxx.
Xxxxx 0000
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxx, Xx., Esquire
or to such other address as the Person to whom notice is given may have
previously furnished to the other party in writing in accordance herewith.
Section 15.2 Expenses. Each party shall bear its own expenses in
connection with this Merger Agreement and the Merger.
Section 15.3 Governing Law. This Merger Agreement shall be governed by
and construed in accordance with the laws of the State of California, without
regard to its rules on conflicts of law.
Section 15.4 Successors and Assigns. This Merger Agreement shall not
be assigned by any party without the written consent of all other parties and
any attempted assignment without such written consent shall be null and void and
without legal effect. This Merger Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns and shall inure to the benefit of the Persons entitled to indemnity
under Article XI.
36
Section 15.5 Partial Invalidity. In case any one or more of the
provisions contained herein shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Merger Agreement,
but this Merger Agreement shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein unless the
deletion of such provision or provisions would result in such a material change
as to cause completion of the Merger to be unreasonable or would materially and
adversely frustrate the objectives of the parties as expressed in this Merger
Agreement.
Section 15.6 Execution in Counterparts. This Merger Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement, and shall become a binding agreement when one or more
counterparts have been signed by each of the parties and delivered to each of
the other parties.
Section 15.7 Titles and Headings. Titles and headings to Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Merger Agreement.
Section 15.8 Entire Agreement. This Merger Agreement, together with
all schedules and exhibits hereto and any documents delivered pursuant to this
Merger Agreement, contains the entire understanding of the parties hereto with
regard to the subject matter contained herein.
Section 15.9 Announcements. Announcements to the public, employees,
customers or suppliers concerning the Merger by Castle or the Parent shall be
subject to the approval of the other parties in all essential respects, except
that the approval by the other parties shall not be required as to any
statements and other information which a party may submit to any Governmental
Entity or pursuant to any Law.
37
Section 15.10 Construction. The parties acknowledge that all parties
and their counsel have participated fully in the negotiation and preparation of
this Merger Agreement and agree that, in any construction or interpretation of
this Merger Agreement, no provision shall be construed against the interest of
any party on the basis that such party drafted such provision.
Section 15.11 Jurisdiction. Any action, suit or proceeding arising out
of, based on or in connection with this Merger Agreement or the Merger may be
brought only in any United States District Court or appropriate state court in
the State of California and each party covenants and agrees not to assert, by
way of motion, as a defense or otherwise, in any such action, suit or
proceeding, any claim that it is not subject personally to the jurisdiction of
such court, that its property is exempt or immune from attachment or execution,
that the action, suit or proceeding is brought in an inconvenient forum, that
the venue of the action, suit or proceeding is improper, or that this Merger
Agreement or the subject matter hereof may not be enforced in or by such court.
Section 15.12 Further Actions. At any time and from time to time, each
party hereto agrees, without further consideration, to take such actions and to
execute and deliver such documents as may be reasonably necessary to effectuate
the purposes of this Merger Agreement and to more effectively carry out the
transfer contemplated by this Merger Agreement.
Section 15.13 Cancellation of Insurance Policies. The Parent
acknowledges and understands that Castle maintains insurance coverage for the
Company under blanket policies which will automatically cancel upon the
completion of the Merger. The Parent further acknowledges that Castle shall be
entitled to receive and retain any refund of premium or similar payment or
reimbursement from any insurer with respect to any policies that are so
canceled.
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Section 15.14 No Third Party Beneficiaries. Except as set forth in
Section 8.5 hereof, nothing in this Agreement shall create any rights in favor
of or confer any benefits upon any person or entity other than the parties
hereto and, to the extent herein permitted, their successors and assigns, and no
such other person or entity shall have any rights hereunder as a third-party
beneficiary or otherwise.
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IN WITNESS WHEREOF, the parties hereto have caused this Merger
Agreement to be duly executed as of the date and year first above written.
CASTLE ENERGY CORPORATION
By: /s/ Xxxxxx X. Xxxxxx XX
-----------------------------------------------
Title: Chairman and Chief Executive Officer
POWERINE HOLDING CORP.
By: /s/ X.X. Xxxxxxxxx
-----------------------------------------------
Title: Chairman, President and Chief Executive Officer
ENERGY MERCHANT CORP.
By: /s/ Xxxxxxxxx X. Xxxxxx
-----------------------------------------------
Title:
POWERINE OIL COMPANY
By: /s/ X.X. Xxxxxxxxx
-----------------------------------------------
X.X. Xxxxxxxxx, President
POC ACQUISITION CORPORATION
By: /s/ X.X. Xxxxxxxxx
-----------------------------------------------
Title: President
40
