EXHIBIT 2.1
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
RANGE RESOURCES CORPORATION,
RANGE ACQUISITION TEXAS, INC.,
AND
XXXXXX ENERGY, INC.
MAY 10, 2006
TABLE OF CONTENTS
Page
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ARTICLE I
THE MERGER
1.1 The Merger; Effective Time of the Merger.......................... 2
1.2 Closing........................................................... 2
1.3 Effects of the Merger............................................. 3
1.4 Post-Closing Merger............................................... 3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE COMPANY AND MERGER SUB; EXCHANGE OF CERTIFICATES
2.1 Effect of Merger on Capital Stock................................. 4
2.2 Anti-Dilution Provisions.......................................... 13
2.3 Shares Held by Parent, the Company or Subsidiaries................ 13
2.4 Appraisal Shares.................................................. 13
2.5 Treatment of Stock Options and Restricted Stock................... 14
2.6 Fractional Shares................................................. 14
2.7 Exchange of Certificates.......................................... 15
2.8 Expiration of Company Rights...................................... 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company..................... 18
3.2 Representations and Warranties of Parent and Merger Sub........... 43
ARTICLE IV
COVENANTS RELATING TO CONDUCT
OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company and Parent Pending the Merger.. 59
4.2 Acquisition Proposals............................................. 64
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement.................................... 68
5.2 Access to Information............................................. 69
5.3 Stockholders' Meeting............................................. 69
5.4 Third Party Consents; Approvals................................... 70
5.5 Employee and Benefit Plan Matters................................. 70
5.6 Stock Options and Restricted Stock................................ 72
5.7 Indemnification; Directors' and Officers' Insurance............... 74
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5.8 Agreement to Defend............................................... 75
5.9 Public Announcements.............................................. 75
5.10 Other Actions..................................................... 75
5.11 Notification of Certain Matters; Governmental Filings............. 75
5.12 Conveyance Taxes.................................................. 76
5.13 Plan of Reorganization and Certain Tax Matters.................... 76
5.14 Financing......................................................... 84
5.15 Resignations...................................................... 84
5.16 Hedge Transactions................................................ 84
5.17 Xxxxxxxx Stock Voting Agreement................................... 84
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger........ 85
6.2 Conditions of Obligations of Parent............................... 85
6.3 Conditions of Obligations of the Company.......................... 87
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination....................................................... 88
7.2 Effect of Termination............................................. 90
7.3 Amendment......................................................... 92
7.4 Extension; Waiver................................................. 92
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses............................................... 92
8.2 Nonsurvival of Representations, Warranties and Agreements......... 93
8.3 Notices........................................................... 93
8.4 Interpretation.................................................... 94
8.5 Counterparts...................................................... 95
8.6 Entire Agreement; No Third Party Beneficiaries.................... 95
8.7 Governing Law..................................................... 95
8.8 Waiver of Jury Trial.............................................. 95
8.9 Consent to Jurisdiction; Venue.................................... 95
8.10 Severability...................................................... 96
8.11 Assignment........................................................ 96
8.12 Specific Performance.............................................. 96
8.13 Schedule Definitions.............................................. 96
8.14 Time of the Essence............................................... 96
8.15 Defined Terms..................................................... 96
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EXHIBITS:
Exhibit A - Form of Stock Voting Agreement
Exhibit B - Rights Agreement Amendment
Exhibit C - Consulting Agreement
Exhibit D - Non-Competition Agreement
Exhibit E - Registration Rights Agreement
Exhibit F - LLC Sub Merger Agreement
Exhibit G - Investor Questionnaire and Election Form
DISCLOSURE SCHEDULES:
COMPANY DISCLOSURE SCHEDULE:
Schedule 3.1(a) Company Subsidiaries
Schedule 3.1(b) Company Capital Structure; Knowledge
Schedule 3.1(c) No Violations
Schedule 3.1(d) Company Events
Schedule 3.1(e) Undisclosed Material Liabilities
Schedule 3.1(h) Company Litigation
Schedule 3.1(i) Company Tax Information
Schedule 3.1(j) Company Employee Benefits Information
Schedule 3.1(k) Company Labor Matters
Schedule 3.1(l) Property
Schedule 3.1(m) Company Environmental Matters
Schedule 3.1(n) Company Insurance
Schedule 3.1(q) Related Party Transactions
Schedule 3.1(w) Property Dispositions
Schedule 3.1(x) Hedging
Schedule 3.1(y) Natural Gas Act
Schedule 3.1(z) Company Contracts
Schedule 3.1(aa) Oil and Gas Operations
Schedule 4.1(a) Conduct Pending Closing
Schedule 5.5(f) Severance Pay Plan
Schedule 5.5(g) Additional Cash Payments
Schedule 5.6(d) Option Modification Agreements, Option Conditional Exercise
Agreements and Option Cancellation Agreements
Schedule 6.2(i) Required Third Party Consents
Schedule 8.15 Xxxxxx Oil and Gas Interests; Xxxxxx Xxxxx
PARENT DISCLOSURE SCHEDULE:
Schedule 3.2(f) Litigation; Knowledge
Schedule 3.2(j) Parent Tax Information
Schedule 5.5 Offer Letters
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GLOSSARY OF DEFINED TERMS
DEFINED TERMS DEFINED IN SECTION
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Acceptable Title 8.15
Accredited Cash Elector 2.1(b)(iii)
Acquisition Proposal 4.2(g)
Adjusted Per Share Cash Value 2.1(c)(i)
Adjusted Per Share Stock Amount 2.1(b)
Adjusted Stock Amount 2.1(b)
Affiliate 4.1(a)(ix)
Agreement Preamble
Appraisal Shares 2.4
Average Closing Price 2.1(b)
business day 2.7(a)
Cash Consideration 2.1(b)
Cash Consideration Holders 2.1(b)
Certificate of Merger 1.1
Certificates 2.7(a)
Change of Recommendation 4.2(d)
Closing 1.1
Closing Date 1.2
COBRA 3.1(j)(v)
Code Recitals
Common Stock Trust 2.6(c)(iii)
Company Preamble
Company Balance Sheets 3.1(e)(i)
Company Budget 4.1(a)(xiii)
Company Closing Shares 2.1(b)
Company Common Stock 2.1
Company Contracts 3.1(z)(i)
Company Credit Facility 3.1(e)(ii)
Company Disclosure Schedule 3.1
Company Employee Benefit Plan 3.1(j)(i)
Company Employee Pension Benefit Plan 3.1(j)(i)
Company Employee Welfare Benefit Plan 3.1(j)(i)
Company ERISA Affiliates 3.1(j)(i)
Company Financial Statements 3.1(e)(i)
Company Group 3.1(i)(i)
Company Indemnified Parties 5.7(a)
Company Intangible Property 3.1(l)(i)
Company Litigation 3.1(h)
Company Material Adverse Effect 3.1(a)
Company Options 5.6(a)
Company Permits 3.1(g)
Company Preferred Stock 3.1(b)(i)
Company Reserve Reports 3.1(w)
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Company Restricted Stock 2.1(b)
Company Right 2.8
Company Rights Agreement Recitals
Company Stock Plans 3.1(b)(i)
Confidentiality Agreement 5.2
Consulting Agreement Recitals
Contract 3.1(z)(i)
Defensible Title 8.15
DGCL 1.1
Effective Time 1.1
Elected Stock Consideration Amount 2.1(b)
Election Deadline 2.1(e)(iv)
Election Materials 2.1(d)(iii)(C)
Elections 2.1(e)
Eligible Holders 2.1(d)(ii)(A)
Eligible Holders Election Materials 2.1(d)(ii)(F)
Environmental Laws 3.1(m)(i)
ERISA 3.1(j)(xv)
Excess Shares 2.6(c)(i)
Excess Expense Amount 2.1(c)(iii)
Excess Option Payout 2.1(c)(ii)
Excess Option Payout Share Amount 2.1(c)(ii)
Excess Options 2.1(c)(ii)
Exchange Agent 2.7(a)
Exchange Fund 2.7(a)
Exchange Ratio 2.1(b)(ii)(E)
Expense Adjusted Share Amount 2.1(c)(iii)
FERC 3.1(y)
FIRPTA Affidavit 2.1(d)(ii)(E)
GAAP 3.1(e)(i)
Governmental Entity 3.1(c)(iii)
Group 4.2(g)
Hazardous Materials 3.1(m)(ii)
Hedge 3.1(x)
Hedge Transactions 5.16
HIPAA 3.1(j)(xvi)
Hydrocarbon Contacts 8.15
Hydrocarbon Purchase Agreement 8.15
Hydrocarbon Sales Agreement 8.15
Hydrocarbons 8.15
Initial Termination Date 7.1(c)
Integrated Transaction Recitals
Investor Questionnaire and Election Form 2.1(d)(ii)(A)
IRS 3.1(i)(iii)
XX Xxxxxx 5.16
Knowledge 3.1(b)(vi)
v
Lien 8.15
LLC Sub Recitals
LLC Sub Merger Recitals
Merger Recitals
Merger Consideration 2.1(b)
Merger Sub Preamble
Mixed Consideration 2.1(b)
Mixed Consideration Holders 2.1(b)
NGA 3.1(y)
Non-Competition Agreement Recitals
Non-Eligible Holder Election Materials 2.1(d)(iii)(C)
NYSE 2.1(b)
Oil and Gas Interests 8.15
Oil and Gas Lease 8.15
Ordinary Course of Business 8.15
Parent Preamble
Parent Common Stock 2.1(b)(ii)(A)
Parent Contracts 3.2(w)
Parent Disclosure Schedule 3.2
Parent Employee Benefit Plan 3.2(k)(i)
Parent Employee Pension Benefit Plan 3.2(k)(i)
Parent Employee Welfare Benefit Plan 3.2(k)(i)
Parent ERISA Affiliate 3.2(k)(i)
Parent Group 3.2(j)(i)
Parent Intangible Property 3.2(m)(i)
Parent Litigation 3.2(f)
Parent Material Adverse Effect 3.2(a)
Parent Optional Cash Payout Amount 2.1(b)
Parent Optional Stock Amount 2.1(b)
Parent Permits 3.2(i)
Parent Preferred Stock 3.2(b)
Parent Reserve Reports 3.2(t)
Parent SEC Documents 3.2(d)
Parent Stock Plans 3.2(b)
Per Share Cash Value 2.1(b)(i)
Permitted Encumbrances 8.15
Proxy Card 2.1(d)(i)
Proxy Statement 5.1(a)
Purchaser Letters 3.1(b)(vi)
Qualified Company Employee Benefit Plan 3.1(j)(iii)
Qualified Parent Employee Benefit Plan 3.2(k)(iii)
Registration Rights Agreement Recitals
Release 3.1(m)(iii)
Remedial Action 3.1(m)(iv)
Required Stock Consideration Amount 2.1(b)
Rights Agreement Amendment Recitals
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SEC 3.1(e)(i)
Second Effective Time 5.13(b)(xxi)
Section 262 2.4
Securities Act 2.1(d)(ii)
Significant Subsidiary 3.2(a)
Stock Consideration 2.1(b)
Stock Consideration Holders 2.1(b)
Stock Consideration Minimum Amount 2.1(b)
Stock Consideration Shortfall 2.1(b)
Stock Consideration Tax Amount 2.1(b)
Stock Voting Agreements Recitals
Stockholder Approval 3.1(p)
Stockholders' Meeting 5.3(a)
Xxxxxx XX 3.1(a)
Xxxxxx Ltd. 3.1(a)
Xxxxxx Management 3.1(a)
Xxxxxx Oil and Gas Interests 8.15
Xxxxxx Well 8.15
Subsidiary 3.1(a)
Superior Offer 4.2(g)
Surviving Corporation 1.3(a)
Tax 3.1(i)
Tax Return 3.1(i)
Taxes 3.1(i)
Termination Fee 7.2(b)
Total Merger Consideration Value 2.1(b)
Uncertificated Shares 2.7(a)
Voting Debt 3.1(b)(i)
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of May 10, 2006 (this
"Agreement"), is made by and among Range Resource Corporation, a Delaware
corporation ("Parent"), Range Acquisition Texas, Inc., a Delaware corporation
("Merger Sub"), and Xxxxxx Energy, Inc., a Delaware corporation (the "Company").
WHEREAS, Parent and the Company have determined to engage in a strategic
business combination whereby Merger Sub will be merged with and into the
Company, with the Company continuing as the surviving corporation in such merger
as a direct wholly-owned subsidiary of Parent (the "Merger");
WHEREAS, Parent and the Company have determined that immediately after the
effectiveness of the Merger, the Company shall be merged with and into a
wholly-owned limited liability company subsidiary of Parent ("LLC Sub," and such
merger being referred to herein as the "LLC Sub Merger"), with LLC Sub
continuing as the surviving entity in the LLC Sub Merger as a direct
wholly-owned subsidiary of Parent;
WHEREAS, for federal income tax purposes, it is intended that the Merger
and the LLC Sub Merger constitute an integrated plan described in Rev. Rul.
2001-46, 2001-2 C.B. 321 (the "Integrated Transaction");
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have approved and declared advisable this Agreement and, subject to the
terms and conditions contained herein, the Merger.
WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and an inducement to Parent's and Merger Sub's entering into
this Agreement and incurring the obligations set forth herein, each of Xxxxxxx
X. Xxxxx, Xxxxxxx X. Xxxxx, G. Xxxxxxxxxxx Xxxxxx, Xxxxx X. Xxxxxx, Xxxxxxxxxxx
X. Xxxxxx, Xxxxxx X. Xxxxxx, Xxx X. Xxxxxxx, Xxxxxx X. Xxxxx, Xxxxxxx X.
Xxxxxxx, Xxxxx Xxxxxxx and Xxxxxxx X. Xxxxx is entering into a separate Stock
Voting Agreement with Parent and the Company in the form attached hereto as
Exhibit A, and Xxxxxx X. Xxxxxxxx will enter into a Stock Voting Agreement with
Parent and the Company substantially in such form as soon as practicable after
the date of this Agreement (collectively, the "Stock Voting Agreements"),
pursuant to which each such stockholder has irrevocably agreed to (or, in the
case of Xxxxxx X. Xxxxxxxx, will irrevocably agree to), among other things, vote
his shares of Company Common Stock (as defined herein) in favor of this
Agreement and the Merger;
WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and an inducement to Parent's and Merger Sub's entering into
this Agreement and incurring the obligations set forth herein, the Company is
entering into an amendment to the Rights Agreement (the "Company Rights
Agreement"), dated as of February 17, 2006, by and between the Company and
American Stock Transfer & Trust Company, as Rights Agent, in the form attached
hereto as Exhibit B (the "Rights Agreement Amendment");
WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and an inducement to Parent's and Merger Sub's entering into
this Agreement and
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incurring the obligations set forth herein, Xxxxxxx X. Xxxxx is entering into a
Consulting Agreement with Parent in the form attached hereto as Exhibit C (the
"Consulting Agreement");
WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and an inducement to Parent's and Merger Sub's entering into
this Agreement and incurring the obligations set forth herein, Xxxxxxx X. Xxxxx
is entering into a Non-Competition Agreement with Parent in the form attached
hereto as Exhibit D (the "Non-Competition Agreement";
WHEREAS, concurrently with the execution and delivery of this Agreement,
and as a condition and an inducement to the Company's entering into this
Agreement and incurring the obligations set forth herein, Parent and the Company
are entering into a Registration Rights Agreement in the form attached hereto as
Exhibit E (the "Registration Rights Agreement");
WHEREAS, for Federal income tax purposes, it is intended that the
Integrated Transaction shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations promulgated thereunder, and that this Agreement and the LLC
Sub Merger Agreement will together be, and hereby are, adopted as a plan of
reorganization; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties to this
Agreement agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger; Effective Time of the Merger. Upon the terms and subject to
the conditions of this Agreement, at the Effective Time, Merger Sub shall be
merged with and into the Company in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"). On the Closing Date (defined below),
immediately after the closing of the Merger (the "Closing"), a certificate of
merger, prepared and executed in accordance with the relevant provisions of the
DGCL (the "Certificate of Merger"), shall be filed with the Secretary of State
of the State of Delaware. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such later time as Parent and the Company shall agree and
specify in the Certificate of Merger (the "Effective Time").
1.2 Closing. The Closing shall take place on the date on which the
Stockholder Approval is obtained if all of the conditions set forth in Article
VI are satisfied (or waived in accordance with this Agreement) as of such date
(other than any such conditions which by their nature cannot be satisfied until
the Closing Date, which shall be required to be so satisfied or (to the extent
permitted by applicable law) waived on the Closing Date) at 9:30 a.m., Dallas,
Texas time (or, if the Stockholder Approval shall not have been obtained as of
9:30 a.m. on such date,
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promptly upon obtaining the Stockholder Approval) or, if there are conditions
set forth in Article VI that are not satisfied as of the date on which the
Stockholder Approval is obtained (other than any such conditions which by their
nature cannot be satisfied until the Closing Date), then the Closing shall take
place at 9:30 a.m., Dallas, Texas time, on a date to be specified by the
parties, which shall be no later than the second business day after the
satisfaction (or waiver in accordance with this Agreement) of the latest to
occur of the conditions set forth in Article VI (other than any such conditions
which by their nature cannot be satisfied until the Closing Date, which shall be
required to be so satisfied or (to the extent permitted by applicable law)
waived on the Closing Date), at the offices of Xxxxxx & Xxxxxx L.L.P., 0000 Xxxx
Xxxxxx, Xxxxxx, Xxxxx 00000, unless another date or place is agreed to in
writing by the parties (such date on which the Closing occurs, the "Closing
Date"); provided, that if a Stock Consideration Shortfall exists on the date on
which the Stockholder Approval is obtained, at the option of the Company, the
Closing may be delayed up to five business days after the date the Stockholder
Approval is obtained, during which time Parent shall use its commercially
reasonable efforts to solicit, or cause to be solicited, revised elections from
holders that would eliminate the Stock Consideration Shortfall.
1.3 Effects of the Merger.
(a) At the Effective Time: (i) Merger Sub shall be merged with and
into the Company, the separate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation (the Company (or, as
applicable, its successors and assigns and their respective successors and
assigns) is sometimes referred to herein as the "Surviving Corporation"); (ii)
the Certificate of Incorporation of the Company as in effect immediately prior
to the Effective Time shall be amended in the Merger to delete the text set
forth in Article Nine therein and replace it with a provision that specifically
permits stockholders to effect by written consent any action required or
permitted to be taken by the stockholders at a stockholders' meeting and, as so
amended, shall be the Certificate of Incorporation of the Surviving Corporation
until duly amended or repealed; and (iii) the Bylaws of the Company as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until duly amended or repealed.
(b) The directors of Merger Sub shall, from and after the Effective
Time, be the directors of the Surviving Corporation, and such directors shall
serve until their successors have been duly elected or appointed and qualified
or until their death, resignation or removal in accordance with Surviving
Corporation's Certificate of Incorporation and Bylaws. The officers of Merger
Sub shall, from and after the Effective Time, be the officers of the Surviving
Corporation, and such officers shall serve until their successors have been duly
elected or appointed and qualified or until their death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation and
Bylaws.
(c) The Merger shall have the effects set forth in this Section 1.3
and the applicable provisions of the DGCL.
1.4 Post-Closing Merger. Immediately following the Effective Time, Parent
shall cause the Surviving Corporation to merge with and into LLC Sub, with LLC
Sub continuing as the surviving entity in such merger as a direct wholly-owned
subsidiary of Parent, substantially
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in accordance with the terms of the merger agreement attached hereto as Exhibit
F. There shall be no condition to the completion of the LLC Sub Merger other
than the completion of the Merger. From and after such merger, LLC Sub shall be
the Surviving Corporation for purposes of this Agreement. When the LLC Sub
Merger occurs, Parent shall own all the membership interests and other equity in
LLC Sub, and LLC Sub shall be disregarded for United States federal income tax
purposes.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE COMPANY AND MERGER SUB; EXCHANGE OF CERTIFICATES
2.1 Effect of Merger on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or any holder of any shares of common stock, par value $0.001 per share, of the
Company ("Company Common Stock") or capital stock of Merger Sub:
(a) Conversion of Capital Stock of Merger Sub. Each issued and
outstanding share of the capital stock of Merger Sub shall be converted into one
share of Company Common Stock.
(b) Conversion of Company Common Stock. Subject to Section 2.1(f),
each share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (excluding shares held by any Subsidiary of the Company,
Parent or any Subsidiary of Parent, and excluding Appraisal Shares (as defined
below), but including shares of Company Restricted Stock issued and outstanding
immediately prior to the Effective Time) (the "Company Closing Shares") shall
cease to be outstanding and shall be converted into and exchanged for the right
to receive from Parent, subject to causes (w), (x), (y) and (z) of this Section
2.1(b) below, to the extent applicable:
(i) subject to elections by holders of Company Closing Shares to
receive Parent Common Stock in accordance with Section 2.1(b)(ii) and Section
2.1(b)(iii), an amount in cash (the "Per Share Cash Value") equal to the product
obtained by multiplying the Exchange Ratio by the Average Closing Price; or
(ii) upon the valid election of a holder of Company Closing
Shares to receive Parent Common Stock in accordance herewith:
(A) 0.909 of a share of common stock, par value $0.01 per
share, of Parent ("Parent Common Stock") if the Average Closing Price (as
defined below) is less than $22.00 per share, or
(B) that fraction of a share of Parent Common Stock (rounded
to the third nearest decimal place) equal to the quotient obtained by dividing
$20.00 by the Average Closing Price, if the Average Closing Price is greater
than or equal to $22.00 per share and less than or equal to $24.53 per share, or
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(C) 0.815 of a share of Parent Common Stock if the Average
Closing Price is greater than or equal to $24.54 per share and less than or
equal to $30.67 per share, or
(D) that fraction of a share of Parent Common Stock (rounded
to the third nearest decimal place) equal to the quotient obtained by dividing
$25.00 by the Average Closing Price, if the Average Closing Price is greater
than or equal $30.68 and less than or equal to $33.21, or
(E) 0.753 of a share of Parent Common Stock if the Average
Closing Price is greater than $33.21 (such applicable fraction of a share of
Parent Common Stock, as it may be adjusted pursuant to Section 2.1(c), the
"Exchange Ratio"); or
(iii) upon the valid election of a holder of Company Closing
Shares in accordance herewith to receive cash and Parent Common Stock, (A) an
amount in cash equal to the product of (1) 0.50 multiplied (2) by the Per Share
Cash Value and (B) a fraction of a share of Parent Common Stock equal to the
product of (1) 0.50 multiplied by (2) the Exchange Ratio.
The consideration described in clause (i) above of this Section 2.1(b) is
referred to herein as the "Cash Consideration," the consideration described in
clause (ii) above of this Section 2.1(b) is referred to herein as the "Stock
Consideration," the consideration described in clause (iii) above of this
Section 2.1(b) is referred to herein as the "Mixed Consideration," and the Stock
Consideration, the Cash Consideration, the Mixed Consideration and the cash to
be paid in lieu of fractional shares pursuant to Section 2.6 is collectively
referred to herein as the "Merger Consideration."
Notwithstanding the foregoing provisions of this Section 2.1(b):
(w) in order to receive Stock Consideration or Mixed
Consideration, a holder of Company Closing Shares must be an Eligible Holder and
must make a valid Election pursuant to and in accordance with Section 2.1(e)
(holders that make a valid Election to receive Mixed Consideration being
referred to herein as the "Mixed Consideration Holders," and holders that make a
valid Election to receive Stock Consideration being separately referred to
herein as "Stock Consideration Holders");
(x) subject to the following clause (y), all holders of Company
Closing Shares that are not Mixed Consideration Holders or Stock Consideration
Holders, including as a result of the failure to return properly completed and
executed Eligible Holder Election Materials prior to the Election Deadline, will
receive Cash Consideration in exchange for their shares of Company Common Stock
in the Merger (such holders being referred to herein as the "Cash Consideration
Holders");
(y) notwithstanding the foregoing clause (x), if there is a Stock
Consideration Shortfall, then each Company Closing Share held by a Cash
Consideration Holder that (1) holds, in the aggregate, more than 1% of the
Company Closing Shares, (2) held such shares as of the record date for the
Stockholders' Meeting and continuously held such shares from such record date to
the Effective Time, and (3) properly completed and returned an Investor
Questionnaire and Election Form certifying that it was an "accredited investor"
and satisfies the
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investor suitability standards set forth therein at any time after the delivery
to the Exchange Agent of such holder's Investor Questionnaire and Election Form
or, if no Investor Questionnaire and Election Form is delivered, at the
discretion of Parent, after receipt of the Stockholder Approval (provided Parent
shall have no obligation to accept any Investor Questionnaire and Election Form
from any such holder after receipt of the Stockholder Approval and may elect to
accept such Investor Questionnaire and Election Form after receipt of the
Stockholder Approval from one or more Cash Consideration Holders without any
obligation to accept such Investor Questionnaire and Election Form from other
Cash Consideration Holders) (an "Accredited Cash Elector") shall,
notwithstanding the Accredited Cash Elector's election to receive the Cash
Consideration, be converted into and exchanged for the right to receive from
Parent the Adjusted Per Share Stock Amount and the Adjusted Per Share Cash
Amount; provided further that:
(A) if the number of shares of Parent Common Stock allocated
to Cash Consideration Holders pursuant to this clause (y) (but not taking into
account this subclause (A) or subclause (B) of this clause (y)) is not otherwise
sufficient to eliminate the Stock Consideration Shortfall, and removing the
requirement that an Accredited Cash Elector hold, in the aggregate, more than 1%
of the Company Closing Shares would cause a sufficient number of shares of
Parent Common Stock to be allocated to Cash Consideration Holders to eliminate
the Stock Consideration Shortfall (either by itself or together with the further
adjustment contemplated by subclause (B) below of this clause (y)), then the
requirement in subclause (1) of this clause (y) shall not apply in order for a
Cash Consideration Holder to be deemed an Accredited Cash Elector;
(B) if the number of shares of Parent Common Stock allocated
to Cash Consideration Holders pursuant to this clause (y) (taking into account
subclause (A) above of this clause (y) but not taking into account this
subclause (B)) is not otherwise sufficient to eliminate the Stock Consideration
Shortfall, then the number of additional shares of Parent Common Stock necessary
to be issued as Merger Consideration in order to eliminate the Stock
Consideration Shortfall shall be allocated on a pro-rata basis to every Company
Closing Share held by an Accredited Cash Elector (taking into account subclause
(A) of this clause (y)) and Mixed Consideration Holder (in the case of
Accredited Cash Electors, such number shall be in addition to the Adjusted Per
Share Stock Amount and, in the case of Mixed Consideration Holders, such number
shall be in addition to the Parent Common Stock component of such Mixed
Consideration, provided that in no event shall a fraction of a share of Parent
Common Stock in excess of the Exchange Ratio be issued in exchange for each
Company Closing Share in the Merger), and the amount of cash to be issued in
exchange for any such Company Closing Share shall be an amount equal to the
difference of (1) the Per Share Cash Value, minus (2) the product of the
fraction of a share of Parent Common Stock to be issued in exchange for such
Company Closing Share pursuant to this clause (y) multiplied by the Average
Closing Price; and
(C) notwithstanding the foregoing provisions of this clause
(y), if the number of shares of Parent Common Stock that would otherwise be
allocated to Accredited Cash Electors and Mixed Consideration Holders pursuant
to this clause (y), taking into account subclauses (A) and (B) above of this
clause (y), is not sufficient to eliminate the Stock Consideration Shortfall
(which, for purposes of this subclause (C), shall be calculated on the basis
that the Required Stock Consideration Amount equals the Stock Consideration Tax
Amount), then none of the provisions of this clause (y) shall apply.
6
(z) in the event that the Exchange Ratio exceeds 0.815, and the
Elected Stock Consideration Amount represents more than 90% of the Total Merger
Consideration Value, then, if Parent so elects, in its sole discretion, each
Company Closing Share held by a Stock Consideration Holder shall,
notwithstanding such Stock Consideration Holder's election to receive Stock
Consideration, be converted into and exchanged for the right to receive from
Parent the Parent Optional Cash Payout Amount and the Parent Optional Stock
Amount.
As used herein, the following terms have the meanings given below:
"Adjusted Stock Amount" means a number of shares of Parent Common Stock
equal to the quotient of (A) the Stock Consideration Shortfall, divided by (B)
the Average Closing Price.
"Adjusted Per Share Cash Amount" means an amount in cash equal to the
difference of (A) the Per Share Cash Value, minus (B) the product of (1) the
Adjusted Per Share Stock Amount multiplied by (2) the Average Closing Price.
"Adjusted Per Share Stock Amount" means a fraction of a share of Parent
Common Stock equal to the quotient of (A) the Adjusted Stock Amount, divided by
(B) the total number of Company Closing Shares that are held by Accredited Cash
Electors; provided that, in no event shall the Adjusted Per Share Stock Amount
exceed an amount equal to the product of (1) 0.50 multiplied by (2) the Exchange
Ratio.
"Average Closing Price" means the average (rounded to the nearest second
decimal place) of the daily closing prices for the shares of Parent Common Stock
for the fifteen consecutive full trading days on which such shares are actually
traded on the New York Stock Exchange (the "NYSE") (as reported in The Wall
Street Journal or, if not reported thereby, any other authoritative source
selected by Parent) ending at the close of trading on the fifth trading day
prior to the Closing Date.
"Company Restricted Stock" means any award of restricted Company Common
Stock outstanding as of immediately prior to the Effective Time that shall not
have previously expired or terminated, to a current or former employee, director
or independent contractor of the Company or any of the Subsidiaries of the
Company or any predecessor thereof pursuant to any applicable Company Stock Plan
or any other contract or agreement entered into by the Company or any of the
Subsidiaries of the Company.
"Elected Stock Consideration Amount" means an amount in dollars equal to
the product of (A) the sum of (1) the total number of Company Closing Shares
with respect to which a valid Election to receive Stock Consideration has been
made, plus (2) an amount equal to the product of (x) 0.50 multiplied by (y) the
total number of Company Closing Shares with respect to which a valid Election to
receive Mixed Consideration has been made, multiplied by (B) the Per Share Cash
Value.
"Parent Optional Cash Payout Amount" means an amount in cash equal to the
quotient of (A) an amount, as determined by Parent in its sole discretion, equal
to up to the excess of (1) 10% of the Total Merger Consideration Value over (2)
the amount of cash to be paid as Cash Consideration pursuant to Section
2.1(b)(i) and pursuant to valid Elections to receive Mixed Consideration (in
each case without giving affect to Section 2.1(b)(z)), and in respect of
7
Appraisal Shares (assuming for purposes of this definition that each Appraisal
Share is converted into an amount in cash equal to the Per Share Cash Value),
divided by (B) the number of Company Closing Shares that are held by Stock
Consideration Holders; provided that, if the sum of (1) the Parent Optional Cash
Payout Amount and (2) the product of the Parent Optional Stock Amount multiplied
by the Average Closing Price, does not equal the Per Share Cash Value, then the
Parent Optional Cash Payout Amount shall be adjusted such that the sum of (1)
the Parent Optional Cash Payout Amount and (2) the product of the Parent
Optional Stock Amount multiplied by the Average Closing Price shall equal the
Per Share Cash Value.
"Parent Optional Stock Amount" means a fraction of a share of Parent Common
Stock equal to the quotient of (A) the difference of (1) the Per Share Cash
Value minus (2) the Parent Optional Cash Payout Amount (prior to any adjustment
as provided in the definition thereof), divided by (B) the Average Closing
Price.
"Required Stock Consideration Amount" means an amount in dollars equal to
the greater of the Stock Consideration Minimum Amount and the Stock
Consideration Tax Amount; provided that, in the event that the Stock
Consideration Minimum Amount exceeds the Stock Consideration Tax Amount, then
Parent may, in its sole discretion, deem the Required Stock Consideration Amount
to equal any amount that is equal to or greater than the Stock Consideration Tax
Amount but that is less than the Stock Consideration Minimum Amount.
"Stock Consideration Shortfall" means the amount by which the Required
Stock Consideration Amount exceeds the Elected Stock Consideration Amount
(provided that, if the Elected Stock Consideration Amount exceeds the Required
Stock Consideration Amount, then no Stock Consideration Shortfall shall be
deemed to exist).
"Stock Consideration Minimum Amount" means an amount in dollars equal to
the product of (A) 0.50 multiplied by (B) the Total Merger Consideration Value.
"Stock Consideration Tax Amount" means an amount in dollars equal to the
product of (A) the Average Closing Price, multiplied by (B) the number of shares
of Parent Common Stock that are required to be paid as Merger Consideration in
order for the Merger and the LLC Sub Merger to satisfy the continuity of
interest requirement under Treasury Regulation Section 1.368-1(e), as reasonably
determined in good faith by the Company by the Closing, with such determination
being subject to the approval of Parent, which shall not be unreasonably
withheld.
"Total Merger Consideration Value" means an amount in dollars equal to the
product of (A) the sum of (1) the total number of Company Closing Shares plus
(2) the total number of Appraisal Shares, multiplied by (B) the Per Share Cash
Value.
(c) Excess Expense Adjustment; Capitalization Adjustment.
(i) If, as of immediately prior to the Effective Time, there
shall be outstanding any capital stock of the Company other than a number of
shares of Company Common Stock equal to or less than the sum of (A) 16,174,189,
plus (B) 848,424 less the number of shares of Company Common Stock subject to
then outstanding options or awards under the Company's 2005 Incentive Plan that
were issued and outstanding as of the date of this Agreement and set forth on
Schedule 3.1(b) of the Company Disclosure Schedule, plus (C) 500,
8
then, at the option of Parent, in its sole discretion, the Exchange Ratio shall
be adjusted to equal that fraction (rounded to the nearest third decimal place)
of a share of Parent Common Stock equal to the quotient of (1) the Adjusted Per
Share Cash Value, divided by (2) the Average Closing Price. "Adjusted Per Share
Cash Value" means the quotient of (x) the Total Merger Consideration Value
(calculated for these purposes as if the number of shares of Company Closing
Shares equals the sum of the amounts in subclauses (A) and (B) of this clause
(i), and without taking into account any adjustment to the Exchange Ratio
required by this clause (i) or clauses (ii) or (iii) of this clause (c)),
divided by (y) the total number of Company Closing Shares.
(ii) If, as of immediately prior to the Effective Time, there
shall be any shares of Company Common Stock subject to issuance under options,
awards or other instruments that were not outstanding as of the date of this
Agreement and set forth on Schedule 3.1(b) of the Company Disclosure Schedule
(the "Excess Options"), then, at the option of Parent, in its sole discretion,
the Exchange Ratio shall be adjusted to equal that fraction (rounded to the
nearest third decimal place) of a share of Parent Common Stock equal to the
quotient of (A) the Excess Option Payout Share Amount, divided by (B) the total
number of Company Closing Shares. "Excess Option Payout Share Amount" means an
amount (rounded to the nearest second decimal place) equal to the quotient of
(1) the difference of (x) the Total Merger Consideration Value (with the
calculation of such amount to take into account any adjustment to the Exchange
Ratio required by clause (i) of this clause (c) but not any adjustment to the
Exchange Ratio required by this clause (ii) or clause (iii) of this clause (c)),
minus (y) the Excess Option Payout, divided by (2) the Average Closing Price.
"Excess Option Payout" means an amount equal to the difference of (1) the
product of (x) the total number of Excess Options, multiplied by (y) Per Share
Cash Value, minus (2) the aggregate exercise price for all of the Excess
Options.
(iii) In the event that the Company incurs out-of-pocket expenses
in excess of $500,000 between the date of this Agreement and the Effective Time
in connection with, relating to, or as a result of, any Acquisition Proposal
(such excess amount, the "Excess Expense Amount"), then the Exchange Ratio shall
be adjusted to equal that fraction (rounded to the nearest third decimal place)
of a share of Parent Common Stock equal to the quotient of (A) the Expense
Adjusted Share Amount, divided by (B) the total number of Company Closing
Shares. "Expense Adjusted Share Amount" means an amount (rounded to the nearest
second decimal place) equal to the quotient of (1) the difference of (x) the
Total Merger Consideration Value (with the calculation of such amount to take
into account any adjustment to the Exchange Ratio required by clause (i) and
clause (ii) of this Section 2.1(c) but not any adjustment to the Exchange Ratio
required by this clause (iii)) minus (B) the Excess Expense Amount, divided by
(B) the Average Closing Price.
(d) Proxy Materials. The Company shall mail with the Proxy Statement
to each person who is a holder of record of Company Common Stock on the record
date for the Stockholders' Meeting:
(i) a proxy card pursuant to which holders of Company Common
Stock shall indicate whether they authorize the proxies designated therein to
vote in favor of the approval of the Merger and this Agreement at the
Stockholders' Meeting (a "Proxy Card"),
9
(ii) with respect to holders of Company Common Stock whom Parent
has determined in good faith may be offered and sold Parent Common Stock in
exchange for their shares of Company Common Stock pursuant to an exemption from
registration under the U.S. federal securities laws pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
and applicable state securities laws or, in the case of non-U.S. holders of
Company Common Stock, pursuant to regulations promulgated under the Securities
Act and applicable securities laws of foreign jurisdictions ("Eligible
Holders"):
(A) an investor questionnaire and election form
substantially in the form attached hereto as Exhibit G (with such modifications
thereto as are reasonably agreed upon by Parent and the Company) pursuant to
which each Eligible Holder shall be able to elect to receive Stock
Consideration, Cash Consideration or Mixed Consideration (an "Election"), and
regardless of the type of Merger Consideration chosen, shall make certain
representations regarding investor suitability and related matters set forth
therein (an "Investor Questionnaire and Election Form"),
(B) appropriate transmittal materials and instructions for
the surrender of Certificates and the transfer of Uncertificated Shares, in each
case to be effective as of the Effective Time (which shall specify that delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the Certificates or irrevocable instructions to transfer the
Uncertificated Shares to the Exchange Agent),
(C) a selling securityholder questionnaire to be used in
compiling information for the registration statement to be filed by Parent
pursuant to the Registration Rights Agreement,
(D) a joinder to the Registration Rights Agreement pursuant
to which such holder agrees to be bound by the terms and conditions of the
Registration Rights Agreement,
(E) a certificate of nonforeign status meeting the
requirements of Treasury Regulation Section 1.1445-2(b)(2) (a "FIRPTA
Affidavit") and
(F) an IRS Form W-9 (in the case of a U.S. person) or
appropriate IRS Form W-8 (in the case of a non-U.S. person), or applicable
substitute thereof, or instructions regarding where to obtain such forms (the
materials described in clauses (i) and (ii)(A) through (ii)(F) collectively, the
"Eligible Holder Election Materials"), and
(iii) with respect to holders of Company Common Stock that are
not Eligible Holders:
(A) appropriate transmittal materials and instructions for
the surrender of Certificates and the transfer of Uncertificated Shares (which
shall specify that delivery shall be effected, and risk of loss and title shall
pass, only upon proper delivery of the Certificates or irrevocable instructions
to transfer the Eligible Holders Uncertificated Shares to the Exchange Agent),
(B) a FIRPTA Affidavit,
10
(C) an IRS Form W-9 (in the case of a U.S. person) or
appropriate IRS Form W-8 (in the case of a non-U.S. person), or applicable
substitute thereof, or instructions regarding where to obtain such forms (the
materials described in clauses (i) and (iii)(A) through (iii)(C) collectively,
the "Non-Eligible Holder Election Materials," and together with the Eligible
Holder Election Materials, the "Election Materials").
(e) Elections. For a record holder of Company Closing Shares to effect
a valid Election to receive the Mixed Consideration or the Stock Consideration,
such holder must:
(i) be an Eligible Holder,
(ii) have held such shares as of the record date for the
Stockholders' Meeting,
(iii) have held such shares continuously from the record date to
the Effective Time, and
(iv) have properly completed, signed and delivered to the
Exchange Agent by the close of business on the last business day prior to the
date on which the Stockholders' Meeting is held (the "Election Deadline") the
Eligible Holder Election Materials with an election to receive Stock
Consideration or Mixed Consideration, as applicable, in the Investor
Questionnaire and Election Form.
Parent will have the discretion, which it may delegate in whole or in part
to the Exchange Agent, to determine whether Election Materials have been
properly completed, signed and submitted and to disregard immaterial defects in
Election Materials. The decision of Parent (or the Exchange Agent) in such
matters shall be conclusive and binding. Neither Parent nor the Exchange Agent
will be under any obligation to notify any person of any defect in Election
Materials submitted to the Exchange Agent. If an Eligible Holder's Eligible
Holder Election Materials are not properly completed, signed and timely
submitted and such defect is not waived by Parent, then a purported Election to
receive Stock Consideration or Mixed Consideration therein shall be deemed to be
of no force and effect and an Election to receive Cash Consideration shall be
deemed to have been made with respect to the shares of Company Common Stock
subject to such defective Eligible Holder Election Materials; provided, however,
that, if Parent determines in its sole discretion (either prior to or after the
Election Deadline) to contact any Eligible Holder that submitted defective
Eligible Holder Election Materials (such that a purported Election therein to
receive Stock Consideration or Mixed Consideration is invalid) in order cause
such defective Eligible Holder Election Materials to be corrected, then the
Company shall cooperate with Parent in contacting any such holder and, if any
such defective Eligible Holder Election Materials are cured to the satisfaction
of Parent in its sole discretion, then such Eligible Holder shall be deemed to
have made a valid Election to receive Stock Consideration or Mixed
Consideration, as applicable; and provided further that, if Parent determines in
its sole discretion (either prior to or after the Election Deadline) to contact
any Eligible Holder that submitted an Election to receive Cash Consideration,
then the Company shall cooperate with Parent in contacting any such holder and,
if any such holder replaces its previous Election with an Election to receive
Stock Consideration or Mixed Consideration, then such Eligible Holder shall be
deemed to have made a valid Election to receive Stock
11
Consideration or Mixed Consideration, as applicable. Each holder shall make the
same Election with respect to all of such holder's shares of Company Common
Stock. All Certificates so surrendered and all Uncertificated Shares subject to
irrevocable instructions to transfer shall be subject to the exchange procedures
set forth in Section 2.7. The Exchange Agent shall also make all computations
contemplated by this Section 2.1 and all such computations shall be conclusive
and binding on the holders of Company Common Stock absent manifest error. In the
case of shares that are certificated, the Exchange Agent shall not accept
guarantee of delivery of Certificates in lieu of physical delivery of
Certificates. An Election may not be revoked, provided that Parent, in its sole
discretion, may permit (i) an Election by an Eligible Holder to receive Cash
Consideration to be revoked in exchange for an election to receive Stock
Consideration or Mixed Consideration and (ii) an Election by an Eligible Holder
to receive Mixed Consideration to be revoked in exchange for an Election to
receive Stock Consideration. In the event that this Agreement is terminated
pursuant to the provisions hereof and any Certificates have been transmitted to
the Exchange Agent pursuant to the provisions hereof, such Certificates shall be
promptly returned without charge to the person submitting same and any
irrevocable instructions to transfer, in the case of Uncertificated Shares,
shall be deemed null and void.
(f) Rounding Principles.
(i) To the extent any calculation provided for in this Section
2.1 results in fractional numbers, then except as otherwise expressly provided
for in this Section 2.1 and in Section 2.1(f)(ii), (A) all fractional dollar or
cash amounts shall be rounded to the nearest three decimal places and (B) all
fractional share amounts shall be rounded to the nearest four decimal places.
(ii) To determine the amount of cash or the number of shares of
Parent Common Stock that a holder of Company Closing Shares is entitled to
receive with respect to such holder's Company Closing Shares pursuant to Section
2.1(b), the following rounding principles shall apply:
(A) the amount of cash each holder of Company Closing Shares
shall be entitled to receive pursuant to Section 2.1(b)(i) shall be determined
by aggregating the Per Share Cash Value for all Company Closing Shares held by
such holder and rounding such aggregate amount to the nearest second decimal
place;
(B) the number of shares of Parent Common Stock each holder
of Company Closing Shares shall be entitled to receive pursuant to Section
2.1(b)(ii) shall be determined by aggregating the fractional shares of Parent
Common Stock for all Company Closing Shares held by such holder and rounding
such aggregate amount to the nearest third decimal place;
(C) the amount of cash each holder of Company Closing Shares
shall be entitled to receive pursuant to Section 2.1(b)(iii) shall be determined
by aggregating the cash amount determined pursuant to Section 2.1(b)(iii)(A) for
all Company Closing Shares held by such holder and rounding such aggregate
amount to the nearest second decimal place, and the number of shares of Parent
Common Stock such holder of Company Closing Shares shall be
12
entitled to receive pursuant to Section 2.1(b)(iii)(B) shall be determined by
aggregating the fractional amount determined pursuant to Section 2.1(b)(iii)(B)
for all Company Closing Shares held by such holder and rounding such aggregate
amount to the nearest third decimal place; and
(D) the amount of cash each Accredited Cash Elector or Mixed
Consideration Holder is entitled to receive pursuant to clause (y) of Section
2.1(b) shall be determined by aggregating the cash amount to be issued for all
Company Closing Shares held by such Accredited Cash Elector or Mixed
Consideration Holder and rounding such aggregate amount to the nearest second
decimal place and the number of shares of Parent Common Stock to be received by
each Accredited Cash Elector or Mixed Consideration Holder pursuant to clause
(y) shall be determined by aggregating the shares of Parent Common Stock to be
received for all Company Closing Shares held by such Accredited Cash Elector or
Mixed Consideration Holder and rounding such aggregate amount to the nearest
third decimal place.
2.2 Anti-Dilution Provisions.
(a) In the event that Parent changes the number of shares of Parent
Common Stock issued and outstanding prior to the Effective Time as a result of a
stock split, stock combination, stock dividend, or similar recapitalization with
respect to such stock and if the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split, stock
combination or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Exchange Ratio shall be
appropriately adjusted.
(b) In the event that, prior to the Effective Time, Parent shall
consummate a merger, consolidation, share exchange or other reorganization, or
any other transaction with another person or entity pursuant to which the
holders of Parent Common Stock receive or become entitled to receive securities,
cash or other assets or any combination thereof, each holder of Company Closing
Shares subject to a valid Election to receive Stock Consideration or Mixed
Consideration shall be entitled to receive at the Effective Time for each
Company Closing Share that would otherwise be converted into and exchanged for
the right to receive Parent Common Stock, the amount of securities, cash or
other assets that such holder would have received or become entitled to receive
had such holder been the record holder of the number of shares of Parent Common
Stock issuable to such holder of Company Common Stock pursuant to Section 2.1
had the Effective Time occurred immediately prior to the consummation of such
transaction.
2.3 Shares Held by Parent, the Company or Subsidiaries. Each of the shares
of Company Common Stock held by Parent or any Subsidiary of Parent or the
Company or any Subsidiary of the Company shall be canceled and retired at the
Effective Time and no consideration shall be issued in exchange therefor.
2.4 Appraisal Shares. Shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time that are held by any holder who has not
voted in favor of the approval of this Agreement and the Merger and is entitled
to demand and properly demands appraisal of such shares pursuant to, and who
complies in all respects with, the provisions of Section 262 of the DGCL
("Section 262") shall not be converted into the right to receive the
13
Merger Consideration payable pursuant to Section 2.1(b), but instead such holder
shall be entitled to payment of the fair value of such shares (the "Appraisal
Shares") in accordance with the provisions of Section 262. At the Effective
Time, all Appraisal Shares shall no longer be outstanding and shall
automatically be canceled and shall cease to exist, and each holder of Appraisal
Shares shall cease to have any rights with respect thereto, except the right to
receive the fair value of such Appraisal Shares in accordance with the
provisions of Section 262. Notwithstanding the foregoing, if any such holder
shall fail to perfect or otherwise shall waive, withdraw or lose the right to
appraisal under Section 262 or if a court of competent jurisdiction shall
determine that such holder is not entitled to the relief provided by Section
262, then the right of such holder to be paid the fair value of such holder's
Appraisal Shares under Section 262 shall cease and each of such Appraisal Shares
shall be deemed to have been converted at the Effective Time into, and shall
have become, the right to receive the Cash Consideration with respect to such
shares (without regard to Section 2.1(b)(y)). The Company shall deliver prompt
notice to Parent of any demands for appraisal of any shares of Company Common
Stock, any withdrawal of such a demand for appraisal and any other instrument
delivered to the Company pursuant to Section 262, and Parent shall have the
right to participate in and direct all negotiations and proceedings with respect
to such demands. Prior to the Effective Time, the Company shall not, without the
prior written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands, or agree to do any of the foregoing.
2.5 Treatment of Stock Options and Restricted Stock. Each outstanding
Company Option and share of Company Restricted Stock shall be treated as
provided in Section 5.6.
2.6 Fractional Shares.
(a) No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of the Certificates and the Uncertificated Shares, no dividend or
distribution of Parent shall relate to such fractional share interests, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Parent.
(b) In lieu of such fractional share interests, Parent shall either
(i) pay to each former holder of Company Common Stock an amount in cash equal to
the product obtained by multiplying (A) the fractional share interest to which
such former holder (after taking into account all shares of Company Common Stock
held at the Effective Time by such holder) would otherwise be entitled by (B)
the Average Closing Price or (ii) instruct the Exchange Agent to follow the
procedures set forth in Section 2.6(c).
(c) If Parent shall have instructed the Exchange Agent to follow the
procedures in this Section 2.6(c):
(i) The Exchange Agent shall determine the excess of (A) the
aggregate number of shares of Parent Common Stock that would be distributed to
holders of the Certificates and the Uncertificated Shares pursuant to Section
2.1 if no effect were given to Section 2.6(a) over (B) the aggregate number of
whole shares of Parent Common Stock to be distributed to holders of the
Certificates and the Uncertificated Shares pursuant to Section 2.1, taking into
account the effect of Section 2.6(a) (such excess, the "Excess Shares").
14
(ii) As soon as practicable after the Effective Time, the
Exchange Agent shall sell the Excess Shares at then-prevailing prices on the
NYSE, in the manner set forth below.
(iii) The sale of the Excess Shares by the Exchange Agent shall
be executed on the NYSE and shall be executed in round lots to the extent
practicable. Parent shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with such sale of the Excess Shares.
Until the proceeds of such sale or sales have been distributed to the holders of
the Certificates and the Uncertificated Shares (or paid to Parent pursuant to
Section 2.7(f)), the Exchange Agent shall hold such proceeds in trust for the
holders of the Certificates and the Uncertificated Shares (the "Common Stock
Trust"). The Exchange Agent shall determine the portion of the Common Stock
Trust to which each holder of a Certificate or an Uncertificated Share shall be
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Stock Trust by a fraction, the numerator of which is the
amount of the fractional share interest in the Parent Common Stock to which such
holder of a Certificate or an Uncertificated Share is entitled and the
denominator of which is the aggregate amount of fractional share interests in
the Parent Common Stock to which all holders of the Certificates and the
Uncertificated Shares are entitled. Parent shall comply with the provisions of
Rule 236(c) under the Securities Act.
(iv) As soon as practicable after the determination of the amount
of cash, if any, to be paid to holders of Certificates and the Uncertificated
Shares in lieu of any fractional share interests, the Exchange Agent shall make
available such amounts, without interest, to such holders of Certificates that
have surrendered their Certificates or Uncertificated Shares, as the case may
be, in accordance with Section 2.7.
2.7 Exchange of Certificates.
(a) As of the Effective Time, Parent shall deposit with Parent's
transfer agent or such other bank or trust company designated by Parent and
reasonably acceptable to the Company (provided that the Company agrees that
Parent's transfer agent, Computershare Shareholder Services, Inc., is acceptable
to the Company) (the "Exchange Agent") the Merger Consideration to be issued and
paid in respect of certificates representing Company Closing Shares (the
"Certificates") and uncertificated Company Closing Shares ("Uncertificated
Shares") (the "Exchange Fund"); provided that in the event the number of shares
of Parent Common Stock or the amount of cash to be delivered to a holder of
Company Closing Shares as of the Effective Time shall be adjusted after the
Effective Time pursuant to the provisions of this Article II, then such number
of shares of Parent Common Stock and/or cash, as applicable, shall be delivered
to the Exchange Agent promptly upon the determination of any such adjustment.
From time to time as necessary, Parent shall deposit with the Exchange Agent
cash to be paid in lieu of fractional shares as contemplated by Section 2.6 and
any dividends or other distributions to which holders of Company Closing Shares
are entitled pursuant to Section 2.7(d). The Exchange Fund shall not be used for
any other purpose. As soon as reasonably practicable after the Effective Time
but in no event later than five business days thereafter, Parent and the
Surviving Corporation shall cause the Exchange Agent to mail to each Cash
Consideration Holder that did not previously submit the appropriate Election
Materials to the Exchange Agent: (i) appropriate
15
transmittal materials and instructions for the surrender of Certificates (which
shall specify that delivery shall be effected, and risk of loss and title shall
pass, only upon proper delivery of the Certificates to the Exchange Agent), (ii)
a FIRPTA Affidavit, and (iii) an IRS Form W-9 (in the case of a U.S. person) or
appropriate IRS Form W-8 (in the case of a non-U.S. person), or applicable
substitute thereof, or instructions regarding where to obtain such forms (unless
the Exchange Agent already possesses such materials with respect to such
holder); provided that, in the sole discretion of Parent, in the case of a Cash
Consideration Holder that is an Eligible Holder that did not previously submit
Eligible Holder Election Materials to the Exchange Agent, Parent may cause such
holders to receive the Eligible Holder Election Materials and may permit such
holders to elect to receive either Stock Consideration or Mixed Consideration if
such Eligible Holder Election Materials are completed, executed and submitted to
the Exchange Agent with an Election to receive Stock Consideration or Mixed
Consideration within 30 days after the Effective Time. The Certificate or
Certificates so delivered shall be duly endorsed as the Exchange Agent may
reasonably require. The Exchange Agent shall not accept guarantee of delivery of
Certificates in lieu of physical delivery of Certificates. If any Certificate
shall have been lost, stolen, mislaid or destroyed, upon receipt of (i) an
affidavit of that fact from the holder claiming such Certificate to be lost,
mislaid, stolen or destroyed, (ii) such bond, security or indemnity as Parent
and the Exchange Agent may reasonably require, (iii) such processing fee as the
Exchange Agent may reasonably require and (iv) any other documents necessary to
evidence and effect the bona fide exchange thereof, the Exchange Agent shall
issue to such holder the consideration into which the shares represented by such
lost, stolen, mislaid or destroyed Certificate shall have been converted. The
Exchange Agent may establish such other reasonable and customary rules and
procedures in connection with its duties as it may deem appropriate. For
purposes of this Agreement, "business day" means any day that is not a Saturday
or Sunday or other day on which banks are required or authorized by law to be
closed in New York, New York or Dallas, Texas.
(b) Each holder of Company Closing Shares that have been converted
into the right to receive the Merger Consideration shall be entitled promptly to
receive, upon (i) surrender to the Exchange Agent of a Certificate, together
with a properly completed letter of transmittal, or (ii) receipt by the Exchange
Agent of a shipment control list from the Depository Trust Company (or such
other evidence, if any, of transfer as the Exchange Agent may reasonably
request) in the case of a book-entry transfer of Uncertificated Shares, the
Merger Consideration in respect of the Company Closing Shares represented by a
Certificate or Uncertificated Share, together with all undelivered dividends or
distributions in respect of such shares (without interest) pursuant to Section
2.7(d). The shares of Parent Common Stock issued as Merger Consideration shall
be in uncertificated book-entry form unless such Parent Common Stock is issued
in exchange for Certificates, in which case the holder will receive Parent
Common Stock in certificated form unless such holder elects to receive
book-entry shares.
(c) Each of Parent, the Surviving Corporation and the Exchange Agent
shall be entitled to and will deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Company Closing
Shares such amounts, if any, as it is required to deduct and withhold with
respect to the making of such payment under the Code or any provision of state,
local or foreign Tax law, including any required withholding of excise taxes
under Section 4999 of the Code. To the extent that any amounts are so withheld
by Parent, the Surviving Corporation or the Exchange Agent, as the case may be,
such withheld amounts shall
16
be treated for all purposes of this Agreement as having been paid to the holder
of the Company Closing Shares in respect of which such deduction and withholding
was made by Parent, the Surviving Corporation or the Exchange Agent, as the case
may be, and, with respect to any such withholdings that are compensation, shall
not be treated as a dividend.
(d) At the Effective Time, the stock transfer books of the Company
shall be closed as to holders of Company Common Stock immediately prior to the
Effective Time and no transfer of Company Common Stock by any such holder shall
thereafter be made or recognized. Until surrendered or transferred for exchange
in accordance with the provisions of Section 2.7(a), each Certificate or
Uncertificated Share theretofore representing Company Closing Shares shall from
and after the Effective Time represent for all purposes only the right to
receive the applicable Merger Consideration in exchange therefor, subject,
however, to the Surviving Corporation's obligation to pay any dividends or make
any other distributions with a record date prior to the Effective Time which
have been declared or made by the Company in respect of such shares of Company
Common Stock in accordance with the terms of this Agreement and which remain
unpaid at the Effective Time. Whenever a dividend or other distribution is
declared by Parent on the Parent Common Stock, the record date for which is at
or after the Effective Time, the declaration shall include dividends or other
distributions on all shares of Parent Common Stock issuable pursuant to this
Agreement, but after the Effective Time no dividend or other distribution
payable to the holders of record of Parent Common Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
Certificate or Uncertificated Share until such holder surrenders such
Certificate or transfers such Uncertificated Share for exchange as provided in
Section 2.7(a). If any portion of the Cash Consideration is to be paid to a
person other than the person in whose name the surrendered Certificate or the
transferred Uncertificated Share is registered, it shall be a condition to such
payment that (i) either such Certificate shall be properly endorsed or shall
otherwise be in proper form for transfer or such Uncertificated Share shall be
properly transferred and (ii) the person requesting such payment shall pay to
the Exchange Agent any transfer or other taxes required as a result of such
payment to a person other than the registered holder of such Certificate or
Uncertificated Share or establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not payable. No Mixed Consideration or Stock
Consideration shall be paid to a person other than the person in whose name the
surrendered Certificate or the transferred Uncertificated Share is registered as
of the Effective Time. If, after the Effective Time, Certificates are presented
or Uncertificated Shares are transferred to the Surviving Corporation for any
reason other than to perfect statutory appraisal rights, they shall be canceled
and exchanged as provided in this Section 2.7. Shares of Parent Common Stock
held in the Exchange Fund, until their issuance in the Merger upon surrender of
Certificates or transfer of Uncertificated Shares or until such shares are
delivered to a public official or Parent as contemplated by Section 2.7(f),
shall be deemed issued and outstanding shares of Parent Common Stock. In
connection with any meeting of stockholders of Parent, the Exchange Agent shall
be directed to cause such shares to be present and counted for purposes of
determining the presence of a quorum, and the Exchange Agent shall be directed
to cause such shares to be voted for, voted against, abstained and not voted in
the same proportion as the shares of Parent Common Stock outstanding and not
held in the Exchange Fund. From and after such time as any shares of Parent
Common Stock held in the Exchange Fund are returned to the Company as
contemplated by the last sentence of Section 2.7(f), such shares shall be deemed
to be held in treasury and shall not be considered issued and outstanding shares
of Parent Common Stock.
17
(e) Any portion of the Exchange Fund and any cash in lieu of
fractional shares of Parent Common Stock made available to the Exchange Agent
that remain undistributed to the former stockholders of the Company on the first
anniversary of the Effective Time shall be delivered to Parent, upon demand, and
any stockholders of the Company who have not theretofore received the Merger
Consideration and cash and other dividends or distributions to which they are
entitled under this Article II shall thereafter look only to Parent, as a
general creditor thereof, for payment of their claim for the Merger
Consideration and any dividends or distributions with respect to Parent Common
Stock.
(f) Neither Parent nor the Surviving Corporation shall be liable to
any holder of shares of Company Common Stock for such shares (or dividends or
distributions with respect thereto) or cash in lieu of fractional shares of
Parent Common Stock delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Any amounts remaining unclaimed by
holders of any such shares at such date as is immediately prior to the time at
which such amounts would otherwise escheat to or become property of any
governmental entity shall, to the extent permitted by applicable law, become the
property of Parent, free and clear of any claims or interest of any such holders
or their successors, assigns or personal representatives previously entitled
thereto.
2.8 Expiration of Company Rights. Immediately prior to the Effective Time,
the rights to purchase Company Common Stock in accordance with the Company
Rights Agreement (each, a "Company Right") shall expire as provided in the
Rights Agreement Amendment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Merger Sub as follows (such representations and
warranties being deemed to be made as of the date hereof and as of the Closing)
(in each case except as otherwise disclosed in Amendment No. 2 to Form S-1 filed
by the Company with the SEC on April 6, 2006 (Registration No. 333-129504), or
as qualified by matters reflected on the disclosure schedule dated as of the
date of this Agreement and delivered by the Company to Parent on or prior to the
date of this Agreement (the "Company Disclosure Schedule") (each reference to
such disclosure schedule qualifies the referenced representation and warranty to
the extent specified therein and such other representations and warranties
contained herein (regardless of whether or not such representation or warranty
contains a reference to such disclosure schedule) to the extent a matter in such
disclosure schedule is disclosed in such a way as to make its relevance to the
information called for by such other representation or warranty readily apparent
on its face)):
(a) Organization, Standing and Power. Each of the Company and its
Subsidiaries (as defined herein) (i) is a corporation, limited liability company
or partnership duly organized or formed, validly existing and in good standing
under the laws of its jurisdiction of incorporation, organization or formation,
(ii) has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and (iii) is
duly qualified and licensed, as may be required, and in good standing to do
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification and
licensing necessary, other than in such jurisdictions
18
where the failure so to be qualified and licensed could not, individually or in
the aggregate, reasonably be expected to result in a Company Material Adverse
Effect (as defined herein). The Company has delivered or made available to
Parent complete and correct copies of its Certificate of Incorporation and
Bylaws, each as amended to date, and correct and complete copies of its
Subsidiaries' organizational documents, each as amended to date. All
Subsidiaries of the Company and their respective ownership structure and their
respective jurisdictions of incorporation, organization or formation are
identified on Schedule 3.1(a) of the Company Disclosure Schedule. Neither the
Company nor any of its Subsidiaries owns any equity interest in any general or
limited partnership, corporation, limited liability company or other entity
except as set forth in Schedule 3.1(a) of the Company Disclosure Schedule. The
officers and directors of the Company, the members (and the membership interest
held by each member), managers, officers and directors of each of Xxxxxx Energy
GP, LLC, a Delaware limited liability company ("Xxxxxx XX"), and Xxxxxx Energy
Management GP, LLC, a Texas limited liability company ("Stroud Management"), and
the officers, directors, managers and partners (and the partnership interest
held by each partner) of Xxxxxx Energy, Ltd., a Texas limited partnership
("Stroud Ltd."), are set forth in Schedule 3.1(a) of the Company Disclosure
Schedule.
As used in this Agreement: the term (i) "Company Material Adverse Effect"
means any result, occurrence, condition, fact, change, violation, event or
effect of any of the foregoing (whether or not (A) foreseeable as of the date of
this Agreement or (B) covered by insurance) that, individually or in the
aggregate with any such other results, occurrences, conditions, facts, changes,
violations, events or effects (whether or not such result, occurrence,
condition, fact, change, violation, event or effect has, during the period or at
any time in question, manifested itself in the historical financial statements
of the Company or any of its Subsidiaries), (w) is materially adverse to the
historical or near-term or long-term financial condition, properties, business
or results of operations of the Company and its Subsidiaries taken as a whole,
(x) would materially impair the ability of the Company to perform its
obligations under this Agreement, (y) would materially impair the ability of the
Company and its Subsidiaries to own, hold, develop or operate their assets and
properties, or (z) would prevent the consummation of the transactions
contemplated by this Agreement; provided, however, that in no event shall any
change in conditions affecting the oil and natural gas exploration and
production industry constitute a Company Material Adverse Effect (except for any
changes referred to in this proviso which, individually or in the aggregate,
disproportionately affect the financial condition, properties, business or
results of operations of the Company and its Subsidiaries taken as a whole, as
compared to other industry participants); and (ii) "Subsidiary" means, with
respect to the Company or Parent, as the case may be, any entity, whether
incorporated or unincorporated, of which at least a majority of the securities
or other ownership interests having by their terms voting power to elect a
majority of the board of directors or other persons performing similar functions
is directly or indirectly owned or controlled by such party or by one or more of
its respective Subsidiaries.
(b) Capitalization; Compliance with Securities Laws.
(i) As of the date hereof, the authorized capital stock of the
Company consists of 75,000,000 shares of Company Common Stock and 10,000,000
shares of preferred stock, par value $.001 per share, of the Company ("Company
Preferred Stock"). As of the date of this Agreement: (A) 16,174,189 shares of
Company Common Stock were issued and
19
outstanding, including 748,618 shares subject to restrictions under the
Company's Restricted Stock Plan; (B) no shares of Company Preferred Stock were
issued and outstanding; (C) no shares of Company Common Stock were held by the
Company in its treasury; (D) 848,424 shares of Company Common Stock were subject
to issuance under outstanding options or awards under the Company's 2005 Stock
Incentive Plan, Restricted Stock Plan, and any other stock option, stock bonus,
stock award, or stock purchase plan, program or arrangement of the Company or
any of the Company's Subsidiaries or any predecessor thereof (collectively,
"Company Stock Plans"); (E) 694,053 shares of Company Common Stock were reserved
for issuance pursuant to awards that may be granted (other than currently
outstanding awards) pursuant to the Company Stock Plans; (F) no shares of
Company Common Stock were reserved for issuance upon exercise of Company Rights;
and (G) no Voting Debt is issued and outstanding. The term "Voting Debt" means
bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote) on any matters on which
stockholders of the Company may vote. All issued shares of Company Common Stock
are validly issued, fully paid and nonassessable and are not subject to and were
not issued in violation of any purchase option, call option, right of first
refusal, right of first offer, preemptive right, subscription right or any
similar right. When shares subject to or reserved for issuance pursuant to the
applicable Company Stock Plans are issued, such shares will be validly issued,
fully paid and nonassessable and not subject to or issued in violation of any
purchase option, call option, right of first refusal, right of first offer,
preemptive right, subscription right or any similar right. Schedule 3.1(b) of
the Company Disclosure Schedule lists all outstanding options, warrants or other
rights to subscribe for, purchase or acquire from the Company or any Subsidiary
of the Company any capital stock of the Company or securities convertible into
or exchangeable for capital stock of the Company (and (1) the holder thereof,
(2) the exercise, conversion, purchase, exchange or other similar price thereof
and (3) whether such options, warrants or other rights are vested or unvested
and the vesting schedule thereof) and all outstanding shares of Company
Restricted Stock (and (1) the holder thereof and (2) the schedule for lapsing of
forfeiture restrictions on such shares).
(ii) Except as set forth on Schedule 3.1(b) of the Company
Disclosure Schedule, all outstanding shares of capital stock of the Subsidiaries
of the Company are validly issued, fully paid and nonassessable, are not subject
to and were not issued in violation of any purchase option, call option, right
of first refusal, right of first offer, preemptive right, subscription right or
any similar right, and are owned by the Company or a direct or indirect wholly
owned Subsidiary of the Company free and clear of all liens, charges,
encumbrances, claims and options of any nature.
(iii) Except as set forth in this Section 3.1(b) or on Schedule
3.1(b) of the Company Disclosure Schedule, and except for changes since the date
of this Agreement resulting from the exercise of stock options granted prior to
the date of this Agreement pursuant to, or from issuances or purchases under,
the Company Stock Plans, or as contemplated by this Agreement, there are
outstanding: (A) no shares of capital stock, Voting Debt or other voting
securities of the Company; (B) no securities of the Company or any Subsidiary of
the Company convertible into or exchangeable for shares of capital stock, Voting
Debt or other voting securities of Company or any Subsidiary of the Company; and
(C) no options, warrants, calls, rights (including preemptive rights),
commitments or agreements to which the Company or any Subsidiary of the Company
is a party or by which it is bound in any case obligating the Company
20
or any Subsidiary of the Company to issue, deliver, sell, purchase, redeem or
acquire, or cause to be issued, delivered, sold, purchased, redeemed or
acquired, additional shares of capital stock or any Voting Debt or other voting
securities of the Company or of any Subsidiary of the Company, or obligating the
Company or any Subsidiary of the Company to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement.
(iv) Except for the Stock Voting Agreements, there are not as of
the date hereof and there will not be at the Effective Time any stockholder
agreements, voting trusts or other agreements or understandings to which the
Company is a party or by which it is bound relating to the voting of any shares
of the capital stock of the Company that will limit in any way the solicitation
of proxies by or on behalf of the Company from, or the casting of votes by, the
stockholders of the Company with respect to the Merger.
(v) There are no restrictions on the Company to vote the stock of
any of its Subsidiaries. Except as set forth on Schedule 3.1(b) of the Company
Disclosure Schedule, there are no agreements requiring the Company or any
Subsidiary of the Company to make contributions to the capital of, or lend or
advance funds to, any Subsidiary of the Company.
(vi) The Company and each of its Subsidiaries has complied with
all federal and state securities laws with respect to the offer, sale and
issuance of equity interests of the Company and each of its Subsidiaries,
including: (A) the September 23, 2005 issuance of 9,740,058 shares of Company
Common Stock to the equity holders of Stroud Oil Properties, Inc. and its
operating subsidiaries, Xxxxxx Energy Management, Ltd. and Xxxxxx Energy, Ltd.;
(B) the September 23, 2005 issuance of 6,064,359 shares of Company Common Stock;
(C) the September 23, 2005 issuance of 66,000 shares of Company Restricted Stock
to certain employees of the Company pursuant to the Company's Restricted Stock
Plan, of which 10,000 shares have now been cancelled; (D) the October 18, 2005
issuance of 185,641 shares of Company Common Stock; (E) the October 26, 2005
issuance of 9,375 shares of Company Common Stock to certain members of the
Company's board of directors pursuant to the Company's 2005 Stock Incentive
Plan; (F) the December 29, 2005 issuance of 1,391 shares of Company Common Stock
in connection with an employee of the Company exercising options to purchase
shares of Company Common Stock; and (G) the March 6, 2006 issuance of 35,000
shares of Company Restricted Stock to an executive officer of the Company and
the May 9, 2006 issuance of 82,365 shares of Company Restricted Stock to certain
employees pursuant to the Company's Restricted Stock Plan. Schedule 3.1(b) of
the Company Disclosure Schedule sets forth, as of the date of this Agreement, a
complete and accurate list of all the holders of record of Company Common Stock
and the number of shares of Company Common Stock held of record and, to the
knowledge of the Company, beneficially, by each holder. Each holder that
acquired shares of Company Common Stock in the issuance described in clause (A)
of this Section 3.1(b)(vi) executed and delivered to the Company a copy of the
Combination Agreement by and among the Company, Xxxxxx Oil Properties, Inc.,
Stroud Energy Management, Ltd., Xxxxxx Energy, Ltd. and the equity holders
identified therein, dated August 1, 2005. The Company has no reason to believe
that the representations of each holder of Company Common Stock contained in
such agreement were not true and correct as of the date made or are not true and
correct as of the date hereof. The Company has made available to Parent copies
of all duly executed purchaser's letters (the "Purchaser Letters") it received
from each holder that acquired shares of Company Common Stock in the issuances
described in clauses (B) and (D) of this
21
Section 3.1(b)(vi). The Company has no reason to believe that the
representations of each holder of Company Common Stock contained in the
Purchaser Letters were not true and correct as of the date made or are not true
and correct as of the date hereof. Except as set forth on Schedule 3.1(b) of the
Company Disclosure Schedule, no holder of Company Common Stock who acquired
Company Common Stock in the transactions described in clauses (A) through (G) of
this Section 3.1(b)(vi) has transferred record or, to the knowledge of the
Company, beneficial ownership of the shares of Company Common Stock so acquired
by such holder. For purposes of this Agreement, "knowledge" means, with respect
to the Company, the actual knowledge of the officers listed on Schedule 3.1(b)
of the Company Disclosure Schedule under the heading "Company Knowledge" and,
with respect to Parent, the actual knowledge of the officers listed on Schedule
3.2(f) of the Parent Disclosure Schedule under the heading "Parent Knowledge."
(c) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power and authority
to enter into this Agreement, the Stock Voting Agreements and the Rights
Agreement Amendment and, subject, with respect to consummation of the Merger, to
the Stockholder Approval, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement, the Stock Voting Agreements and
the Rights Agreement Amendment and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, subject, with respect to consummation of the Merger,
to the Stockholder Approval. This Agreement, the Stock Voting Agreements and the
Rights Agreement Amendment have been duly executed and delivered by the Company
and, subject, with respect to consummation of the Merger, to the Stockholder
Approval, this Agreement, the Stock Voting Agreements and the Rights Agreement
Amendment constitute the valid and binding obligations of the Company
enforceable in accordance with their respective terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors' rights and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ii) Except as set forth on Schedule 3.1(c) of the Company
Disclosure Schedule, the execution and delivery of this Agreement and the Rights
Agreement Amendment by the Company and the execution and delivery of the Stock
Voting Agreements by the Company and its stockholders party thereto do not, and
the consummation of the transactions contemplated hereby and thereby and
compliance by the Company and its stockholders with the provisions hereof and
thereof will not, conflict with, or result in any violation of or default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or to the
loss of a material benefit under, or give rise to a right of purchase under,
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any of its Subsidiaries
under, or otherwise result in a material detriment to the Company or any of its
Subsidiaries under, any provision of (A) the Certificate of Incorporation or
Bylaws of the Company (each as amended to date) or any provision of the
comparable charter or organizational documents of any of its Subsidiaries, (B)
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
the Company or any of its Subsidiaries, (C) any joint venture or other ownership
22
arrangement or (D) assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section 3.1(c)(iii) below are duly
and timely obtained or made and the Stockholder Approval has been obtained, any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its Subsidiaries or any of their respective properties
or assets, other than, in the case of clause (B) or (C), any such conflicts,
violations, defaults, rights, liens, security interests, charges, encumbrances
or detriments that, individually or in the aggregate, could not reasonably be
expected to result in a Company Material Adverse Effect.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any court,
governmental, regulatory or administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement,
the Stock Voting Agreements and the Rights Agreement Amendment by the Company or
the consummation by the Company of the transactions contemplated hereby, except
for: (A) the filing of the Certificate of Merger for the Merger with the
Secretary of State of the State of Delaware; (B) such filings and approvals as
may be required by any applicable state securities, "blue sky" or takeover laws,
or environmental laws; (C) such governmental or tribal consents, qualifications
or filings as are customarily obtained or made in connection with the transfer
of interests or the change of control of ownership in oil and gas properties;
and (D) any such consent, approval, order, authorization, registration,
declaration, filing or permit that the failure to obtain or make could not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect.
(d) Absence of Certain Changes or Events. Except as set forth on
Schedule 3.1(d) in the Company Disclosure Schedule or as disclosed in, or
reflected in the Company Financial Statements (defined below) or except as
contemplated by this Agreement, since December 31, 2005, the Company has
conducted its business only in the Ordinary Course of Business, and there has
not been: (i) any material damage, destruction or other casualty loss (whether
or not covered by insurance) affecting the business or assets owned or operated
by the Company and its Subsidiaries; (ii) any event, condition, action or
occurrence that, if taken during the period from the date of this Agreement
through the Effective Time, would constitute a breach of Section 4.1(a) hereof
(other than (A) subclauses (xxv) and (xxvi) of Section 4.1(a) and (B) with
respect to subclauses (xvii), (xix) and (xxiii), as disclosed in Schedule 3.1(z)
of the Company Disclosure Schedule); or (iii) any other transaction, commitment,
dispute or other event or condition (financial or otherwise) of any character
(whether or not in the Ordinary Course of Business) that has resulted in or
could reasonably be expected to result in a Company Material Adverse Effect.
(e) Financial Statements; No Undisclosed Liabilities.
(i) The Company has delivered or made available to Parent copies
of the audited consolidated balance sheets of the Company and its Subsidiaries
as of December 31, 2005, 2004 and 2003 (such December 31, 2005 balance sheet
being referred to as the "Company Balance Sheet"), together with the audited
consolidated statements of operations, cash flows and stockholders' equity for
the years then ended (including the notes thereto), accompanied by the report
thereon of PricewaterhouseCoopers LLP, independent registered public accountants
(such
23
audited consolidated financial statements and the notes thereto collectively
being referred to as the "Company Financial Statements"). The Company Financial
Statements were prepared from the books and records of the Company and its
Subsidiaries, complied as to form in all material respects with the published
rules and regulations of the Securities and Exchange Commission ("SEC") with
respect thereto, were prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present in
accordance with applicable requirements of GAAP the consolidated financial
position of the Company and its consolidated Subsidiaries as of their respective
dates and the consolidated results of operations and the consolidated cash flows
of the Company and its consolidated Subsidiaries for the periods presented
therein.
(ii) Except as set forth on Schedule 3.1(e) of the Company
Disclosure Schedule, as of the date hereof, there is no liability or obligation
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, of the Company or any of its Subsidiaries other than:
(A) liabilities adequately reflected or reserved against on the Company Balance
Sheet; (B) liabilities incurred in the Ordinary Course of Business consistent
with past practice since December 31, 2005; and (C) any other liabilities that,
taken as a whole, do not exceed $100,000 in the aggregate. The aggregate amount
of indebtedness of the Company and its Subsidiaries outstanding as of May 8,
2006, under the Senior Secured Revolving Credit Agreement by and among Xxxxxx
Energy, Ltd., X.X. Xxxxxx Securities Inc., as Lead Arranger and Book Manager,
JPMorgan Chase Bank, N.A., as Issuing Bank and Administrative Agent, BNP
Paribas, as Syndication Agent, and the financial institutions party thereto,
dated March 2, 2006, is $93,000,000 plus accrued interest that is not yet
payable (the "Company Credit Facility").
(f) No Default. Neither the Company nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any term, condition
or provision of: (i) the Certificate of Incorporation or Bylaws of the Company
(each as amended to date) or the comparable charter or organizational documents
of any of its Subsidiaries; (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license to which the Company or any of its Subsidiaries is now a
party or by which the Company or any of its Subsidiaries or any of their
respective properties or assets is bound; or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company or any of its
Subsidiaries, except in the case of clauses (ii) and (iii) for defaults or
violations that, individually or in the aggregate, could not reasonably be
expected to result in a Company Material Adverse Effect.
(g) Compliance with Applicable Laws. The Company and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders, registrations,
franchises and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Company Permits"), except where any
failure so to hold could not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. The Company and its
Subsidiaries are in compliance with the terms of the Company Permits, except
where any failure so to comply could not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect. The
businesses of the Company and
24
its Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for violations which could not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect; provided, however, notwithstanding the foregoing, no
representation or warranty in this Section 3.1(a) is made with respect to Taxes,
ERISA matters or Environmental Laws, which are covered exclusively by the
provisions set forth in Sections 3.1(i), (j) and (m). As of the date of this
Agreement, no investigation or review by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or, to the knowledge of the
Company as of the date hereof, threatened, other than those the outcome of which
could not, individually or in the aggregate, reasonably be expected to result in
a Company Material Adverse Effect.
(h) Litigation. Except as set forth on Schedule 3.1(h) of the Company
Disclosure Schedule, as of the date of this Agreement, there is no suit, action
or proceeding pending, or, to the knowledge of the Company, threatened against
or affecting the Company or any Subsidiary of Company ("Company Litigation"),
and the Company has no knowledge of any facts that are likely to give rise to
any Company Litigation, that, individually or in the aggregate, could reasonably
be expected to result in a Company Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any Subsidiary of the Company
that, individually or in the aggregate, could reasonably be expected to result
in a Company Material Adverse Effect. Notwithstanding the foregoing, no
representation or warranty in this Section 3.1(h) is made with respect to
Environmental Laws, which are covered exclusively by the provisions set forth in
Section 3.1(m).
(i) Taxes. Except as set forth on Schedule 3.1(i) of the Company
Disclosure Schedule:
(i) Each of the Company, each of its Subsidiaries and any
affiliated, consolidated, combined, unitary or similar group of which the
Company or any of its Subsidiaries is or was a member (a "Company Group") has
(A) duly filed on a timely basis (taking into account any extensions) all
material Tax Returns (as hereinafter defined) required to be filed or sent by or
with respect to it and all such Tax Returns are true, correct and complete in
all material respects, (B) duly paid or deposited on a timely basis all material
Taxes (as hereinafter defined) that are shown to be due and payable on or with
respect to such Tax Returns, and all material Taxes that are otherwise due and
payable for which the Company or any of its Subsidiaries may be liable, (C)
established reserves that are adequate for the payment of all material Taxes not
yet due and payable with respect to the results of operations of the Company and
its Subsidiaries through the date hereof, and (D) complied in all material
respects with all applicable laws, rules and regulations relating to the
reporting, payment and withholding of Taxes that are required to be withheld
from payments to employees, independent contractors, creditors, stockholders or
any other third party and has in all material respects timely withheld from
employee wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over.
(ii) The Company has previously made available to Parent true,
correct and complete copies of (A) all income and other material Tax Returns
filed by or on behalf of the Company, any Subsidiary of the Company and any
Company Group for all completed Tax years
25
that remain open for audit or review by the relevant taxing authority and (B)
all ruling requests, private letter rulings, notices of proposed deficiencies,
closing agreements, settlement agreements and any similar documents or
communications sent or received by or on behalf of the Company, any Subsidiary
of the Company or any Company Group relating to Taxes. No unresolved audits or
other administrative proceedings or court proceedings are pending, or to the
knowledge of the Company, threatened, with regard to any Taxes for which the
Company or any of its Subsidiaries would be liable, and no unpaid material
deficiency for any Taxes has been proposed, asserted or assessed (whether by
examination report or prior to completion of examination by means of notices of
proposed adjustment or other similar requests or notices) against the Company or
any of its Subsidiaries by any taxing authority with respect to any period. All
material Hedging transactions entered into by the Company and its Subsidiaries
have been properly identified for federal income tax purposes. No claim is
pending and no claim has ever been made that has not been resolved by an
authority in a jurisdiction where the Company or any Subsidiary of the Company
does not file Tax Returns that the Company or such Subsidiary of the Company, as
the case may be, is or may be subject to Tax in that jurisdiction.
(iii) Neither the Company nor any of its Subsidiaries has
executed or entered into with the Internal Revenue Service ("IRS") or any taxing
authority (A) any unexpired agreement or other document extending or having the
effect of extending the period for assessment or collection of any Taxes for
which the Company or any of its Subsidiaries would be liable or the filing of
any Tax Return required to be filed by the Company or any of its Subsidiaries or
(B) a closing agreement pursuant to Section 7121 of the Code or any similar
provision of state, local, foreign or other income tax law, which will require
any increase in taxable income or alternative minimum taxable income, or any
reduction in tax credits, for the Company or any of its Subsidiaries for any
taxable period ending after the Closing Date. Neither the Company nor any
Subsidiary of the Company is subject to any private letter ruling of the IRS or
comparable ruling of other tax authorities that will be binding on the Company
or any Subsidiary of the Company with respect to any period following the
Closing Date. Neither the Company nor any Subsidiary of the Company has granted
any power of attorney, which is currently in force with respect to any income,
franchise or similar Taxes or any income, franchise or similar Tax Returns.
(iv) Neither the Company nor any of its Subsidiaries is a party
to, is bound by or has any obligation under any Tax sharing, indemnity or
allocation agreement or similar agreement, arrangement or practice. Neither the
Company nor any Subsidiary of the Company has been a member of a Company Group
other than a Company Group of which the Company was the common parent. Neither
the Company nor any of its Subsidiaries has any liability for Taxes of another
person or entity (other than the Company and its Subsidiaries) under Treasury
Regulation Section 1.1502-6, any similar provision of state and local law, as a
transferee, by contract, or otherwise.
(v) There are no requests for rulings or outstanding subpoenas
from any taxing authority for information with respect to Taxes of the Company
or any of its Subsidiaries and no material reassessments (for property or ad
valorem Tax purposes) of any assets or any property owned or leased by the
Company or any of its Subsidiaries have been proposed in written form.
26
(vi) Neither the Company nor any of its Subsidiaries has agreed
to make any adjustment pursuant to Section 481(a) of the Code (or any
predecessor provision) by reason of any change in any accounting method of the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has any application pending with any taxing authority requesting
permission for any changes in any accounting method of the Company or any of its
Subsidiaries. Neither the IRS nor any other taxing authority has proposed in
writing, and neither the Company nor any of its Subsidiaries is otherwise
required to make, any such adjustment or change in accounting method.
(vii) No property of the Company nor any of its Subsidiaries is
held in an arrangement that could be classified as a partnership for Tax
purposes, and neither the Company nor any of its Subsidiaries owns any interest
in any controlled foreign corporation (as defined in Section 957 of the Code),
passive foreign investment company (as defined in Section 1297 of the Code) or
other entity the income of which is or could be required to be included in the
income of the Company or any of its Subsidiaries.
(viii) Neither the Company nor any of its Subsidiaries will be
required to include any amount in income for any taxable period ending after the
Closing Date as a result of a change in accounting method for any taxable period
ending on or before the Closing Date or pursuant to any agreement with any
taxing authority with respect to any such taxable period. Neither the Company
nor any Subsidiary of the Company will be required to include in any period
ending after the Closing Date any income that accrued in a prior period but was
not recognized in any prior period as a result of the installment method of
accounting, the completed contract method of accounting, the long-term contract
method of accounting, the cash method of accounting or otherwise.
(ix) There are no material excess loss accounts or deferred
intercompany transactions between the Company and/or any of its Subsidiaries
within the meaning of Treasury Regulation Section 1.1502-19 or 1.1502-13,
respectively.
(x) Neither the Company nor any Subsidiary of the Company has
constituted either a "distributing corporation" or a "controlled corporation"
(within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of
stock qualifying for tax-free treatment under Section 355(a) of the Code.
(xi) None of the Company, its Subsidiaries or any affiliated,
consolidated, combined, unitary or similar group of which any of the Company or
its Subsidiaries is or was a member has participated, directly or indirectly, in
any (A) reportable transaction within the meaning of Treasury Regulation Section
1.6011-4(b) or (B) Tax shelter required to be registered under Section 6111 of
the Code. The Company and each Subsidiary of the Company has disclosed on its
federal income tax returns all positions taken therein that could, if not so
disclosed, give rise to a substantial understatement penalty within the meaning
of Section 6662 of the Code.
(xii) Neither the Company nor any of its Subsidiaries has made
any payments, is obligated to make any payments, or is a party to any plan or
agreement that under certain circumstances could obligate it to make any
payments that would not be deductible under
27
Sections 162(m), 280G (determined without regard to the exceptions contained in
Section 280G(b)(4) and 280G(b)(6)), 404 or 409A of the Code.
For purposes of this Agreement, "Tax" (and, with correlative meaning,
"Taxes") means:(i) any net income, alternative or add on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
production, severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest and/or
any penalty, addition to tax or additional amount imposed by any taxing
authority; (ii) any liability for the payment of any amounts of the type
described in clause (i) as a result of being a member of an affiliated or
consolidated group, or arrangement whereby liability for payment of such amounts
was determined or taken into account with reference to the liability of any
other person for any period; and (iii) liability with respect to the payment of
any amounts of the type described in clauses (i) or (ii) as a result of any
express or implied obligation to indemnify any other person.
"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes,
including any Company Group Tax Return in which the Company or any of its
Subsidiaries is included and any Parent Group Tax Return in which the Parent or
any of its Subsidiaries is included, as the case may be.
(j) Employee Benefit Plans; ERISA. Except as otherwise provided in
this Agreement or set forth on Schedule 3.1(j) of the Company Disclosure
Schedule:
(i) There are no Company Employee Benefit Plans established,
maintained, contributed to or required to be contributed to, by the Company or
any entity with which the Company is considered a single employer under Section
414(b), (c), (m) or (o) of the Code ("Company ERISA Affiliates"), and there are
no Company Employee Pension Benefit Plans which the Company or any Company ERISA
Affiliate has established, maintained, contributed to, or been required to
contribute to, within six years prior to the Effective Time. As used in this
Agreement, "Company Employee Benefit Plan" means any plan, program, policy,
practice, agreement or other arrangement providing compensation or benefits in
any form to any current or former employee, independent contractor, officer or
director of the Company or any Subsidiaries of the Company or any beneficiary or
dependent thereof, whether written or unwritten, formal or informal, including
any "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA
("Company Employee Welfare Benefit Plan"), any "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA (whether or not such plan is subject
to ERISA) ("Company Employee Pension Benefit Plan") and any other pension,
profit sharing, bonus, incentive compensation, deferred compensation, vacation,
sick pay, stock purchase, stock option, phantom equity, equity compensation,
severance, employment, consulting, unemployment, hospitalization or other
medical, life or other insurance, long or short-term disability, change of
control, material fringe benefit or any other similar plan, program or policy.
(ii) With respect to each Company Employee Benefit Plan, the
Company has provided Parent with a true, correct and complete copy of: (A) each
writing constituting a part of such Company Employee Benefit Plan (including,
but not limited to, the plan document(s), adoption agreement, prototype or
volume submitter documents, trust
28
agreement, annuity contract, third party administrative contracts and insurance
contracts) and all amendments thereto; (B) the three most recent Annual Reports
(Form 5500 Series) including all applicable schedules, if required; (C) the
current summary plan description and any material modifications thereto, if
required to be furnished under ERISA, or any written summary provided to
participants with respect to any plan for which no summary plan description
exists; (D) the most recent determination letter (or if applicable, advisory or
opinion letter) from the IRS, if any, or if an application for a determination
letter is pending, the application with all attachments; (E) all notices given
to such Company Employee Benefit Plan, the Company or any Company ERISA
Affiliate by the IRS, Department of Labor, Pension Benefit Guaranty Corporation
or other governmental agency relating to such Company Employee Benefit Plan; and
(F) a written description of each oral Company Employee Benefit Plan.
(iii) Each Company Employee Benefit Plan that is intended to be
"qualified" within the meaning of Section 401(a) of the Code ("Qualified Company
Employee Benefit Plan"), has received a favorable determination letter from the
IRS that has not been revoked or is a prototype plan subject to an IRS opinion
letter, and no event has occurred and no condition exists that could reasonably
be expected to adversely affect the qualified status of any such Company
Employee Benefit Plan. Any favorable determination letters referenced in this
Section 3.1(j)(iii) cover "GUST" as defined in footnote 2 of IRS Notice 2003-49.
Each Qualified Company Employee Benefit Plan has timely made "good faith"
amendments to comply with the Economic Growth and Tax Reconciliation Relief Act
of 2001 as required by IRS Notice 2001-42. The trusts established under the
Qualified Company Employee Benefit Plans are exempt from federal income taxes
under Section 501(a) of the Code and any potential excise taxes.
(iv) The Company has (A) filed or caused to be filed all returns
and reports on the Company Employee Benefit Plans that are required to be filed
and (B) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other material fees, interest, penalties and
assessments that are payable by or for the Company and its Subsidiaries relating
to the Company Employee Benefits Plans have been timely reported, fully paid and
discharged. There are no material unpaid fees, penalties, interest or
assessments due from the Company or, to the knowledge of the Company, from any
other person or entity relative to any Company Employee Benefit Plan. The
Company and its Subsidiaries have collected or withheld all amounts that are
required to be collected or withheld by them to discharge their obligations with
respect to the Company Employee Benefit Plans, and all of those amounts have
been paid to the appropriate governmental authority or set aside in appropriate
accounts for future payment when due.
(v) The funding, if any, under each Company Employee Welfare
Benefit Plan does not exceed and has not exceeded the limitations under Sections
419A(b) and 419A(c) of the Code. The Company and its Subsidiaries are not
subject to taxation on the income of any Company Employee Welfare Benefit Plan's
welfare benefit fund (as such term is defined in Section 419(e) of the Code)
under Section 419A(g) of the Code. All Company Employee Welfare Benefit Plans
required to comply with the health care continuation coverage ("COBRA")
provisions of ERISA and the Code have complied with such requirements in all
material respects.
29
(vi) Each Company Employee Benefit Plan has been operated and
administered in all material respects in accordance with its provisions. All
contributions required to be made to any Company Employee Benefit Plan (or to
any person pursuant to the terms thereof) have been timely made or the amount of
such payment or contribution obligation has been reflected in the Company's
financial statements. All such contributions representing participant
contributions have been made within the time required by Department of Labor
regulation section 2510.3-102.
(vii) The Company and its Subsidiaries have complied, and are now
in compliance with, in all material respects, all provisions of ERISA, the Code
and all laws and regulations applicable to the Company Employee Benefit Plans.
Neither the Company nor any of its Subsidiaries has engaged in any prohibited
transaction, within the meaning of Section 4975 of the Code or Section 406 of
ERISA, as a fiduciary or party in interest with respect to any Company Employee
Benefit Plan which could reasonably be expected to result in any material
liability, and, to the knowledge of the Company or any of its Subsidiaries, (A)
no prohibited transaction has occurred with respect to any Company Employee
Benefit Plan and (B) no fiduciary has any liability for breach of fiduciary duty
or any other failure to act or comply in connection with the administration or
investment of assets of any Company Employee Benefit Plan.
(viii) Neither the Company nor any entity that is or has been a
Company ERISA Affiliate within the six years preceding the date of this
Agreement has, within the six year period preceding the date of this Agreement
sponsored, maintained, or contributed to any employee benefit plan subject to
Title IV of ERISA. No Company Employee Welfare Benefit Plan is a multiple
employer welfare arrangement as defined in Section 3(40) of ERISA.
(ix) The Company and its Subsidiaries have not offered to provide
life, health or medical benefits or insurance coverage to any individual, or to
the family members of any individual, for any period extending beyond the
termination of the individual's employment, except to the extent required by the
COBRA provisions in ERISA and the Code or similar provisions of state law.
(x) The consummation of the transactions contemplated by this
Agreement will not, either alone or in connection with termination of
employment, (A) entitle any current or former employee, independent contractor,
director or officer of the Company or its Subsidiaries to severance pay, any
change in control payment or any other material payment, except as expressly
provided in this Agreement, (B) accelerate the time of payment or vesting,
change the form or method of payment or increase the amount of compensation due,
any such employee, independent contractor, director or officer, or (C) entitle
any such employee, independent contractor, director or officer to any gross up
or similar material payment in respect of the excise tax described in Section
4999 of the Code. Neither the Company nor any Subsidiary of the Company has
taken any action that would result in its incurring any obligation for any
payments or benefits described in subsections (A), (B) or (C) of this Section
3.1(j)(x) (without regard to whether the transactions contemplated by this
Agreement are consummated) except to the extent required in a written contract
or agreement in existence as of the date of this Agreement.
30
(xi) As of the date of this Agreement, there are no suits,
actions, proceedings, investigations, claims or orders pending or, to the
knowledge of the Company, threatened against the Company, any Subsidiary of the
Company or any Company Employee Benefit Plan related to any Company Employee
Benefit Plan (other than claims in the Ordinary Course of Business). As of the
date of this Agreement, no Company Employee Benefit Plan is subject to any
ongoing audit, investigation or other administrative proceeding of any
governmental entity, and no Company Employee Benefit Plan is the subject of any
pending application for administrative relief under any voluntary compliance
program or closing agreement program of the IRS or the Department of Labor.
(xii) The Company has the right to amend or terminate each
Company Employee Benefit Plan at any time without incurring any liability other
than with respect to benefits that have already accrued under a Company Employee
Pension Benefit Plan.
(xiii) Neither the Company nor any Company ERISA Affiliate has a
formal plan, commitment or proposal, whether legally binding or not, nor has any
of them made a commitment to employees, officers, directors, consultants or
independent contractors to create any additional Company Employee Benefit Plan
or modify, change or terminate any existing Company Employee Benefit Plan, and
no such plan, commitment or proposal is under serious consideration. To the
knowledge of the Company, no events have occurred or are expected to occur with
respect to any Company Employee Benefit Plan that would cause a material change
in the cost of providing the benefits under such plan or would cause a material
change in the cost of providing for other liabilities of such plan.
(xiv) None of the assets of any Company Employee Pension Benefit
Plan include "qualifying employer securities" or "qualifying employer real
property" within the meaning of Section 407(d) of ERISA.
(xv) As used in this Agreement, "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder.
(xvi) Each Company Employee Benefit Plan that is a "group health
plan," as defined in Section 607(1) of ERISA, Section 5001(b)(1) of the Code or
45 C.F.R. 160.103, has been operated at all times in material compliance with
the provisions of COBRA, HIPAA and any applicable, similar state law. As used in
this Agreement, "HIPAA" means the provisions of ERISA and the Code enacted by
the Health Insurance Portability and Accountability Act of 1996, including any
regulations thereunder, and the regulations promulgated by the United States
Department of Health and Human Services as set forth in 45 C.F.R. Parts 160,
162, and 164.
(xvii) Each Company Employee Pension Benefit Plan that is not
qualified under Section 401(a) of the Code is exempt from Part 2, 3 and 4 of
Title I of ERISA as an unfunded plan that is maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees pursuant to Section 201(2), 301(a)(3) and 401(a)(1)
of ERISA. No assets of the Company are allocated to or held in a "rabbi trust"
or similar vehicle with respect to any such plan.
31
(k) Labor Matters.
(i) Except as set forth on Schedule 3.1(k) of the Company
Disclosure Schedule:
(A) Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or other current labor agreement
with any labor union or organization, and there is no current union
representation question involving employees of the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries know of any
activity or proceeding of any labor organization (or representative thereof) or
employee group (or representative thereof) to organize any such employees.
(B) As of the date hereof, there is no unfair labor
practice, charge or grievance arising out of a collective bargaining agreement
or other grievance procedure against the Company or any of its Subsidiaries
pending, or, to the knowledge of the Company, threatened, that, individually or
in the aggregate, constitutes, or could reasonably be expected to result in, a
Company Material Adverse Effect.
(C) There is no complaint, lawsuit or proceeding in any
forum by or on behalf of any present or former employee, any applicant for
employment or any classes of the foregoing alleging breach of any express or
implied contract of employment, any law or regulation governing employment or
the termination thereof or other discriminatory, wrongful or tortious conduct in
connection with the employment relationship against the Company or any of its
Subsidiaries pending, or, to the knowledge of the Company, threatened, that
constitutes, or could reasonably be expected to result in, a Company Material
Adverse Effect.
(D) There is no strike, dispute, slowdown, work stoppage or
lockout pending, or, to the knowledge of the Company, threatened, against or
involving the Company or any of its Subsidiaries that constitutes, or could
reasonably be expected to result in, a Company Material Adverse Effect.
(E) The Company and each of its Subsidiaries are in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work and
occupational safety and health, except for non-compliance that does not
constitute and could not reasonably be expected to result in, a Company Material
Adverse Effect.
(F) As of the date hereof, there is no proceeding, claim,
suit, action or governmental investigation pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened, in respect to which any current
or former director, officer, employee or agent of the Company or any of its
Subsidiaries is or may be entitled to claim indemnification from the Company or
any of its Subsidiaries pursuant to (1) the Certificate of Incorporation or
Bylaws of the Company (each as amended to date) or any provision of the
comparable charter or other organizational documents of any of its Subsidiaries,
(2) any indemnification agreement to which the Company or any Subsidiary of the
Company is a party or (3) applicable law, in each case under clauses (1), (2)
and (3) that constitutes, or could reasonably be expected to result in, a
Company Material Adverse Effect.
32
(G) There are no non-competition or confidentiality
agreements between the Company and any of its employees that may interfere with
the employees' ability to perform their duties for Parent or the Surviving
Corporation. There are no agreements, labor practices, policies or procedures,
or other representations, whether written or oral, that have been made by the
Company to the employees of the Company that commit Parent or the Surviving
Corporation to retain them as employees for any period of time subsequent to the
Closing. The Company is not a party to any agreements or arrangements or subject
to any requirement that in any manner requires or may require Parent or the
Surviving Corporation to hire any person as an employee or consultant or
restrict Parent or the Surviving Corporation from relocating, consolidating,
merging or closing, in whole or in part, any portions of the Company's business,
subject to requirements imposed by applicable law.
(H) All employees of the Company are lawfully authorized to
work in the United States according to federal immigration laws.
(ii) Schedule 3.1(k) of the Company Disclosure Schedule sets
forth the name of each employee employed by the Company and its Subsidiaries as
of May 8, 2006, and each such employee's date of birth, date of hire, employment
classification or position and level of compensation.
(l) Property. Except as set forth on Schedule 3.1(l) of the Company
Disclosure Schedule:
(i) The Company and its Subsidiaries possess or have adequate
rights to use all material trademarks, trade names, patents, service marks,
brand marks, brand names, computer programs, databases, industrial designs,
domain names and copyrights necessary for the operation of the businesses of
each of the Company and its Subsidiaries (collectively, the "Company Intangible
Property"), except where the failure to possess or have adequate rights to use
such properties could not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. All of the Company
Intangible Property is owned or licensed by the Company or its Subsidiaries free
and clear of any and all liens, claims or encumbrances, except those that could
not, individually or in the aggregate, reasonably be expected to result in a
Company Material Adverse Effect, and neither the Company nor any such Subsidiary
has forfeited or otherwise relinquished any Company Intangible Property which
forfeiture could, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect. To the knowledge of the Company,
the use of the Company Intangible Property by the Company or its Subsidiaries
does not, in any material respect, conflict with, infringe upon, violate or
interfere with or constitute an appropriation of any right, title, interest or
goodwill, including any intellectual property right, trademark, trade name,
patent, service xxxx, brand xxxx, brand name, computer program, database,
industrial design, domain name, copyright or any pending application therefor of
any other person. There have been no claims made and neither the Company nor any
of its Subsidiaries has received any notice of any claim or otherwise knows that
(A) any of the Company Intangible Property is invalid or conflicts with the
asserted rights of any other person or (B) any of the Company Intangible
Property has not been used or enforced or has failed to have been used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Company Intangible Property, except, in the case
of clauses (A) and (B) of this Section 3.1(l)(i), for any such conflict,
33
infringement, violation, interference, claim, invalidity, abandonment,
cancellation or unenforceability that, individually or in the aggregate, could
not reasonably be expected to result in a Company Material Adverse Effect.
(ii) All material items of operating equipment owned or leased by
the Company and its Subsidiaries (A) are, in the aggregate, in a state of repair
so as to be adequate in all material respects for reasonably prudent operations
in the areas in which they are operated and (B) are adequate, together with all
other properties of the Company and its Subsidiaries, to comply in all material
respects with the requirements of all applicable contracts, including sales
contracts. Except for goods, Hydrocarbons and other property sold, used or
otherwise disposed of since January 1, 2006 in the Ordinary Course of Business,
the Company and its Subsidiaries have Acceptable Title and Defensible Title to
all of the Xxxxxx Oil and Gas Interests listed in the Company Reserve Reports
and have good, marketable, and Defensible Title to all other properties,
interests in properties and assets, real and personal, reflected in the Company
Balance Sheet as owned by the Company and its Subsidiaries. The leases and other
agreements pursuant to which the Company and its Subsidiaries lease or otherwise
acquire or obtain ownership or operating rights affecting any real or personal
property given value in the Company Reserve Reports are in good standing, valid
and effective, and the rentals or other payments due by the Company or any
Subsidiary of the Company to any lessor of any such oil and gas leases have been
properly paid in all material respects.
(m) Environmental Matters.
For purposes of this Agreement:
(i) "Environmental Laws" means all federal, state and local laws
(including common law), rules, regulations, ordinances, orders and decrees of
any Governmental Entity now in existence relating to pollution or the protection
of human health, safety or the environment of any jurisdiction in which the
applicable party hereto owns or operates assets or conducts business or owned or
operated assets or conducted business (whether or not through a predecessor
entity) (including ambient air, surface water, groundwater, land surface,
subsurface strata, natural resources or wildlife), including laws and
regulations relating to Releases or threatened Releases of Hazardous Materials
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of solid waste or Hazardous
Materials, and any similar laws, rules, regulations, ordinances, orders and
decrees of any foreign jurisdiction in which the applicable party hereto owns or
operates assets or conducts business;
(ii) "Hazardous Materials" means (x) any petroleum or petroleum
products, radioactive materials (including naturally occurring radioactive
materials), asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, polychlorinated biphenyls or transformers or other
equipment that contain dielectric fluid containing polychlorinated biphenyls,
(y) any chemicals, materials or substances which are now defined as or included
in the definition of "solid wastes," "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous substances," "restricted hazardous
wastes," "toxic substances" or "toxic pollutants," or words of similar import,
under any Environmental Law and (z) any other chemical, material, substance or
waste, exposure to which is now prohibited,
34
limited or regulated under any Environmental Law in a jurisdiction in which the
Company or any of its Subsidiaries operates.
(iii) "Release" means any spill, effluent, emission, leaking,
pumping, pouring, emptying, escaping, dumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment, or into or out of any property owned, operated or leased by the
applicable party or its Subsidiaries; and
(iv) "Remedial Action" means all actions, including any capital
expenditures, required by a Governmental Entity or required under any
Environmental Law, or voluntarily undertaken to: (A) clean up, remove, treat, or
in any other way ameliorate or address any Hazardous Materials or other
substance in the indoor or outdoor environment; (B) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material so
it does not endanger or threaten to endanger the public or employee health or
welfare of the indoor or outdoor environment; (C) perform pre remedial studies
and investigations or post remedial monitoring and care pertaining or relating
to a Release; or (D) bring the applicable party into compliance with any
Environmental Law.
Except as set forth on Schedule 3.1(m) of the Company Disclosure Schedule:
(i) The operations of the Company and its Subsidiaries have been
conducted, are and, as of the Closing Date, will be, in compliance with all
Environmental Laws, except where the failure to so comply could not reasonably
be expected to result in a Company Material Adverse Effect.
(ii) The Company and its Subsidiaries have obtained and will
maintain all permits, licenses and registrations, or applications relating
thereto, and have made and will make all filings, reports and notices required
under applicable Environmental Laws for the continued operations of their
respective businesses, except such matters the lack or failure of which could
not reasonably be expected to result in a Company Material Adverse Effect.
(iii) The Company and its Subsidiaries are not subject to any
outstanding written orders issued by, or contracts with, any Governmental Entity
or other person respecting (A) Environmental Laws, (B) Remedial Action, (C) any
Release or threatened Release of a Hazardous Material or (D) an assumption of
responsibility for environmental liabilities of another person, except such
orders or contracts the compliance with which could not reasonably be expected
to result in a Company Material Adverse Effect.
(iv) The Company and its Subsidiaries have not received any
written communication alleging, with respect to any such party, the violation of
or liability under any Environmental Law, which violation or liability could
reasonably be expected to result in a Company Material Adverse Effect.
(v) To the knowledge of the Company, neither the Company nor any
of its Subsidiaries has any contingent liability in connection with the Release
of any Hazardous Material into the indoor or outdoor environment (whether on
site or off site) or employee or third party exposure to Hazardous Materials
that could reasonably be expected to result in a Company Material Adverse
Effect.
35
(vi) The operations of the Company or its Subsidiaries involving
the generation, transportation, treatment, storage or disposal of hazardous or
solid waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in effect
as of the date of this Agreement) or any applicable state equivalent, are in
compliance with applicable Environmental Laws, except where the failure to so
comply could not reasonably be expected to result in a Company Material Adverse
Effect.
(vii) To the knowledge of the Company, there is not now on or in
any property of the Company or its Subsidiaries or any property for which the
Company or its Subsidiaries is potentially liable any of the following: (A) any
underground storage tanks or surface impoundments or (B) any on site disposal of
Hazardous Material, any of which ((A) or (B) preceding) could reasonably be
expected to result in a Company Material Adverse Effect.
(n) Insurance. Schedule 3.1(n) of the Company Disclosure Schedule sets
forth an insurance schedule of the Company's and each of its Subsidiaries'
directors' and officers' liability insurance, primary and excess casualty
insurance policies providing coverage for bodily injury and property damage to
third parties, including products liability and completed operations coverage,
and worker's compensation, in effect as of the date hereof. As of the date of
this Agreement, all such insurance policies are in full force and effect and all
related premiums have been paid to date. As of the Closing Date, all such
insurance policies (or comparable replacement policies) shall be in full force
and effect and all related premiums shall have been paid to date. There is no
material claim by the Company or any of its Subsidiaries pending under any of
the Company's or its Subsidiaries' insurance policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies.
Neither the Company nor any of its Subsidiaries has received any notice, which
remains outstanding, of cancellation or termination with respect to any material
insurance policy.
(o) Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of Xxxxxxx Xxxxx & Associates, Inc. addressed
to such Board to the effect that, as of the date of such opinion, the Merger
Consideration to be received by the holders of Company Common Stock pursuant to
this Agreement is fair from a financial point of view to such holders. The
Company has provided a copy of such opinion to Parent.
(p) Board Recommendation; Company Action; Vote Required. The Board of
Directors of the Company has, by resolutions duly adopted by the directors and
not subsequently rescinded or modified in any way, unanimously (i) determined
that this Agreement, the Merger, in accordance with the terms of this Agreement,
and the other transactions contemplated hereby are advisable and in the best
interests of the Company, (ii) approved and adopted this Agreement and approved
the Merger and the other transactions contemplated hereby, (iii) directed that
the Merger and this Agreement be submitted for consideration by the stockholders
of the Company at a meeting of the Company's stockholders and (iv) recommended
that the stockholders of the Company approve the Merger and this Agreement
(provided that any change in or modification or rescission of such
recommendation by the Board of Directors of the Company in accordance with
Section 4.2(d) or Section 5.5(b) shall not be a breach of the representation in
this clause (iv)). The directors of the Company have advised the Company that,
as of the date hereof, they intend to vote or cause to be voted all of the
shares of Company Common Stock beneficially owned by them and their affiliates
in favor of approval of the Merger and this Agreement. The
36
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock is the only vote of the holders of any class or series of
Company capital stock necessary to approve the Merger and this Agreement and the
transactions contemplated hereby in accordance with the DGCL and the Certificate
of Incorporation and Bylaws of the Company (the "Stockholder Approval"). Other
than the Stockholder Approval, no vote of the holders of any class or series of
Company capital stock is necessary to approve the Merger and this Agreement and
the transactions contemplated hereby. No "fair price," "moratorium," "control
share acquisition" or other antitakeover statute or similar statute or
regulation or any anti-takeover provision in the Company's Certificate of
Incorporation or Bylaws applies or purports to apply to the Company Common
Stock, this Agreement, the Merger or the other transactions contemplated by this
Agreement. The Board of Directors of the Company has taken all action so that
Parent will not be prohibited from entering into a "business combination" with
the Company as an "interested stockholder" (in each case as such term is used in
Section 203 of the DGCL or the Company's Certificate of Incorporation) as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby.
(q) Related Party Transactions. Except as set forth in Schedule 3.1(q)
of the Company Disclosure Schedule, to the knowledge of the Company, since
January 1, 2005, no stockholder nor any officer or director of the Company or
any of its Subsidiaries owns or holds, directly or indirectly, any interest in
(excepting holdings solely for passive investment purposes of securities of
publicly held and traded entities constituting less than 5% of the equity of any
such entity), or is an officer, director, employee or consultant of any person
that is, a competitor, lessor, lessee, customer or supplier of the Company or
any of its Subsidiaries. No stockholder, officer or director of the Company or
any of its Subsidiaries (i) to the knowledge of the Company, has any claim,
charge, action or cause of action against the Company or any of its
Subsidiaries, except for claims for accrued vacation pay or accrued benefits
under any Company Employee Benefit Plan existing on the date hereof, (ii) to the
knowledge of the Company, has made, on behalf of the Company or any of its
Subsidiaries, any payment or commitment to pay any commission, fee or other
amount to, or to purchase or obtain or otherwise contract to purchase or obtain
any goods or services from, any other person of which any stockholder owning
more than 1% of the outstanding Company Common Stock or any officer or director
of the Company or any of its Subsidiaries is a partner or stockholder (except
holdings solely for passive investment purposes of securities of publicly held
and traded entities constituting less than 5% of the equity of any such entity),
(iii) is indebted or otherwise owes any money to the Company or any of its
Subsidiaries or (iv) has any interest in any property, real or personal,
tangible or intangible, used in or pertaining to the business or operations of
the Company or any of its Subsidiaries.
(r) Beneficial Ownership of Parent Common Stock. As of the date
hereof, neither the Company nor any of its Subsidiaries "beneficially owns" (as
defined in Rule 13d-3 under the Exchange Act) any of the outstanding Parent
Common Stock or any of Parent's outstanding debt securities.
(s) Brokers. Except for the fees and expenses payable to Xxxxxxx Xxxxx
& Associates, Inc., which fees are reflected in its engagement letter with the
Company (a copy of which has been delivered to Parent), no broker, investment
banker or other person is entitled to any broker's, finder's or other similar
fee or commission in connection with the transactions
37
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
(t) Amendment to Rights Agreement.
(i) The Board of Directors of the Company, by execution of the
Rights Agreement Amendment, has taken all necessary action to amend the Company
Rights Agreement so that none of the execution and delivery of this Agreement,
the conversion of shares of Company Common Stock into the right to receive the
Merger Consideration in accordance with Article II of this Agreement and the
consummation of the Merger or any other transaction contemplated hereby will
cause: (A) the Company Rights to become exercisable under the Company Rights
Agreement; (B) Parent or any of its Subsidiaries to be deemed an "Acquiring
Person" (as defined in the Company Rights Agreement); (C) a "Shares Acquisition
Date" (as defined in the Company Rights Agreement) to occur upon any such event;
or (D) a "Distribution Date" (as defined in the Company Rights Agreement) to
occur upon any such event.
(ii) As of the date of this Agreement, the Company Rights have
not separated from Company Common Stock and no distribution of Right
Certificates (as defined in the Company Rights Agreement) will occur as a result
of the execution of this Agreement or the consummation of the transactions
contemplated hereby.
(iii) The Company has taken all necessary action with respect to
all of the outstanding Company Rights so that, as of immediately prior to the
Effective Time, (A) neither the Company, Parent nor the Surviving Corporation
will have any obligations under the Company Rights or the Company Rights
Agreement, (B) the holders of the Company Rights will have no rights under the
Company Rights or the Rights Agreement, and (C) the Company Rights will expire.
(u) Controls and Procedures; Corporate Governance. Each of the Company
and its Subsidiaries maintains accurate books and records reflecting its assets
and liabilities and maintains proper and adequate internal accounting controls
that provide assurance that: (i) transactions are executed with management's
authorization; (ii) transactions are recorded as necessary to permit preparation
of the consolidated financial statements of the Company and to maintain
accountability for the Company's consolidated assets; (iii) access to the
Company's assets is permitted only in accordance with management's
authorization; (iv) the reporting of the Company's assets is compared with
existing assets at regular intervals; and (v) accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current and
timely basis. The Company has made available to Parent a summary of (A) any
significant deficiencies in the design or operation of internal controls which
could adversely affect the Company's ability to record, process, summarize and
report financial data, (B) any material weaknesses in the Company's internal
controls, and (C) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's internal control
over financial reporting.
(v) Governmental Regulation. Neither the Company nor any of the
Subsidiaries of the Company is subject to regulation under the Federal Power
Act, the Interstate
38
Commerce Act or the Investment Company Act of 1940 (including the rules and
regulations promulgated under all of the foregoing) or under any state public
utilities laws.
(w) Reserve Reports. The Company has furnished to Parent the Company's
estimate of the Company's and the Company's Subsidiaries' natural gas and oil
reserves as of December 31, 2005, audited by Xxxxxx, Xxxxxxxxx & Associates,
Inc. (the "Company Reserve Reports"). As concerns the Company Reserve Reports,
(i) all factual, non-interpretive data on which the Company Reserve Reports were
based for purposes of estimating the oil and gas reserves set forth in the
Company Reserve Reports was true and correct in all material respects at the
time of delivery and (ii) the estimates of proved reserves used by the Company
in connection with the preparation of the Company Reserve Reports and provided
by the Company to Xxxxxx, Xxxxxxxxx & Associates, Inc. in connection with its
audit of the Company Reserve Reports are in accordance with definitions
contained in Rule 4-10(a) of Regulation S-X promulgated by the SEC. The Company
has no knowledge of any material errors in such underlying factual information
supplied to Xxxxxx, Xxxxxxxxx & Associates, Inc. for purposes of preparing such
report and the conclusions in such report are not in any material way
unreasonable when compared with the Company's own evaluation of the properties
included in such report as of December 31, 2005 taken as a whole. Except for
changes (including changes in commodity prices) generally affecting the oil and
gas industry, to the knowledge of the Company there has been no material adverse
change with respect to the matters addressed in the Company Reserve Reports. Set
forth in Schedule 3.1(w) of the Company Disclosure Schedule is a list of all
material oil and gas properties that were included in the Company Reserve Report
that have been disposed of prior to the date of this Agreement.
(x) Hedging. Schedule 3.1(x) of the Company Disclosure Schedules sets
forth all Hedging positions of the Company and its Subsidiaries in place as of
the date hereof (including those entered into in contemplation of this
Agreement). "Hedge" means a derivative transaction within the coverage of SFAS
No. 133, including any swap transaction, option, warrant, forward purchase or
sale transaction, futures transaction, cap transaction, floor transaction or
collar transaction relating to one or more currencies, commodities, bonds,
equity securities, loans, interest rates, credit related events or conditions or
any indexes, or any other similar transaction (including any option with respect
to any of these transactions) or combination or any of these transactions,
including collateralized mortgage obligations or other similar instruments or
transactions, and any related credit support, collateral, transportation or
other similar arrangements related to such transactions.
(y) Natural Gas Act. Except as set forth on Schedule 3.2(y) of the
Company Disclosure Schedule, any gas gathering system constituting a part of the
properties of the Company or its Subsidiaries has as its primary function the
provision of natural gas gathering services, as the term "gathering" is
interpreted under Section 1(b) of the Natural Gas Act (the "NGA"); none of the
properties have been or are certificated by the Federal Energy Regulatory
Commission (the "FERC") under Section 7(c) of the NGA or to the knowledge of the
Company are now subject to FERC jurisdiction under the NGA; and none of the
properties have been or are providing service pursuant to Section 311 of the
NGA.
(z) Certain Contracts and Arrangements.
39
(i) Except for Contracts listed on Schedule 3.1(z) of the Company
Disclosure Schedule, the Company is not a party to or bound by or otherwise
subject to any oral or written contract, lease, license, indenture, bond, note,
franchise or other agreement (each, a "Contract") of the following nature
(collectively, the "Company Contracts"):
(A) any Contract that restricts the Company or any of its
affiliates from competing in any line of business or with any person in any
geographical area;
(B) any Contract that contains a "change in control" or
similar provision pursuant to which the execution and delivery of this
Agreement, or the consummation of the Merger or execution of the Stock Voting
Agreements would give rise to any right (including any right of termination,
cancellation, acceleration or vesting) or benefit;
(C) any Contract concerning a partnership or joint venture;
(D) any employment agreement, severance agreement or
consulting agreement;
(E) any Contract containing covenants purporting to limit
the freedom of the Company or any of its Subsidiaries to hire an individual or
group of individuals;
(F) any Contract providing for "earn-outs", or other
contingent payments by the Company or any of the Company's Subsidiaries;
(G) confidentiality or standstill agreements with any person
that restrict the Company or any of its Subsidiaries in the use of any
information or the taking of any actions by the Company or its Subsidiaries
entered into in connection with the consideration by the Company or any of its
Subsidiaries of any acquisition of equity interests or assets; and
(H) any Contract in favor of directors or officers that
provide rights to indemnification.
(ii) Each Company Contract is valid, binding and enforceable in
accordance with its terms and is in full force and effect, the Company is not in
breach or default under any Company Contract nor has the Company received any
notice, whether written or oral, that it is in breach or default and, to the
knowledge of the Company, no other party to any Company Contract is in breach or
default thereunder.
(iii) Neither the Company nor any of its Subsidiaries has
received from any other party to a Company Contract any notice, whether written
or oral, of (A) termination or intention to terminate any Company Contract or
(B) any consent to the transactions contemplated by this Agreement being
required under any Company Contract. No event has occurred that (with or without
notice or lapse of time or both) violates in any material respect, conflicts in
any material respect with, results in any material violation or breach of or
default under, gives rise to a right of termination, cancellation, amendment,
modification, payment or acceleration of any obligation, a right to impose any
fine or penalty, a right to purchase or foreclose upon any assets or equity
interests of the Company or the loss of a material benefit under, or results in
the
40
creation of any lien or other encumbrance on any of the properties and assets of
the Company and its Subsidiaries under any Company Contract.
(iv) Schedule 3.1(z) of the Company Disclosure Schedule
identifies, as to each such Company Contract listed thereon, (A) whether the
consent, waiver or approval of any other party thereto is required, (B) whether
notice must be provided to any party thereto (and the length of such notice),
(C) whether any payments are required (and the amount of such payments), in each
case in order for such Contract to continue in full force and effect upon the
consummation of the Merger and the other transactions contemplated hereby, and
(D) whether such Contract can be canceled by any other party thereto without
liability to such other party due to the consummation of the Merger and the
other transactions contemplated hereby. A complete copy of each written Company
Contract and a description of each oral Company Contract set forth on Schedule
3.1(z) of the Company Disclosure Schedule has been provided to Parent prior to
the date of this Agreement.
(v) Except as otherwise disclosed in Schedule 3.1(z) of the
Company Disclosure Schedule:
(A) none of the Hydrocarbon Sales Agreements has required
since December 31, 2005, or will require as of or after the Closing Date, the
Company or its Subsidiaries to have sold or delivered, or to sell or deliver,
Hydrocarbons for a price materially less than the price that would have been, or
would be, received pursuant to any arm's-length contract for a comparable term
with an unaffiliated third-party purchaser;
(B) to the Company's knowledge, there have been no claims
received by the Company or any of its Subsidiaries from, and there have been no
claims made by, any third party for any price reduction or increase or volume
reduction or increase under any of the Hydrocarbon Sales Agreements, and the
Company and its Subsidiaries have not made any claims for any price reduction or
increase or volume reduction or increase under any of the Hydrocarbon Sales
Agreements;
(C) to the Company's knowledge, payments for Hydrocarbons
sold pursuant to each Hydrocarbon Sales Agreement have been made (subject to
adjustment in accordance with such Hydrocarbon Sales Agreements) materially in
accordance with prices or price-setting mechanisms set forth in such Hydrocarbon
Sales Agreements;
(D) to the Company's knowledge, no purchaser under any
Hydrocarbon Sales Agreement has notified the Company or any of its Subsidiaries
of its intent to cancel, terminate or renegotiate any Hydrocarbon Sales
Agreement or otherwise to fail and refuse to take and pay for Hydrocarbons in
the quantities and at the price set out in any Hydrocarbon Sales Agreement,
whether such failure or refusal was pursuant to any force majeure, market out or
similar provisions contained in such Hydrocarbon Sales Agreement or otherwise;
(E) neither the Company nor any of its Subsidiaries is
obligated in any Hydrocarbon Sales Agreement by virtue of any prepayment
arrangement, a "take-or-pay" or similar provision, a production payment or any
other arrangements to deliver Hydrocarbons
41
produced from a Xxxxxx Oil and Gas Interest at some future time without then or
thereafter receiving payment therefor;
(F) Schedule 3.1(z) of the Company Disclosure Schedule
contains a true and correct calculation of the Xxxxxx Companies' gas balancing
positions with respect to all of the Xxxxxx Oil and Gas Interests as of the
dates shown therein; and
(G) true and complete copies of all Hydrocarbon Contracts
have been provided to or made available to Parent.
(aa) Oil and Gas Operations. To the Company's knowledge, and except as
set forth in Schedule 3.1(aa) of the Company Disclosure Schedule:
(i) none of the Company or any of its Subsidiaries have received
notice or claim that any of the Xxxxxx Xxxxx are being overproduced and there
are no well bore imbalances such that they are subject or liable to being
shut-in or to any overproduction penalty;
(ii) the Company and its Subsidiaries have not received any
deficiency payment under any Hydrocarbon Sales Agreement for which any person or
entity has a right to take deficiency gas from the Company or any of its
Subsidiaries;
(iii) the Company and its Subsidiaries have not received any
payment for production which is subject to refund or recoupment out of future
production;
(iv) none of the Company or any of its Subsidiaries have received
notice or claim that there has been any changes proposed in the production
allowables for any Xxxxxx Xxxxx;
(v) each of the Xxxxxx Xxxxx has been drilled and (if completed)
completed, operated and produced, and none of the Company or any of its
Subsidiaries have received notice or claim that any of the Xxxxxx Xxxxx are not
being drilled or (if completed) completed, operated, and produced, in accordance
with good oil and gas field practices and in material compliance with (A)
applicable Oil and Gas Leases and other Company Contracts and (B) applicable
laws, rules, regulations and permits;
(vi) all xxxxx operated by the Company or any of its Subsidiaries
that have been plugged and abandoned by the Company or any of its Subsidiaries
have been so plugged and abandoned in all material respects in accordance with
all applicable laws, rules, and regulations and good oil and gas industry
practices;
(vii) proceeds from the sale of Hydrocarbons produced from and
attributable to the Xxxxxx Oil and Gas Interests are being received by the
Company and its Subsidiaries in a reasonably timely manner and are not being
held in suspense for any reason (except for amounts, individually or in the
aggregate, of less than $10,000 and held in suspense in the Ordinary Course of
Business);
(viii) no person or entity has any call on, option to purchase or
similar rights with respect to the Xxxxxx Oil and Gas Interests or to the
production attributable thereto,
42
and upon consummation of the transactions contemplated by this Agreement, to the
knowledge of the Company, the Company and its Subsidiaries will have the right
to market production from the Xxxxxx Oil and Gas Interests on terms no less
favorable than the terms upon which it is currently marketing such production;
(ix) all royalties, overriding royalties, compensatory royalties
and other payments due from or in respect of production with respect to the
Xxxxxx Oil and Gas Interests have been properly and correctly paid or provided
for by the Company and its Subsidiaries in all material respects in accordance
with the terms and conditions of the applicable Oil and Gas Leases or other
applicable Company Contracts (except for those for which the Company and its
Subsidiaries have a valid right to suspend) and all deductions from such
production proceeds have been deducted in material compliance with the terms and
conditions of the applicable Oil and Gas Leases, other Company Contracts and
applicable law; and
(x) the Company and its Subsidiaries are in compliance in all
material respects with all applicable laws, rules and regulations and orders
applicable to the Xxxxxx Oil and Gas Interests to the extent pertaining to
escheatment.
(bb) Xxxx-Xxxxx-Xxxxxx. The fair market value of (i) the reserves of
oil, natural gas, shale or tar sands, (ii) the rights of reserves of oil,
natural gas, shales or tar sands, and (iii) associated exploration and
production assets (as defined at 16 C.F.R. 802.3), held by the Company and its
Subsidiaries as of the date hereof and immediately prior to the Effective Time
shall not exceed $500 million. The aggregate fair market value of all other
assets held by the Company and its Subsidiaries as of the date hereof and
immediately prior to the Effective Time shall not exceed $56.7 million.
3.2 Representations and Warranties of Parent and Merger Sub. Parent and
Merger Sub jointly and severally represent and warrant to the Company as follows
(such representations and warranties being deemed to be made as of the date
hereof and as of the Closing) (in each case except as otherwise disclosed in the
Parent SEC Documents or as qualified by matters reflected on the disclosure
schedule dated as of the date of this Agreement and delivered by Parent to the
Company on or prior to the date of this Agreement (the "Parent Disclosure
Schedule") (each reference to such disclosure schedule qualifies the referenced
representation and warranty to the extent specified therein and such other
representations and warranties contained herein (regardless of whether or not
such representation or warranty contains a reference to such disclosure
schedule) to the extent a matter in such disclosure schedule is disclosed in
such a way as to make its relevance to the information called for by such other
representation or warranty readily apparent on its face)):
(a) Organization, Standing and Power. Each of Parent, Merger Sub and
its Significant Subsidiaries (as defined herein) is a corporation, limited
liability company or partnership duly organized or formed, validly existing and
in good standing under the laws of its jurisdiction of incorporation,
organization or formation, has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
and is duly qualified and licensed, as may be required, and in good standing to
do business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification and
licensing necessary, other than in such jurisdictions
43
where the failure so to be qualified and licensed could not, individually or in
the aggregate, reasonably be expected to result in a Parent Material Adverse
Effect. Parent has heretofore delivered or made available to the Company
complete and correct copies of its Restated Certificate of Incorporation and
Bylaws, each as amended to date, and complete and correct copies of the
Certificate of Incorporation and Bylaws of Merger Sub. "Significant Subsidiary"
means any Subsidiary of Parent that would constitute a Significant Subsidiary of
Parent within the meaning of Rule 1.02 of Regulation S-X of the SEC.
As used in this Agreement, "Parent Material Adverse Effect" means any
result, occurrence, condition, fact, change, violation, event or effect of any
of the foregoing (whether or not (i) foreseeable as of the date of this
Agreement or (ii) covered by insurance) that, individually or in the aggregate
with such other results, occurrences, conditions, facts, changes, violations,
events or effects (whether or not such result, occurrence, condition, fact,
change, violation, event or effect has, during the period or at any time in
question, manifested itself in the historical financial statements of Parent or
any of its Subsidiaries), (A) is materially adverse to the historical or
near-term or long-term financial condition, properties, business or results of
operations of Parent and its Subsidiaries taken as a whole, (B) would materially
impair the ability of Parent to perform its obligations under this Agreement,
(C) would materially impair the ability of Parent and its Subsidiaries to own,
hold, develop or operate their assets and properties, or (D) would prevent the
consummation of the transactions contemplated by this Agreement; provided,
however, that in no event shall any change in conditions affecting the oil and
natural gas exploration and production industry constitute a Parent Material
Adverse Effect (except for any changes referred to in this proviso which,
individually or in the aggregate, disproportionately affect the financial
condition, properties, business or results of operations of Parent and its
Subsidiaries taken as a whole, as compared to other industry participants).
(b) Capitalization. As of the date hereof, the authorized capital
stock of Parent consists of 250,000,000 shares of Parent Common Stock and
10,000,000 shares of preferred stock, par value $1.00 per share, of Parent
("Parent Preferred Stock"). At the close of business on May 9, 2006: (i)
131,270,759 shares of Parent Common Stock were issued and outstanding; (ii) no
shares of Parent Preferred Stock were issued and outstanding; (iii) no shares of
Parent Common Stock were held by Parent in its treasury; (iv) 8,834,266 shares
of Parent Common Stock were subject to issuance under outstanding options or
awards under the Range Resources Corporation 2005 Equity-Based Compensation Plan
(as amended), the 2004 Non-Employee Director Stock Option Plan (as amended), the
Amended and Restated 1999 Stock Option Plan, the Lomak 1997 Stock Purchase Plan
(as amended), the Lomak 1994 Outside Director Stock Plan (as amended), the Lomak
1989 Stock Option Plan (as amended) and any other stock option, stock bonus,
stock award, or stock purchase plan, program or arrangement of Parent or any of
Parent's Subsidiaries or any predecessor thereof (collectively, "Parent Stock
Plans"); (v) 3,277,070 shares of Parent Common Stock were reserved for issuance
pursuant to awards that may be granted (other than currently outstanding awards)
pursuant to the Parent Stock Plans; and (vi) no Voting Debt was issued and
outstanding. All issued shares of Parent capital stock are validly issued, fully
paid and nonassessable and are not subject to and were not issued in violation
of any purchase option, call option, right of first refusal, right of first
offer, preemptive right, subscription right or any similar right. When shares
subject to or reserved for issuance pursuant to the applicable Parent Stock
Plans are issued, such shares will be validly issued, fully paid and
nonassessable and not subject to or issued in violation of any purchase
44
option, call option, right of first refusal, right of first offer, preemptive
right, subscription right or any similar right. All outstanding shares of
capital stock of the Subsidiaries of Parent are validly issued, fully paid and
nonassessable, are not subject to and were not issued in violation of any
purchase option, call option, right of first refusal, right of first offer,
preemptive right, subscription right or any similar right, and are owned by
Parent or a direct or indirect wholly owned Subsidiary of Parent free and clear
of all liens, charges, encumbrances, claims and options of any nature. Except as
set forth in this Section 3.2(b), and except for changes since May 9, 2006
resulting from the grant or exercise of stock options granted prior to the date
hereof pursuant to, or from issuances or purchases under, Parent Stock Plans,
there are outstanding: (A) no shares of capital stock, Voting Debt or other
voting securities of Parent; (B) no securities of Parent or any Subsidiary of
Parent convertible into or exchangeable for shares of capital stock, Voting Debt
or other voting securities of Parent or any Subsidiary of Parent; and (C) no
options, warrants, calls, rights (including preemptive rights), commitments or
agreements to which Parent or any Subsidiary of Parent is a party or by which it
is bound in any case obligating Parent or any Subsidiary of Parent to issue,
deliver, sell, purchase, redeem or acquire, or cause to be issued, delivered,
sold, purchased, redeemed or acquired, additional shares of capital stock or any
Voting Debt or other voting securities of Parent or of any Subsidiary of Parent
or obligating Parent or any Subsidiary of Parent to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement. As of the date
hereof, the authorized capital stock of Merger Sub consists of 10,000 shares of
common stock, par value $0.01 per share, all of which shares are validly issued,
fully paid and nonassessable and are owned by Parent.
(c) Authority; No Violations, Consents and Approvals.
(i) No vote of holders of capital stock of Parent is necessary to
approve this Agreement and the Merger and the other transactions contemplated
hereby. Parent has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent. This Agreement has been duly executed
and delivered by Parent and, assuming this Agreement constitutes the valid and
binding obligation of the Company, constitutes a valid and binding obligation of
Parent enforceable in accordance with its terms, subject as to enforceability,
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). Parent, as the owner of all of the
outstanding shares of Merger Sub, has approved this Agreement and the Merger in
its capacity as sole stockholder of Merger Sub. Merger Sub has all requisite
corporate power and authority to enter into this agreement and to consummate the
transactions contemplated hereby; the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Merger Sub; and this
Agreement has been duly executed and delivered by Merger Sub.
(ii) The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of
45
any material obligation or to the loss of a material benefit under, or give rise
to a right of purchase under, result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Parent
or any of its Subsidiaries under, or otherwise result in a material detriment to
Parent or any of its Subsidiaries under, any provision of (A) the Certificate of
Incorporation and Bylaws of Parent (each as amended to date) or any provision of
the comparable charter or organizational documents of any of its Subsidiaries,
(B) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to Parent or any of its Subsidiaries, (C) any joint venture or other ownership
arrangement or (D) assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section 3.2(c)(iii) are duly and
timely obtained or made, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Parent or any of its Subsidiaries or any of
their respective properties or assets, other than, in the case of clause (B) or
(C), any such conflicts, violations, defaults, rights, liens, security
interests, charges, encumbrances or detriments that, individually or in the
aggregate, could not reasonably be expected to result in a Parent Material
Adverse Effect.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from any Governmental Entity
is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent and
Merger Sub or the consummation by Parent and Merger Sub of the transactions
contemplated hereby, except for: (A) such filings and/or notices as may be
required under the Securities Act and/or the Exchange Act; (B) the filing of the
Certificate of Merger for the Merger with the Secretary of State of the State of
Delaware; (C) filings with the NYSE; (D) such filings and approvals as may be
required by any applicable state securities, "blue sky" or takeover laws or
environmental laws; (E) such governmental consents, qualifications or filings as
are customarily obtained or made following the transfer of interests or the
change of control of ownership in oil and gas properties; and (F) any such
consent, approval, order, authorization, registration, declaration, filing, or
permit that the failure to obtain or make could not, individually or in the
aggregate, reasonably be expected to result in a Parent Material Adverse Effect.
(d) SEC Documents. Parent has made available to the Company a true and
complete copy of each report, schedule, registration statement, definitive proxy
statement and exhibit to the foregoing documents filed by Parent with the SEC
since December 31, 2003 (the "Parent SEC Documents"), which include all the
documents (other than preliminary material) that Parent was required to file
with the SEC since December 31, 2003. As of their respective dates, the Parent
SEC Documents complied as to form in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Documents, and
none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Parent
included in the Parent SEC Documents were prepared from the books and records of
Parent and its Subsidiaries, complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Rule 10-01 of Regulation S-X
46
of the SEC) and fairly present in accordance with applicable requirements of
GAAP (subject, in the case of the unaudited statements, to normal, recurring
adjustments, none of which are material) the consolidated financial position of
Parent and its consolidated Subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash flows of Parent and
its consolidated Subsidiaries for the periods presented therein. As of the date
hereof, Parent is a "well-known seasoned issuer" as defined in Rule 405 under
the Securities Act.
(e) Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the financial statements included in, the Parent SEC Documents, or
as contemplated by this Agreement, since December 31, 2005, Parent has conducted
its business only in the Ordinary Course of Business, and there has not been:
(i) any material damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets owned or operated by the
Parent and its Subsidiaries; (ii) any event, condition, action or occurrence
that, if taken during the period from the date of this Agreement through the
Effective Time, would constitute a breach of Section 4.1(b); or (iii) any other
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the Ordinary Course of Business)
that has resulted in or could reasonably be expected to result in a Parent
Material Adverse Effect.
(f) Litigation. Except as set forth on Schedule 3.2(f) of the Parent
Disclosure Schedule, as of the date of this Agreement, there is no suit, action
or proceeding pending, or, to the knowledge of Parent, threatened against or
affecting Parent or any Subsidiary of Parent ("Parent Litigation"), and Parent
and its Subsidiaries have no knowledge of any facts that are likely to give rise
to any Parent Litigation, that (in any case) could reasonably be expected to
result in a Parent Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Parent or any Subsidiary of Parent that could reasonably be expected to
result in a Parent Material Adverse Effect. Notwithstanding the foregoing, no
representation or warranty in this Section 3.2(f) is made with respect to
Environmental Laws, which are covered exclusively by the provisions in Section
3.2(o).
(g) No Undisclosed Material Liabilities. As of the date hereof, there
are no liabilities of Parent or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
that have resulted in or could reasonably be expected to result in a Parent
Material Adverse Effect, other than: (i) liabilities adequately provided for on
the balance sheet of Parent dated as of March 31, 2006 (including the notes
thereto) contained in Parent's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2006; (ii) liabilities incurred in the Ordinary Course of
Business consistent with past practice since March 31, 2006; (iii) any other
liabilities that, taken as a whole, do not exceed $500,000 in the aggregate and
(iv) liabilities under this Agreement.
(h) No Default. Neither Parent nor any of its Subsidiaries is in
default or violation (and no event has occurred which, with notice or the lapse
of time or both, would constitute a default or violation) of any term, condition
or provision of (i) the Restated Certificate of Incorporation or Bylaws of
Parent (each as amended to date) or the comparable charter or organizational
documents of any of its Subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession,
47
franchise or license to which Parent or any of its Subsidiaries is now a party
or by which Parent or any of its Subsidiaries or any of their respective
properties or assets is bound (except for the requirement under certain of such
instruments to file supplemental indentures as a result of the transactions
contemplated hereby) or (iii) any order, writ, injunction, decree, statute, rule
or regulation applicable to Parent or any of its Subsidiaries, except in the
case of (ii) and (iii) for defaults or violations which in the aggregate could
not reasonably be expected to result in a Parent Material Adverse Effect.
(i) Compliance with Applicable Laws. Parent and its Subsidiaries hold
all permits, licenses, variances, exemptions, orders, franchises and approvals
of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Parent Permits"), except where the failure so to
hold could not reasonably be expected to result in a Parent Material Adverse
Effect. Parent and its Subsidiaries are in compliance with the terms of the
Parent Permits, except where the failure so to comply could not reasonably be
expected to result in a Parent Material Adverse Effect. The businesses of Parent
and its Subsidiaries are not being conducted in violation of any law, ordinance
or regulation of any Governmental Entity, except for possible violations which
could not reasonably be expected to result in a Parent Material Adverse Effect;
provided, however, notwithstanding the foregoing, no representation or warranty
in this Section 3.2(i) is made with respect to Taxes, ERISA matters or
Environmental Laws, which are covered exclusively by the provisions set forth in
Sections 3.2(j), (k) and (l). As of the date of this Agreement, no investigation
or review by any Governmental Entity with respect to Parent or any of its
Subsidiaries is pending or, to the knowledge of Parent as of the date hereof,
threatened, other than those the outcome of which could not reasonably be
expected to result in a Parent Material Adverse Effect.
(j) Taxes. Except as set forth on Schedule 3.2(j) of the Parent
Disclosure Schedule:
(i) Each of Parent, each of its Subsidiaries and any affiliated,
consolidated, combined, unitary or similar group of which Parent or any of its
Subsidiaries is or was a member (a "Parent Group") has (A) duly filed on a
timely basis (taking into account any extensions) all material Tax Returns
required to be filed or sent by or with respect to it and all such Tax Returns
are true, correct and complete in all material respects, (B) duly paid or
deposited on a timely basis all material Taxes that are shown to be due and
payable on or with respect to such Tax Returns, and all material Taxes that are
otherwise due and payable for which Parent or any of its Subsidiaries may be
liable, (C) established reserves that are adequate for the payment of all
material Taxes not yet due and payable with respect to the results of operations
of Parent and its Subsidiaries through the date hereof, and (D) complied in all
material respects with all applicable laws, rules and regulations relating to
the reporting, payment and withholding of Taxes that are required to be withheld
from payments to employees, independent contractors, creditors, stockholders or
any other third party and has in all material respects timely withheld from
employee wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over.
(ii) Parent has previously made available to the Company true,
correct and complete copies of (A) all income and other material Tax Returns
filed by or on behalf of Parent, any Subsidiary of Parent and any Parent Group
for the last three completed Tax years
48
that remain open for audit or review by the relevant taxing authority and (B)
all material ruling requests, private letter rulings, notices of proposed
deficiencies, closing agreements, settlement agreements and any similar
documents or communications sent or received by or on behalf of Parent, any
Subsidiary of Parent or any Parent Group relating to Taxes. No unresolved audits
or other administrative proceedings or court proceedings are pending, or to the
knowledge of Parent, threatened, with regard to any Taxes for which Parent or
any of its Subsidiaries would be liable, and no unpaid material deficiency for
any Taxes has been proposed, asserted or assessed (whether by examination report
or prior to completion of examination by means of notices of proposed adjustment
or other similar requests or notices) against Parent or any of its Subsidiaries
by any taxing authority with respect to any period that would have a Material
Adverse Effect on Parent. All material Hedging transactions entered into by
Parent and its Subsidiaries have been properly identified for federal income tax
purposes. No material claim is pending and no material claim has ever been made
that has not been resolved by an authority in a jurisdiction where Parent or any
Subsidiary of Parent does not file Tax Returns that Parent or such Subsidiary of
Parent, as the case may be, is or may be subject to Tax in that jurisdiction.
(iii) Neither Parent nor any of its Subsidiaries has executed or
entered into with the IRS or any taxing authority (A) any unexpired agreement or
other document extending or having the effect of extending the period for
assessment or collection of any Taxes for which Parent or any of its
Subsidiaries would be liable or the filing of any Tax Return required to be
filed by Parent or any of its Subsidiaries or (B) a closing agreement pursuant
to Section 7121 of the Code or any similar provision of state, local, foreign or
other income tax law, which will require any increase in taxable income or
alternative minimum taxable income, or any reduction in tax credits, for Parent
or any of its Subsidiaries for any taxable period ending after the Closing Date.
Neither Parent nor any Subsidiary of Parent is subject to any private letter
ruling of the IRS or comparable ruling of other tax authorities that will be
binding on Parent or any Subsidiary of Parent with respect to any period
following the Closing Date. Neither Parent nor any Subsidiary of Parent has
granted any power of attorney, which is currently in force with respect to any
income, franchise or similar Taxes or any income, franchise or similar Tax
Returns.
(iv) Neither Parent nor any of its Subsidiaries is a party to, is
bound by or has any obligation under any Tax sharing, indemnity or allocation
agreement or similar agreement, arrangement or practice in effect under which
Parent or any of its Subsidiaries could be liable for any material Taxes of any
person or entity other than Parent or any Subsidiary of Parent. Neither Parent
nor any of its Subsidiaries has any liability for Taxes of another person or
entity (other than Parent and its Subsidiaries) under Treasury Regulation
Section 1.1502-6, any similar provision of state and local law, as a transferee,
by contract, or otherwise.
(v) There are no requests for material rulings or outstanding
material subpoenas from any taxing authority for information with respect to
Taxes of Parent or any of its Subsidiaries and no material reassessments (for
property or ad valorem Tax purposes) of any assets or any property owned or
leased by Parent or any of its Subsidiaries have been proposed in written form.
(vi) Neither Parent nor any of its Subsidiaries will be required
to include any material amount in income for any taxable period ending after the
Closing Date as a
49
result of a change in accounting method for any taxable period ending on or
before the Closing Date or pursuant to any agreement with any taxing authority
with respect to any such taxable period. Neither Parent nor any Subsidiary of
Parent will be required to include in any period ending after the Closing Date
any income that accrued in a prior period but was not recognized in any prior
period as a result of the installment method of accounting, the completed
contract method of accounting, the long-term contract method of accounting, the
cash method of accounting, or otherwise.
(vii) None of Parent, its Subsidiaries or any affiliated,
consolidated, combined, unitary or similar group of which any of Parent or its
Subsidiaries is or was a member has participated, directly or indirectly, in any
(A) reportable transaction within the meaning of Treasury Regulation Section
1.6011-4(b) or (B) Tax shelter required to be registered under Section 6111 of
the Code. Parent and each Subsidiary of Parent has disclosed on its federal
income Tax Returns all positions taken therein that could, if not so disclosed,
give rise to a substantial understatement penalty within the meaning of Section
6662 of the Code.
(k) Employee Benefit Plans; ERISA. Except as otherwise provided in
this Agreement:
(i) There are no Parent Employee Benefit Plans established,
maintained, contributed to or required to be contributed to, by Parent or any
entity with which Parent is considered a single employer under Section 414(b),
(c), (m) or (o) of the Code ("Parent ERISA Affiliates") or which Parent or any
Parent ERISA Affiliate has established, maintained, contributed to, or been
required to contribute to, within six years prior to the Effective Time. As used
in this Agreement, "Parent Employee Benefit Plan" means any plan, program,
policy, practice, agreement or other arrangement providing compensation or
benefits in any form to any current or former employee, independent contractor,
officer or director of Parent or any Subsidiaries of Parent or any beneficiary
or dependent thereof, whether written or unwritten, formal or informal,
including without limitation any "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA ("Parent Employee Welfare Benefit Plan"), any
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
(whether or not such plan is subject to ERISA) ("Parent Employee Pension Benefit
Plan") and any other pension, profit-sharing, bonus, incentive compensation,
deferred compensation, vacation, sick pay, stock purchase, stock option, phantom
equity, equity compensation, severance, employment, consulting, unemployment,
hospitalization or other medical, life or other insurance, long or short-term
disability, change of control, material fringe benefit, or any other plan,
program or policy.
(ii) With respect to each Parent Employee Benefit Plan, Parent
has provided Company with a true, correct and complete copy of: (A) each writing
constituting a part of such Parent Employee Benefit Plan (including, but not
limited to, the plan document(s), adoption agreement, prototype or volume
submitter documents, trust agreement, annuity contract, third party
administrative contracts and insurance contracts) and all amendments thereto;
(B) the three most recent Annual Reports (Form 5500 Series) including all
applicable schedules, if required; (C) the current summary plan description and
any material modifications thereto, if required to be furnished under ERISA, or
any written summary provided to participants with respect to any plan for which
no summary plan description exists; (D) the most
50
recent determination letter (or if applicable, advisory or opinion letter) from
the IRS, if any, or if an application for a determination letter is pending, the
application with all attachments; (E) all notices given to such Parent Employee
Benefit Plan, Parent or any Parent ERISA Affiliate by the IRS, Department of
Labor, Pension Benefit Guaranty Corporation or other governmental agency
relating to such Parent Employee Benefit Plan; and (F) a written description of
each oral Company Employee Benefit Plan.
(iii) Each Parent Employee Benefit Plan that is intended to be
"qualified" within the meaning of Section 401(a) of the Code and, to the extent
applicable, Section 401(k) of the Code ("Qualified Parent Employee Benefit
Plan"), has received a favorable determination letter from the IRS that has not
been revoked or is a prototype plan subject to an IRS opinion letter, and no
event has occurred and no condition exists that could reasonably be expected to
adversely affect the qualified status of any such Parent Employee Benefit Plan.
Any favorable determination letters referenced in this Section 3.2(k)(iii) cover
"GUST" as defined in footnote 2 of IRS Notice 2003-49. Each Qualified Parent
Employee Benefit Plan has timely made "good faith" amendments to comply with the
Economic Growth and Tax Reconciliation Relief Act of 2001 as required by IRS
Notice 2001-42. The trusts established under the Qualified Parent Employee
Benefit Plans are exempt from federal income taxes under Section 501(a) of the
Code and any potential excise taxes.
(iv) Parent has (A) filed or caused to be filed all returns and
reports on the Parent Employee Benefit Plans that are required to be filed and
(B) paid or made adequate provision for all fees, interest, penalties,
assessments or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made relating
to those returns or reports. All other material fees, interest, penalties and
assessments that are payable by or for Parent and its Subsidiaries relating to
the Company Employee Benefit Plans have been timely reported, fully paid and
discharged. There are no material unpaid fees, penalties, interest or
assessments due from Parent or, to the knowledge of Parent, from any other
person or entity, relative to any Parent Employee Benefit Plan. Parent and its
Subsidiaries have collected or withheld all amounts that are required to be
collected or withheld by them to discharge their obligations with respect to the
Parent Employee Benefit Plans, and all of those amounts have been paid to the
appropriate governmental authority or set aside in appropriate accounts for
future payment when due.
(v) The funding, if any, under each Parent Employee Welfare
Benefit Plan does not exceed and has not exceeded the limitations under Sections
419A(b) and 419A(c) of the Code. Parent and its Subsidiaries are not subject to
taxation on the income of any Parent Employee Welfare Benefit Plan's welfare
benefit fund (as such term is defined in Section 419(e) of the Code) under
Section 419A(g) of the Code. All Parent Welfare Employee Benefit Plans required
to comply with the COBRA provisions of ERISA and the Code have complied with
such requirements in all material respects.
(vi) Each Parent Employee Benefit Plan has been operated and
administered in all material respects in accordance with its provisions. All
contributions required to be made to any Parent Employee Benefit Plan (or to any
person pursuant to the terms thereof) have been timely made or the amount of
such payment or contribution obligation has been reflected in the Parent SEC
Documents which are publicly available prior to the date of this
51
Agreement. All such contributions representing participant contributions have
been made within the time required by Department of Labor regulation section
2510.3-102.
(vii) Parent and its Subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of ERISA, the Code and
all laws and regulations applicable to the Parent Employee Benefit Plans.
Neither Parent nor any of its Subsidiaries has engaged in any prohibited
transaction, within the meaning of Section 4975 of the Code or Section 406 of
ERISA, as a fiduciary or party in interest with respect to any Parent Employee
Benefit Plan which could reasonably be expected to result in any material
liability to Parent or any of its Subsidiaries, and, to the knowledge of the
Parent or any of its Subsidiaries, (A) no prohibited transaction has occurred
with respect to any Parent Employee Benefit Plan and (B) no fiduciary has any
liability for breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of assets of any Parent
Employee Benefit Plan.
(viii) Neither Parent nor any entity that is or has been a Parent
ERISA Affiliate within the six years preceding the date of this Agreement has
within the six year period preceding the date of this Agreement sponsored,
maintained or contributed to any employee benefit plan subject to Title IV of
ERISA. No Parent Employee Welfare Plan is a multiple employee welfare
arrangement as defined in Section 3(40) of ERISA.
(ix) Parent and its Subsidiaries have not offered to provide
life, health or medical benefits or insurance coverage to any individual, or to
the family members of any individual, for any period extending beyond the
termination of the individual's employment, except to the extent required by the
COBRA provisions in ERISA and the Code or similar provisions of state law.
(x) The consummation of the transactions contemplated by this
Agreement will not, either alone or in connection with termination of
employment, (A) entitle any current or former employee, independent contractor,
director or officer of Parent or its Subsidiaries to severance pay, any change
in control payment or any other material payment, except as expressly provided
in this Agreement, (B) accelerate the time of payment or vesting, change the
form or method of payment or increase the amount of compensation due, any such
employee, independent contractor, director or officer, or (C) entitle any such
employee, independent contractor, director or officer to any gross-up or similar
material payment in respect of the excise tax described in Section 4999 of the
Code. Neither Parent nor any Subsidiary of Parent has taken any action that
would result in its incurring any obligation for any payments or benefits
described in subsections (A), (B) or (C) of this Section 3.2(k)(x) (without
regard to whether the transactions contemplated by this Agreement are
consummated) except to the extent required in a written contract or agreement in
existence as of the date of this Agreement.
(xi) As of the date of this Agreement, there are no suits,
actions, proceedings, investigations, claims, or orders pending or, to the
knowledge of the Parent, threatened against the Parent, any Subsidiary of
Parent, or any Parent Employee Benefit Plan related to any Parent Employee
Benefit Plan (other than claims in the Ordinary Course of Business). As of the
date of this Agreement, to the knowledge of Parent, no Parent Employee Benefit
Plan is subject to any ongoing audit, investigation or other administrative
proceeding of
52
any governmental entity, and no Parent Employee Benefit Plan is the subject of
any pending application for administrative relief under any voluntary compliance
program or closing agreement program of the IRS or the Department of Labor.
(xii) Parent has the right to amend or terminate each Parent
Employee Benefit Plan at any time without incurring any liability other than
with respect to benefits that have already accrued under a Parent Employee
Pension Benefit Plan.
(xiii) Neither Parent nor any Parent ERISA Affiliate has a formal
plan, commitment or proposal, whether legally binding or not, nor has any of
them made a commitment to employees, officers, directors, consultants or
independent contractors to create any additional Parent Employee Benefit Plan or
modify, change or terminate any existing Parent Employee Benefit Plan, and no
such plan, commitment or proposal is under serious consideration. To the
knowledge of Parent, no events have occurred or are expected to occur with
respect to any Parent Employee Benefit Plan that would cause a material change
in the cost of providing the benefits under such plan or would cause a material
change in the cost of providing for other liabilities of such plan.
(xiv) None of the assets of any Parent Employee Pension Benefit
Plan include "qualifying employer securities" or "qualifying employer real
property" within the meaning of Section 407(d) of ERISA.
(xv) Each Parent Employee Benefit Plan that is a "group health
plan," as defined in Section 607(1) of ERISA, Section 5001(b)(1) of the Code or
45 C.F.R. 160.103, has been operated at all times in material compliance with
the provisions of COBRA, HIPAA and any applicable, similar state law.
(xvi) Each Parent Employee Pension Benefit Plan that is not
qualified under Section 401(a) of the Code is exempt from part 2, 3 and 4 of
Title I of ERISA as an unfunded plan that is maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees pursuant to Sections 201(2), 301(a)(3) and
401(a)(1) of ERISA. No assets of Parent are allocated to or held in a "rabbi
trust" or similar vehicle with respect to any such plan.
(l) Labor Matters.
(i) Neither Parent nor any of its Subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any labor
union or organization, and there is no current union representation question
involving employees of Parent or any of its Subsidiaries, nor does Parent or any
of its Subsidiaries know of any activity or proceeding of any labor organization
(or representative thereof) or employee group (or representative thereof) to
organize any such employees.
(ii) As of the date hereof, there is no unfair labor practice
charge or grievance arising out of a collective bargaining agreement or other
grievance procedure against Parent or any of its Subsidiaries pending, or, to
the knowledge or Parent, threatened, that constitutes, or could reasonably be
expected to result in, a Parent Material Adverse Effect.
53
(iii) As of the date hereof, there is no complaint, lawsuit or
proceeding in any forum by or on behalf of any present or former employee, any
applicant for employment or any classes of the foregoing alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship against Parent
pending, or, to the knowledge of Parent or any of its Subsidiaries, threatened,
that constitutes, or could reasonably be expected to result in, a Parent
Material Adverse Effect.
(iv) There is no strike, dispute, slowdown, work stoppage, or
lockout pending, or, to the knowledge of Parent, threatened, against or
involving Parent, or any of its Subsidiaries that constitutes, or could
reasonably be expected to result in, a Parent Material Adverse Effect.
(v) Parent and each of its Subsidiaries are in compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for non-compliance that does not constitute, and could reasonably
be expected to result in, a Parent Material Adverse Effect.
(vi) As of the date hereof, there is no proceeding, claim, suit,
action or governmental investigation pending or, to the knowledge of Parent or
any of its Subsidiaries, threatened, in respect to which any current or former
director, officer, employee or agent of Parent or any of its Subsidiaries is or
may be entitled to claim indemnification from Parent or any of its Subsidiaries
pursuant to (A) the Restated Certificate of Incorporation or Bylaws (each as
amended to date) of Parent or any provision of the comparable charter or other
organizational documents of any of its Subsidiaries, (B) any indemnification
agreement to which Parent or any Subsidiary of Parent is a party or (C)
applicable law, in each case under clauses (A), (B) and (C) that constitutes, or
could reasonably be expected to result in, a Parent Material Adverse Effect.
(m) Property.
(i) Parent and its Subsidiaries possess or have adequate rights
to use all material trademarks, trade names, patents, service marks, brand
marks, brand names, computer programs, databases, industrial designs, domain
names and copyrights necessary for the operation of the businesses of each of
Parent and its Subsidiaries (collectively, the "Parent Intangible Property"),
except where the failure to possess or have adequate rights to use such
properties could not reasonably be expected to result in a Parent Material
Adverse Effect. All of the Parent Intangible Property is owned or licensed by
Parent or its Subsidiaries free and clear of any and all liens, claims or
encumbrances, except those that could not reasonably be expected to result in a
Parent Material Adverse Effect and neither Parent nor any such Subsidiary has
forfeited or otherwise relinquished any Parent Intangible Property which
forfeiture could reasonably be expected to result in a Parent Material Adverse
Effect. To the knowledge of Parent, the use of the Parent Intangible Property by
Parent or its Subsidiaries does not, in any material respect, conflict with,
infringe upon, violate or interfere with or constitute an appropriation of any
right, title, interest or goodwill, including, without limitation, any
intellectual property right, trademark, trade name, patent, service xxxx, brand
xxxx, brand name,
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computer program, database, industrial design, domain name, copyright or any
pending application therefor of any other person. There have been no claims made
and neither Parent nor any of its Subsidiaries has received any notice of any
claim or otherwise knows that (A) any of the Parent Intangible Property is
invalid or conflicts with the asserted rights of any other person or (B) any of
the Parent Intangible Property has not been used or enforced or has failed to
have been used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of any of the Parent Intangible Property,
except, in the case of clauses (A) and (B) of this Section 3.2(m)(i), for any
such conflict, infringement, violation, interference, claim, invalidity,
abandonment, cancellation or unenforceability that could not reasonably be
expected to result in a Parent Material Adverse Effect.
(ii) All material items of operating equipment owned or leased by
Parent and its Subsidiaries (A) are, in the aggregate, in a state of repair so
as to be adequate in all material respects for reasonably prudent operations in
the areas in which they are operated and (B) are adequate, together with all
other properties of Parent and its Subsidiaries, to comply in all material
respect with the requirements of all applicable contracts, including sales
contracts. Except for goods and other property sold, used or otherwise disposed
of since January 1, 2006 in the Ordinary Course of Business, Parent and its
Subsidiaries have good and defensible title to all oil and gas properties
forming the basis for the reserves reflected in the Parent Reserve Reports (as
hereinafter defined) as attributable to interests owned by Parent and its
Subsidiaries, and to all other properties, interests in properties and assets,
real and personal, reflected in the Parent SEC Documents filed prior to the date
of this Agreement as owned by Parent and its Subsidiaries, free and clear of any
liens, except: (A) liens reflected in the Parent SEC Documents filed prior to
the date of this Agreement, (B) liens for current taxes not yet due and payable,
and (C) such imperfections of title, easements, liens, government or tribal
approvals or other matters and failures of title as could not, individually or
in the aggregate, reasonably be expected to result in a Parent Material Adverse
Effect. The leases and other agreements pursuant to which Parent and its
Subsidiaries lease or otherwise acquire or obtain operating rights affecting any
real or personal property given value in the Parent Reserve Reports are in good
standing, valid and effective, and the rentals due by Parent or any Subsidiary
of Parent to any lessor of any such oil and gas leases have been properly paid,
except in each case as could not reasonably be expected to result in a Parent
Material Adverse Effect.
(n) Environmental Matters.
(i) The operations of Parent and its Subsidiaries have been
conducted, are, and, as of the Closing Date, will be, in compliance with all
Environmental Laws, except where the failure to so comply could not reasonably
be expected to result in a Parent Material Adverse Effect.
(ii) Parent and its Subsidiaries have obtained and will maintain
all permits, licenses and registrations, or applications relating thereto, and
have made and will make all filings, reports and notices required under
applicable Environmental Laws for the continued operations of their respective
businesses, except such matters the lack or failure of which could not
reasonably be expected to result in a Parent Material Adverse Effect.
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(iii) Parent and its Subsidiaries are not subject to any
outstanding written orders issued by, or contracts with, any Governmental Entity
or other person respecting (A) Environmental Laws, (B) Remedial Action, (C) any
Release or threatened Release of a Hazardous Material or (D) an assumption of
responsibility for environmental liabilities of another person, except such
orders or contracts the compliance with which could not reasonably be expected
to result in a Parent Material Adverse Effect.
(iv) Parent and its Subsidiaries have not received any written
communication alleging, with respect to any such party, the violation of or
liability under any Environmental Law, which violation or liability could
reasonably be expected to result in a Parent Material Adverse Effect.
(v) To the Knowledge of Parent, neither Parent nor any of its
Subsidiaries has any contingent liability in connection with the Release of any
Hazardous Material into the indoor or outdoor environment (whether on-site or
off-site) or employee or third party exposure to Hazardous Materials that could
reasonably be expected to result in a Parent Material Adverse Effect.
(vi) The operations of Parent or its Subsidiaries involving the
generation, transportation, treatment, storage or disposal of hazardous or solid
waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of
the date of this Agreement) or any applicable state equivalent, are in
compliance with applicable Environmental Laws, except where the failure to so
comply could not reasonably be expected to result in a Parent Material Adverse
Effect.
(vii) To the knowledge of Parent, there is not now on or in any
property of Parent or its Subsidiaries or any property for which Parent or its
Subsidiaries is potentially liable any of the following: (A) any underground
storage tanks or surface impoundments or (B) any on-site disposal of Hazardous
Material, any of which ((A) or (B) preceding) could reasonably be expected to
result in a Parent Material Adverse Effect.
(o) Insurance. Parent has previously delivered to the Company an
insurance schedule of Parent's and each of its Subsidiaries' directors' and
officers' liability insurance, primary and excess casualty insurance policies
providing coverage for bodily injury and property damage to third parties,
including products liability and completed operations coverage, and worker's
compensation, in effect as of the date hereof. As of the date of this Agreement,
all insurance policies are in full force and effect and all related premiums
have been paid to date. As of the Closing Date, all such insurance policies (or
comparable replacement policies) shall be in full force and effect and all
related premiums shall have been paid to date.
(p) Beneficial Ownership of Company Common Stock. As of the date
hereof, neither Parent nor any of its Subsidiaries beneficially owns any of the
outstanding Company Common Stock.
(q) Brokers. No broker, investment banker or other person is entitled
to any broker's, finder's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent.
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(r) Controls and Procedures; Corporate Governance.
(i) Each of Parent and its Subsidiaries maintains accurate books
and records reflecting its assets and liabilities and maintains proper and
adequate internal accounting controls that provide assurance that (A)
transactions are executed with management's authorization; (B) transactions are
recorded as necessary to permit preparation of the consolidated financial
statements of Parent and to maintain accountability for Parent's consolidated
assets; (C) access to Parent's assets is permitted only in accordance with
management's authorization; (D) the reporting of Parent's assets is compared
with existing assets at regular intervals; and (E) accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current and
timely basis. Parent has made available to the Company a summary of (A) any
significant deficiencies in the design or operation of internal controls which
could adversely affect Parent's ability to record, process, summarize and report
financial data, (B) any material weaknesses in Parent's internal controls, and
(C) any fraud, whether or not material, that involves management or other
employees who have a significant role in Parent's internal control over
financial reporting.
(ii) Parent has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) or 15d-15(e) under the
Exchange Act); such disclosure controls and procedures are designed to ensure
that material information relating to Parent required to be disclosed in
Parent's Exchange Act reports is made known to Parent's principal executive
officer and its principal financial officer by others within Parent and its
Subsidiaries, particularly during the periods in which the periodic reports
required under the Exchange Act are being prepared; and, to the knowledge of
Parent, such disclosure controls and procedures are effective in timely alerting
Parent's principal executive officer and its principal financial officer to
material information required to be included in Parent's periodic reports
required under the Exchange Act.
(iii) Parent is, or will timely be, in compliance in all material
respects with all current and proposed listing and corporate governance
requirements of the NYSE, and is in compliance in all material respects, and
will continue to remain in compliance in all material respects from the date
hereof until immediately after the Effective Time, with all rules, regulations
and requirements of the Xxxxxxxx-Xxxxx Act and the SEC.
(s) Investment Company. Neither Parent nor any of the Subsidiaries of
Parent is an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940 and the rules
and regulations promulgated thereunder.
(t) Reserve Reports. Parent has furnished to the Company Parent's
estimate of Parent's and Parent's Subsidiaries' oil and gas reserves as of
December 31, 2005, audited by XxXxxxxx & XxxXxxxxxxx, X.X. Xxxx and Associates,
Inc. and Xxxxxx & Company, Inc. (the "Parent Reserve Reports"). As concerns the
Parent Reserve Reports, (i) the factual, non-interpretive data on which the
Parent Reserve Reports were based for purposes of estimating the oil and gas
reserves set forth in the Parent Reserve Reports was accurate in all material
respects as of the time of delivery and (ii) the estimates of proved reserves
used by Parent in connection
57
with the preparation of the Parent Reserve Reports and provided by Parent to
each of XxXxxxxx & XxxXxxxxxxx, X.X. Xxxx and Associates, Inc. and Xxxxxx &
Company, Inc. in connection with its audit of the Parent Reserve Reports are in
accordance with definitions contained in Rule 4-10(a) of Regulation S-X
promulgated by the SEC.
(u) Hedging. The Parent SEC Documents accurately summarize the
outstanding Hedging positions attributable to the production of Parent and the
Subsidiaries of Parent as of the date reflected therein. Parent has previously
delivered to the Company a schedule of all material Hedging positions of Parent
and its Subsidiaries in place as of the date hereof (including those entered
into in contemplation of this Agreement).
(v) Natural Gas Act. No gas gathering system constituting a part of
the properties of Parent or its Subsidiaries has as its primary function the
provision of natural gas gathering services, as the term "gathering" is
interpreted under Section 1(b) of the NGA; none of the properties have been or
are certificated by FERC under Section 7(c) of the NGA or to the knowledge of
Parent are now subject to FERC jurisdiction under the NGA; and none of the
properties have been or are providing service pursuant to Section 311 of the
NGA.
(w) Certain Contracts and Arrangements. Neither Parent nor any of its
Subsidiaries is a party to or bound by any agreement or other arrangement that
limits or otherwise restricts Parent or any of its Subsidiaries or any successor
thereto, or that would, after the Effective Time, materially limit or restrict
Parent, the Surviving Corporation or any of Parent's other Subsidiaries or any
successor thereto, from engaging or competing in the oil and gas exploration and
production business in any significant geographic area, except for joint
ventures, area of mutual interest agreements entered into in connection with
prospect reviews and similar arrangements entered into the Ordinary Course of
Business. Documents filed or incorporated by reference in Parent's Annual Report
on Form 10-K for the year ended December 31, 2005 set forth, as of the date of
this Agreement, a true and complete list of each agreement to which Parent or
any Subsidiary of Parent is subject (other than this Agreement) that is of a
type that is required to be filed pursuant to Rule 601 of Regulation S-K
promulgated by the SEC (collectively, the "Parent Contracts"). Except as could
not reasonably be expected to result in a Parent Material Adverse Effect,
neither Parent nor any Subsidiary of Parent is in breach or default under any
Parent Contract nor, to the knowledge of Parent, is any other party to any such
Parent Contract in breach or default thereunder. Other than as contemplated by
Section 3.2(c), no consents, assignments, waivers, authorization or other
certificates or material payments are necessary in connection with the
transactions contemplated hereby to provide for the continuation in full force
and effect of all of the Parent Contracts after the Closing, except to the
extent the failure to obtain any such consent, assignment, waiver, authorization
or other certificate, individually or in the aggregate, has not resulted in and
could not reasonably be expected to result in a Parent Material Adverse Effect.
(x) Reorganization Classification. Parent has not taken any action
that causes the Merger and the LLC Sub Merger not to qualify as a
reorganization, within the meaning of Section 368(a)(1) of the Code, and has not
failed to take any action which if taken would have prevented the Merger and the
LLC Sub Merger from not qualifying as such a reorganization. Merger Sub has not
taken any action that causes the Merger and the LLC Sub Merger not to qualify as
such a reorganization and has not failed to take any action which if taken would
have
58
prevented the Merger and the LLC Sub Merger from not qualifying as such a
reorganization. Notwithstanding the foregoing and except as required by clause
(y) of Section 2.1(b), under no circumstances shall Parent or Merger Sub be
required to alter or amend the Merger Consideration to cause the Merger to
qualify as a reorganization within the meaning of Section 368(a) of the Code,
and under no circumstances shall the failure so to alter or amend the Merger
Consideration be deemed a breach of this Section 3.2(x).
ARTICLE IV
COVENANTS RELATING TO CONDUCT
OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company and Parent Pending the Merger.
(a) Prior to the Effective Time or the termination of this Agreement,
if any, the Company agrees as to itself and its Subsidiaries that (except in the
Ordinary Course of Business, to the extent that Parent shall otherwise consent
in writing, as otherwise contemplated by this Agreement, or as set forth on
Schedule 4.1(a) of the Company Disclosure Schedule):
(i) The Company and each of its Subsidiaries shall use
commercially reasonable efforts to carry on its respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and shall use all commercially reasonable efforts to
preserve intact its present business organizations, keep available the services
of its current officers and key employees (subject to Section 5.5), and endeavor
to preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and ongoing business
shall not be impaired in any material respect at the Effective Time (provided,
however, that the Company and its Subsidiaries shall not hire any additional
employees other than employees who are deemed reasonably necessary or who are
hired to replace existing employees whose employment ceases on terms not greater
than those applicable to those employees being replaced, provided that the
Company shall consult with Parent regarding the hiring of such additional or
replacement employees).
(ii) Except for transactions solely among the Company and its
Subsidiaries, the Company shall not and it shall not permit any of its
Subsidiaries to: (a) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, membership interest or
partnership interests; (b) split, combine or reclassify any of its capital stock
or membership interest or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
capital stock, membership interest or partnership interest or otherwise
authorize, recommend or propose any material change in its capitalization; or
(c) repurchase, redeem or otherwise acquire, or permit any of its Subsidiaries
to purchase, redeem or otherwise acquire, any shares of its capital stock,
membership interest or partnership interest, except as required by the terms of
its securities outstanding on the date hereof or as contemplated by any existing
employee benefit plan.
(iii) The Company shall not and it shall not permit any of its
Subsidiaries to issue, deliver or sell, or authorize or propose to issue,
deliver or sell, any shares of its capital stock, membership interest or
partnership interest of any class, any Voting Debt or other voting securities or
any securities convertible into, or any rights, warrants or options to
59
acquire, any such shares, Voting Debt, other voting securities or convertible
securities, other than (a) the issuance of Company Common Stock upon the
exercise of stock options granted under the Company Stock Plans that are
outstanding on the date hereof, and (b) issuances by a wholly-owned Subsidiary
of the Company of such Subsidiary's capital stock, membership interest or
partnership interest to its parent.
(iv) The Company shall not amend or propose to amend its
Certificate of Incorporation or Bylaws or amend or otherwise modify the terms of
any of its outstanding capital stock, securities convertible into or
exchangeable for, or any options, warrants, commitments or rights of any kind to
acquire, such securities. The Company shall not permit any of the Subsidiaries
to amend any of its organizational documents.
(v) The Company shall not, and it shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or any of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof.
(vi) The Company shall not, and it shall not permit any of its
Subsidiaries to, sell, lease, farm out, assign, encumber or otherwise dispose
of, or agree to sell, lease (whether such lease is an operating or capital
lease), farm out, assign, encumber or otherwise dispose of, any Xxxxxx Oil and
Gas Interest, (other than the sale of Hydrocarbons in the Ordinary Course of
Business pursuant to existing Hydrocarbon Contracts) or any other assets that
have a value at the time of such transaction of $50,000 or more in the aggregate
and which are not necessary or used in the ownership or operation of the Xxxxxx
Oil and Gas Interest.
(vii) Except as otherwise permitted or contemplated by this
Agreement, the Company shall not authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation or dissolution of
the Company or any of its Subsidiaries.
(viii) The Company shall not, nor shall the Company permit any of
its Subsidiaries to, make any changes in their accounting principles or methods,
except as required by law, rule, regulation or GAAP.
(ix) The Company shall not, nor shall the Company permit any of
its Subsidiaries to, enter into any agreement or arrangement with any of their
respective Affiliates (as such term is defined in Rule 405 under the Securities
Act, an "Affiliate"), whether or not such actions would be taken in the Ordinary
Course of Business (notwithstanding the lead-in language in Section 4.1(a)),
other than with wholly owned Subsidiaries of the Company.
(x) The Company shall, and shall cause its Subsidiaries to, use
commercially reasonable efforts to maintain with financially responsible
insurance companies insurance in such amounts and against such risks and losses
as are customary for companies of similar size engaged in their respective
businesses, whether or not the failure to maintain any such insurance would be
in the Ordinary Course of Business (notwithstanding the lead-in language in
Section 4.1(a)).
(xi) The Company shall not and shall cause its Subsidiaries not
to (a) make, change or rescind any material express or deemed election relating
to Taxes binding on or
60
affecting the Company or any Subsidiary, including elections for any and all
joint ventures, partnerships, limited liability companies, working interests or
other investments where the Company has the capacity to make such binding
election; (b) settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to Taxes;
or (c) change in any material respect any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income Tax Returns that have been filed for prior
taxable years, except as may be required by applicable law.
(xii) The Company shall not and it shall not permit any of its
Subsidiaries to: (a) grant any increases in the compensation of any of its
directors, officers or employees, except increases to employees who are not
directors or officers; (b) pay or agree to pay any pension, retirement allowance
or other employee benefit not required or contemplated by any of the existing
Company Employee Benefit Plans or pension plans, in each case as in effect on
the date hereof to any such director, officer or employee, whether past or
present; (c) amend or modify or receive any assets from pension plans or Company
Employee Benefits Plans; (d) enter into any new, or amend any existing,
employment or severance or termination agreement with any director, officer or
employee (other than entering into an Indemnity Agreement with Xxxxxx X.
Xxxxxxxx on the same terms as are contained in the Indemnity Agreements of the
other executive officers of the Company); (e) grant any options or other awards
under the Company Stock Plans; or (f) become obligated under any new Company
Employee Benefit Plan or pension plan, which was not in existence prior to the
date hereof, or amend any such plan or arrangement in existence on the date
hereof if such amendment would have the effect of materially enhancing any
benefits thereunder.
(xiii) The Company shall not, nor shall the Company permit any of
its Subsidiaries to (a) modify the terms of any existing indebtedness for
borrowed money or security issued by the Company or any Subsidiaries of the
Company, (b) incur any indebtedness for borrowed money (except (1) to finance
any transactions or capital or other expenditures permitted by this Agreement
and regular borrowings under credit facilities made in the ordinary course of
the Company's cash management practices, (2) refinancings of existing debt and
(3) immaterial borrowings that, in each such case, permit prepayment of such
debt without penalty (other than LIBOR breakage costs)) or guarantee, assume or
otherwise become liable for any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the Company
or any of its Subsidiaries or guarantee any debt securities of others; (c)
except in the Ordinary Course of Business, enter into any material lease
(whether such lease is an operating or capital lease) or create any material
mortgages, Liens, security interests or other encumbrances on the property of
the Company or any of its Subsidiaries in connection with any indebtedness
thereof; or (d) make or commit to make aggregate capital expenditures in excess
of an amount equal to the sum of capital expenditures budgeted by the Company
for the fiscal year ending December 31, 2006 as provided in the capital
expenditure budget set forth on Schedule 4.1(a) of the Company Disclosure
Schedule (the "Company Budget"), less any budgeted capital expenditures expended
prior to the date of this Agreement.
(xiv) The Company and its Subsidiaries shall not create, incur,
assume or permit to exist any Lien on any Xxxxxx Oil and Gas Interests or other
assets, except for Permitted Encumbrances.
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(xv) The Company shall not, nor shall the Company permit any of
its Subsidiaries to, settle, compromise or otherwise resolve (other then by
final judgment) any litigation or other legal proceedings involving a payment of
more than $50,000 in any one case by or to the Company or any of its
Subsidiaries.
(xvi) The Company shall not, nor shall the Company permit any of
its Subsidiaries to, write off any accounts or notes receivable, except in the
Ordinary Course of Business consistent with past practice or as may be required
by GAAP.
(xvii) The Company shall not, nor shall the Company permit any of
its Subsidiaries to, enter into any agreement, arrangement or commitment that
limits or otherwise restricts the Company or any Subsidiary of the Company, or
that would reasonably be expected to, after the Effective Time, limit or
restrict Parent, the Surviving Corporation or any of Parent's other Subsidiaries
or any of their respective affiliates or any successor thereto, from engaging or
competing in any line of business in which it is currently engaged or in any
geographic area material to the business or operations of (a) the Company or any
of its Subsidiaries or (b) Parent, the Surviving Corporation or any of Parent's
other Subsidiaries.
(xviii) Subject to Section 5.16, the Company shall not enter
into, terminate or assume any Xxxxxx.
(xix) The Company shall not, nor shall the Company permit any of
its Subsidiaries to, (a) enter into any new Hydrocarbon Purchase Agreements or
Hydrocarbon Sales Agreements other than in the Ordinary Course of Business at
market pricing, but in no event having a duration of longer than three months,
(b) enter into any other Hydrocarbon Contract other than in the Ordinary Course
of Business or (c) enter into any other Company Contract or series of related
agreements that would cause the Company and its Subsidiaries to spend $100,000
or more, in the aggregate, or any other Company Contract not terminable by the
Company or its Subsidiary that is a party thereto upon notice of 90 days or less
and without penalty or other obligation.
(xx) The Company shall make reasonable efforts to accomplish the
drilling and capital expenditure plans set out in the planned drilling schedule
set forth in Schedule 4.1(a) of the Company Disclosure Schedule covering the
next 60 days and identifying the xxxxx to be drilled during such period.
(xxi) The Company and its Subsidiaries shall operate, maintain
and otherwise deal with the Xxxxxx Oil and Gas Interests in accordance with all
applicable Oil and Gas Leases and other Company Contracts and all applicable
laws, rules, regulations and permits. Neither the Company nor any of its
Subsidiaries shall (a) resign, transfer or otherwise voluntarily relinquish any
right it has as of the date of this Agreement as operator of any Oil and Gas
Interest, (b) terminate, cancel, amend or otherwise modify, or waive or
relinquish any rights under, any Oil and Gas Lease or (c) settle any claim or
dispute under any Oil and Gas Lease.
(xxii) Neither the Company nor any of its Subsidiaries of the
Company shall engage in any line of business in which it is not engaged as of
the date hereof.
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(xxiii) Except as may be permitted under Section 4.1(a)(xix), the
Company shall not, nor shall the Company permit any of its Subsidiaries to,
enter into, renew, modify, amend or terminate any Company Contract or agreements
that would constitute Company Contracts, or waive, delay the exercise of, assign
or release any material rights or claims thereunder.
(xxiv) The Company shall not, nor shall the Company permit any of
its Subsidiaries to, and the Company shall use all reasonable efforts to cause
its and its Subsidiaries' employees, agents and representatives not to (and
shall not authorize any of them to), other than pursuant to this Agreement and
the Stock Voting Agreements, directly or indirectly, in any manner acquire,
agree to acquire, sell, agree to sell, or make any proposal or offer to acquire
or sell, directly or indirectly, any shares of Parent Common Stock, or any
rights or options to acquire or sell any such shares of Parent Common Stock and
shall otherwise not engage in any transactions with respect to Parent Common
Stock.
(xxv) From the effective date of this Agreement, the Company
shall not, nor shall it permit any of the attorneys or accountants retained by
it to (and shall not authorize any of them to) (a) pursue any activities
relating to the Company's registration of the offer and sale of its equity
securities with the SEC other than responding to third party inquiries regarding
such registration (provided that the Company shall not, nor shall it permit any
of the attorneys or accountants retained by it to (and shall not authorize any
of them to) prepare any written response to SEC comments with respect to such
registration) or (b) incur any additional fees or expenses in excess of $25,000
relating to the Company's registration of the offer and sale of its equity
securities with the SEC.
(xxvi) The Company shall not, nor shall the Company permit any of
its Subsidiaries to, enter into any Company Contract or otherwise agree in
writing or otherwise to take any action inconsistent with any of the foregoing.
(b) Prior to the Effective Time or the termination of this Agreement,
if any, Parent agrees as to itself and its Subsidiaries that (except in the
Ordinary Course of Business, as otherwise disclosed in the Parent SEC Documents,
to the extent that the Company shall otherwise consent in writing or as
otherwise contemplated by this Agreement):
(i) Parent and each of its Subsidiaries shall use commercially
reasonable efforts to carry on its respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted and
shall use all commercially reasonable efforts to preserve intact its present
business organizations, keep available the services of its current officers and
key employees, and endeavor to preserve its relationships with customers,
suppliers and others having business dealings with it to the end that its
goodwill and ongoing business shall not be impaired in any material respect at
the Effective Time.
(ii) Parent shall not amend or propose to amend its charter
documents in any manner that would have a material adverse impact on the
consummation of the transactions contemplated by this Agreement or alter the
terms of the Parent Common Stock.
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(iii) Parent shall not declare, set aside or pay any dividends on
or make other distributions in respect of any of its capital stock, membership
interests or partnership interests, except for the declaration and payment of
regular cash dividends with usual record and payment dates in accordance with
past practice and dividends from a Subsidiary of Parent to Parent or to another
Subsidiary of Parent.
(iv) Parent shall not adopt a plan of complete or partial
liquidation or dissolution of Parent.
(v) Parent shall not merge or consolidate with, or transfer all
or substantially all of its assets to, any other person or entity.
(vi) Other than any acquisition as to which the purchase price is
not in excess of $200 million, Parent shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation, limited
liability company, partnership, association of other business organization or
division thereof the principal business of which is not related to the
exploration, development or production of oil or natural gas or other minerals.
(vii) Parent shall not acquire, by merging or consolidating with,
or by purchasing an equity interest in or the assets of or by any other manner,
any business or corporation, partnership or other business organization or
division thereof, or otherwise acquire any assets of any other entity (other
than the purchase of assets from suppliers, clients or vendors in the ordinary
course of business and consistent with past practice) if such transactions would
prevent or materially delay the transactions contemplated by this Agreement.
(viii) Parent shall not, nor shall the Parent permit any of its
Subsidiaries to, make any changes in their accounting principles or methods,
except as required by law, rule, regulation or GAAP.
(ix) Parent shall, and shall cause its Subsidiaries to, use
commercially reasonable efforts to maintain with financially responsible
insurance companies insurance in such amounts and against such risks and losses
as are customary for companies of similar size engaged in their respective
businesses.
(x) Parent shall not, nor shall Parent permit any of its
Subsidiaries to, agree in writing or otherwise to take any action inconsistent
with any of the foregoing.
4.2 Acquisition Proposals.
(a) The Company shall not, nor shall it permit any of its Subsidiaries
nor shall it authorize or permit any officers, directors, employees, agents and
representatives of the Company or any of its Subsidiaries (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) to, directly or indirectly: (i) solicit, initiate, seek,
encourage, facilitate or induce any inquiry with respect to, or the making,
submission or announcement of, any Acquisition Proposal or any inquiry, offer or
proposal that may reasonably be expected to lead to an Acquisition Proposal,
(ii) participate in any discussions or negotiations
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regarding, or furnish to any person or entity or grant access to any person or
entity to any nonpublic information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any Acquisition Proposal, (iii) engage in
discussions with any person or entity with respect to any Acquisition Proposal,
except as to the existence of these provisions, (iv) approve, endorse or
recommend any Acquisition Proposal (except to the extent specifically permitted
pursuant to Section 4.2(d) and Section 7.1(g)), or (v) enter into any letter of
intent or similar document or any contract, agreement or commitment
contemplating or otherwise relating to any Acquisition Proposal or transaction
contemplated thereby (except as permitted pursuant to Section 4.2(d) and Section
7.1(g)). The Company shall, and shall cause its Subsidiaries and the officers,
directors, employees, agents and representatives of the Company and its
Subsidiaries (including any investment banker, attorney or accountant retained
by it or any of its Subsidiaries) to, immediately cease any and all existing
activities, discussions or negotiations with any third parties conducted
heretofore with respect to any Acquisition Proposal. The Company agrees not to
release any third party from, or waive any provision of, or fail to enforce, any
confidentiality agreement, standstill agreement or similar agreement to which it
is a party related to, or which could affect, an Acquisition Proposal and agrees
that Parent shall be entitled to enforce the Company's rights and remedies under
and in connection with such agreements.
(b) (i) As promptly as practicable (but in no event later than 24
hours) after receipt of any Acquisition Proposal, or any request for nonpublic
information or inquiry which it reasonably believes could lead to an Acquisition
Proposal, the Company shall provide Parent with oral and written notice of the
material terms and conditions of such Acquisition Proposal, request or inquiry,
and the identity of the person, entity or Group making any such Acquisition
Proposal, request or inquiry and a copy of all written materials provided in
connection with such Acquisition Proposal, request or inquiry. Upon receipt of
the Acquisition Proposal, request or inquiry, the Company shall provide Parent
as promptly as practicable (but in no event later than 24 hours after receipt of
any Acquisition Proposal) oral and written notice setting forth the material
terms of such Acquisition Proposal, request or inquiry and all such information
as is reasonably necessary to keep Parent informed of the status and details
(including amendments or proposed amendments) of any such Acquisition Proposal,
request or inquiry and shall provide to Parent (A) promptly (and in no event
later than 24 hours after receipt) a copy of all written materials subsequently
provided by the person making the Acquisition Proposal in connection with such
Acquisition Proposal, request or inquiry and (B) simultaneously with the
delivery thereof, a copy of all written materials subsequently provided to the
person making the Acquisition Proposal, request or inquiry to the extent not
previously provided to Parent; provided that this clause (B) does not affect the
restrictions on the delivery of information to any such person otherwise imposed
by this Section 4.2.
(ii) The Company shall provide Parent with seventy-two (72) hours
prior notice (or such lesser prior notice as is provided to the members of its
Board of Directors) of any meeting of its Board of Directors at which its Board
of Directors is reasonably expected to consider any Acquisition Proposal.
(c) Notwithstanding anything to the contrary contained in Section
4.2(a) and under circumstances in which the Company has complied with all of its
obligations under Section 4.2(a) and 4.2(b), in the event that, prior to receipt
of the Stockholder Approval, the
65
Company receives an unsolicited, bona fide written Acquisition Proposal that its
Board of Directors (or a special committee thereof) has in good faith concluded
(following consultation with and the receipt of advice from its outside legal
counsel and its financial advisor) is, or is reasonably likely to result in, a
Superior Offer, the Company may then take the following actions prior to, but
not after, the Stockholder Approval if the Company's Board of Directors, after
consultation with and the receipt of advice from its outside legal counsel,
determines in good faith that such actions are required by the Board of
Directors to comply with its fiduciary duties imposed by applicable law: (i)
furnish nonpublic information to the third party making such Acquisition
Proposal, provided that (A) (1) prior to or concurrently with furnishing any
such nonpublic information to such party, the Company gives Parent written
notice of its intention to furnish nonpublic information and (2) the Company
receives from the third party an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such third party on its behalf, the terms of which
are at least as restrictive as the terms (including the standstill terms
regarding limitations on actions, transactions and proposals with respect to the
Company and its securities) contained in the Confidentiality Agreement (and
containing additional provisions that expressly permit the Company to comply
with the provisions of this Section 4.2), and the Company provides a copy of
such confidentiality agreement to Parent, and (B) contemporaneously with
furnishing any nonpublic information to such third party, it furnishes such
nonpublic information to Parent (to the extent such nonpublic information has
not been previously so furnished); and (ii) engage in negotiations with the
third party with respect to the Acquisition Proposal, provided that concurrently
with entering into negotiations with such third party, it gives Parent written
notice of its intention to enter into negotiations with such third party.
(d) Notwithstanding anything in this Agreement to the contrary, the
Board of Directors of the Company shall be permitted, at any time prior to the
receipt of the Stockholder Approval, to withhold, withdraw, amend or modify, or
propose or resolve to withhold, withdraw, amend or modify, its recommendation in
favor of the Merger, and, in the case of a Superior Offer that is a tender or
exchange offer made directly to its stockholders, may recommend that its
stockholders accept the tender or exchange offer (any of the foregoing actions,
whether by a Board of Directors or a committee thereof, a "Change of
Recommendation"), if, after consultation with and the receipt of advice from its
outside legal counsel, the Company's Board of Directors determines in good faith
that withholding, withdrawing, amending or modifying its recommendation is
required by such Board of Directors to comply with its fiduciary duties imposed
by applicable law and, in response to an Acquisition Proposal, if all of the
following conditions in clauses (i) through (iv) are met: (i) a Superior Offer
shall have been made and shall not have been withdrawn; (ii) the Company shall
have (A) provided to Parent written notice which shall state expressly (1) that
the Company has received a Superior Offer, (2) the material terms and conditions
of the Superior Offer (including the most current version of any definitive
agreement proposed to be entered into in connection therewith) and the identity
of the person, entity or Group making the Superior Offer, and (3) that the
Company intends to effect a Change of Recommendation and the manner in which it
intends to do so, and (B) made available to Parent all materials and information
made available to the person, entity or Group making the Superior Offer in
connection with such Superior Offer that were not previously made available to
Parent; (iii) at least five business days shall have elapsed since the Company
provided the written notice to Parent described in clause (ii)(A) of this
Section 4.2(d) and Parent shall not have made an offer that the Board of
Directors of the Company shall have concluded in good faith
66
(following consultation with and receipt of advice from its financial advisor
and outside legal counsel) is at least as favorable, from a financial point of
view, to the Company stockholders as such Superior Offer; (iv) and the Company
shall not have breached the provisions in Section 4.2(a) or Section 4.2(d) and
shall not have breached, in any material respect, any of the other provisions
set forth in this Section 4.2 and shall not then be in breach of this Section
4.2.
(e) Notwithstanding anything to the contrary contained in this
Agreement, and subject to Section 5.3(b), the obligation of the Company to call,
give notice of, convene and hold its stockholders' meeting as contemplated in
Section 5.3 shall not be limited or otherwise affected by a Change of
Recommendation unless this Agreement is terminated pursuant to Section 7.1(g).
Notwithstanding anything to the contrary contained in this Agreement, prior to
the termination of this Agreement pursuant to Section 7.1(g), the Company shall
not (i) submit to the vote of its stockholders any Acquisition Proposal, or (ii)
enter into any agreement, agreement-in-principle or letter of intent (other than
the confidentiality agreement referenced in Section 4.2(c)) with respect to or
accept any Acquisition Proposal (or resolve to or publicly propose to do any of
the foregoing).
(f) Nothing contained in this Agreement shall prohibit the Company or
its Board of Directors from taking and disclosing to its stockholders a position
with respect to a tender or exchange offer by a third party pursuant to Rule
14e-2(a) promulgated under the Exchange Act to the extent required by applicable
law; provided that the content of any such disclosure thereunder shall be
governed by the terms of this Agreement. Without limiting the foregoing
sentence, the Company shall not make a Change of Recommendation to recommend
that its stockholders accept a tender or exchange offer unless specifically
permitted pursuant to the terms of Section 4.2(d).
(g) For purposes of this Agreement, the following terms shall have the
following meanings: (i) "Acquisition Proposal" shall mean any inquiry, offer or
proposal (other than by Parent, Merger Sub or any of their respective
Affiliates) relating to any transaction or series of related transactions
involving: (A) any purchase from the Company or acquisition by any person,
entity or "Group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a fifteen percent (15%) interest
in the total outstanding voting securities of the Company or any tender offer or
exchange offer that if consummated would result in any person, entity or Group
beneficially owning fifteen percent (15%) or more of the total outstanding
voting securities of the Company or any merger, consolidation, business
combination or similar transaction involving the Company, (B) other than in the
Ordinary Course of Business, any sale, lease, exchange, transfer, license,
acquisition or disposition of more than fifteen percent (15%) of the assets of
the Company and its Subsidiaries, taken as a whole, or (C) any liquidation or
dissolution of the Company or any of its Subsidiaries; and (ii) "Superior Offer"
shall mean an unsolicited, bona fide written proposal made by a third party to
acquire, directly or indirectly, pursuant to a tender offer, exchange offer,
merger, consolidation or other business combination, all or substantially all of
the assets of the Company or all or substantially all of the outstanding voting
securities of the Company (A) on terms that the Board of Directors of the
Company has in good faith concluded (following consultation with and the receipt
of advice from its outside legal counsel and its financial adviser), taking into
account, among other things, all legal, financial, regulatory and other aspects
of the offer, the person, entity or Group making the offer, the source of
financing and any amounts payable pursuant to Section 7.2, to be
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more favorable, from a financial point of view, to the Company's stockholders
(in their capacities as stockholders) than the terms of the Merger and is
reasonably capable of being consummated, (B) for which financing, to the extent
required, is then committed or which, in the good faith reasonable judgment of
the Board of Directors of the Company, following consultation with and the
receipt of advice from the Company's financial advisor, is reasonably capable of
being financed by such third party, and (C) that the Board of Directors of the
Company, in its good faith reasonable judgment, following consultation with and
the receipt of advice from the Company's outside legal counsel and financial
advisor, determines is reasonably capable of being consummated without undue
delay on the terms proposed.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement.
(a) Parent and the Company shall, as promptly as practicable after the
date of this Agreement, but in any event by no later than May 19, 2006, prepare
and distribute to holders of Company Common Stock a proxy statement/offering
memorandum relating to the Stockholders' Meeting (the "Proxy Statement"). The
Proxy Statement shall (i) include copies of Parent's Annual Report on Form 10-K
for the year ended December 31, 2005, Parent's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2006, and Parent's Proxy Statement on Schedule 14A
filed with the SEC on April 19, 2006, or (ii) refer recipients of the Proxy
Statement to such documents and incorporate such documents by reference into the
Proxy Statement. The Proxy Statement shall also include pro forma financial
information for Parent and the Company as of and for the year ended December 31,
2005.
(b) The information supplied by each of Parent and the Company in the
Proxy Statement shall not, at the date such materials (or any supplement
thereto) are first mailed to such stockholders, at the time of the Stockholders'
Meeting or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time prior to the Effective
Time any event or circumstance relating to Parent or the Company or any of their
respective Subsidiaries or affiliates is discovered by Parent or the Company
that should be set forth in a supplement to the Proxy Statement, Parent and the
Company, as the case may be shall supplement such material.
(c) The materials to be included in the Proxy Statement in the mailing
to holders of Company Common Stock shall include (i) with respect to Eligible
Holders, the Eligible Holder Election Materials and (ii) with respect to holders
of Company Common Stock that are not Eligible Holders, the Non-Eligible Holder
Election Materials. In the event Parent determines any supplemental information
or materials are appropriate to be provided to the holders of Company Common
Stock (x) prior to the receipt of the Stockholder Approval or (y) after receipt
of the Stockholder Approval if there is a Stock Consideration Shortfall, to
determine whether such holder qualifies as an accredited investor and otherwise
satisfies the investor suitability standards required as set forth in the
Investor Questionnaire and Election Form, then the Company shall cooperate with
Parent in providing such materials to or communicating with such holders and
obtaining appropriate representations and certifications or any clarification or
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further communication with such holders as appropriate in accordance with
applicable securities laws, as reasonably determined by Parent as necessary to
enable the Parent to effect an issuance of Parent Common Stock pursuant to this
Agreement (including pursuant to Section 2.1(b)(y)).
5.2 Access to Information. Upon reasonable notice, Parent and the Company,
as the case may be shall (and shall cause each of their respective Subsidiaries
to) afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records, as well as to its officers and employees and, during
such period, each of Parent and the Company, as the case may be, shall (and
shall cause each of its respective Subsidiaries to) furnish promptly to the
other (i) a copy of each report, schedule, registration statement and other
document filed with the SEC or received by it from the SEC and (ii) all other
information concerning its business, properties and personnel as such other
party may reasonably request. Each of Parent and the Company agree that it will
not, and will cause its respective representatives not to, use any information
obtained pursuant to this Section 5.2 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. The
Confidentiality Agreement dated as of February 15, 2006 between Parent and the
Company (the "Confidentiality Agreement") shall apply with respect to
information furnished thereunder or hereunder and any other activities
contemplated thereby.
5.3 Stockholders' Meeting.
(a) The Company shall take all action necessary in accordance with the
DGCL and its organizational documents to call, hold and convene a special
meeting of the Company's stockholders to consider the approval of this Agreement
and the Merger (the "Stockholders' Meeting"), to be held as promptly as
practicable after the mailing of the Proxy Statement to its stockholders, but in
no event later than June 19, 2006 (unless the Stockholders' Meeting is adjourned
or postponed in accordance with the provisions of this Section 5.3(a)); provided
that, the Company shall not be in violation of the immediately preceding
sentence if the Stockholders' Meeting is not held on or before June 19, 2006,
because Parent failed to provide to the Company information regarding Parent for
inclusion in the Proxy Statement (which information both Parent and the Company
mutually agreed to include in the Proxy Statement) in order for the Proxy
Statement to be distributed to holders of Company Common Stock on or before May
19, 2006. Subject to Section 4.2(d) and 5.3(b), the Company shall use all
reasonable efforts to solicit from its stockholders proxies in favor of the
approval of this Agreement and the Merger, and shall take all other action
necessary or advisable to secure the vote or consent of its stockholders
required by the DGCL to obtain such approvals. Notwithstanding anything to the
contrary contained in this Agreement, but subject to Section 7.1(c), (i) the
Company may adjourn or postpone the Stockholders' Meeting if as of the time for
which the Stockholders' Meeting is originally scheduled (as set forth in the
Proxy Statement) there are insufficient shares of capital stock of the Company
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Stockholders' Meeting, and (ii) Parent may require
the Company to adjourn or postpone the Stockholders' Meeting if as of the time
for which the Stockholders' Meeting is originally scheduled (as set forth in the
Proxy Statement) the condition set forth in Section 6.2(h) shall not be
satisfied; provided that, in the event the Stockholders' Meeting is delayed to a
date after the Initial Termination Date as a result of the reasons set forth in
this sentence, then the Initial Termination Date shall be extended to a date no
later than the
69
fifth business day after the Initial Termination Date. Except as set forth in
the immediately preceding sentence, the Company shall not postpone or adjourn
the Stockholders' Meeting without the consent of Parent. The Company shall
ensure that the Stockholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited, by it in connection with the
Stockholders' Meeting are solicited in compliance with the DGCL, its
organizational documents and all other applicable laws.
(b) Except to the extent expressly permitted by Section 4.2(d): (i)
the Board of Directors of the Company shall unanimously recommend that the
stockholders of the Company vote in favor of the approval of this Agreement and
the Merger at the Stockholders' Meeting, (ii) the Proxy Statement shall include
a statement to the effect that the Board of Directors of the Company has
unanimously recommended that the Company's stockholders vote in favor of the
approval of this Agreement and the Merger at the Stockholders' Meeting, and
(iii) neither the Board of Directors of the Company nor any committee thereof
shall withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to Parent, the unanimous recommendation of the
Company's Board of Directors that the stockholders of the Company vote in favor
of the approval of this Agreement and the Merger.
5.4 Third Party Consents; Approvals.
(a) The Company shall use commercially reasonable efforts to assist
Parent in promptly obtaining the written consent, waiver or approval from any
party to a Company Contract identified on Schedule 3.1(z) of the Company
Disclosure Schedule as requiring the consent, waiver of approval of another
party thereto. Notwithstanding the foregoing, the Company and its Subsidiaries
shall not, in obtaining any such consent, without the prior written consent of
Parent, (i) take any action prohibited by Section 4.2, or (ii) otherwise modify
or amend any Company Contract or agree to or incur any liability or obligation
for which the Surviving Corporation would have any responsibility after the
Effective Time.
(b) Each party hereto shall cooperate and use its commercially
reasonable efforts to promptly prepare and file all necessary documentation to
effect all necessary applications, notices, petitions, filings and other
documents, and use all commercially reasonable efforts to obtain (and will
cooperate with each other in obtaining) any consent, acquiescence,
authorization, order or approval of, or any exemption or nonopposition by, any
Governmental Entity required to be obtained or made by Parent or the Company or
any of their respective Subsidiaries in connection with the Merger or the taking
of any action contemplated thereby or by this Agreement.
5.5 Employee and Benefit Plan Matters.
(a) Parent and the Company agree that all employees of the Company and
its Subsidiaries immediately prior to the Effective Time shall continue to be
employed by the Surviving Corporation or its Subsidiaries immediately after the
Effective Time solely on an "at will" basis, it being understood that the
Surviving Corporation shall not have any obligations to continue employing such
employees for any length of time thereafter.
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(b) Parent shall take such action as may be necessary so that on and
after the Effective Time employees of the Company and its Subsidiaries
immediately prior to the Effective Time who continue in the employment of the
Surviving Corporation and its Subsidiaries after the Effective Time shall be
provided employee benefits, plans and programs which, in the aggregate, are
substantially comparable to those made available by Parent and its Subsidiaries
to similar situated employees of Parent and its Subsidiaries.
(c) Parent shall, no later than sixty days following the end of the
calendar year that includes the Effective Time, pay to each employee of the
Surviving Corporation or a Subsidiary thereof on and after the Effective Time
who was an employee of the Company or a Subsidiary thereof immediately prior to
the Effective Time and who, as of the Effective Time, had paid or incurred
deductible(s) for benefits under the Company's or its Subsidiary's medical plan
in the plan year that includes the Closing Date in an amount in excess of $500,
an amount equal to the difference of (i) the amount equal to the sum of (A) the
deductible(s) paid or incurred by such employee for benefits under the Company's
or its Subsidiary's medical plan in the plan year that includes the Closing
Date, and (B) the deductible(s) paid or incurred by such employee for benefits
under the Range Resources Corporation Welfare Benefit Plan in the plan year that
includes the Closing Date, minus (ii) $1,000.00 (to the extent such amount is a
positive number).
(d) Parent shall take all reasonable steps necessary to cause the
Company's 401(k) plan to be merged with and into Parent's 401(k) plan in which
employees of the Surviving Corporation will participate after the Effective Time
on or before January 1, 2007 (it being expressly agreed that the participants in
the Company's 401(k) plan shall be third party beneficiaries of this Section
5.5(d), each of whom may enforce the provisions of this Section 5.5(d)).
(e) Parent has previously delivered to the Company copies of each of
the letters offering employment to the employees of the Company listed on
Schedule 5.5 of the Parent Disclosure Schedule, and Parent will offer to employ
such employees as of the Effective Time on the terms set forth in such letters.
(f) In the event that, within the period beginning on the Effective
Time and ending on the last day of the twelfth full calendar month following the
calendar month in which the Effective Time occurs, any person who is an employee
of the Company or any of its Subsidiaries immediately prior to the Effective
Time, other than those employees listed on Schedule 5.5(f) of the Company
Disclosure Schedule, incurs an "Involuntary Termination of Employment" (as
defined in Parent's Employee Change of Control and Severance Pay Plan as in
effect on the date of this Agreement) from the Surviving Corporation, then
Parent shall pay severance benefits to such employee in an amount equal to
one-half (1/2) of such employee's Base Salary (as defined in Parent's Employee
Change of Control and Severance Pay Plan as in effect on the date of this
Agreement).
(g) Prior to the Effective Time, the Company will make cash payments
to certain employees of the Company in the amounts set forth on Schedule 5.5(g)
of the Company Disclosure Schedule.
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(h) Immediately prior to the Effective Time, the Company will adopt
(or cause the sponsoring Subsidiary to adopt) a resolution fully vesting all
employer contributions made prior to the Closing Date under the 401(k) plan in
which employees of the Company and its Subsidiaries participate.
(i) Parent and Company agree that Xxxxxxx X. Xxxxx ("Xxxxx") will
resign as President, Chief Executive Officer and Chairman of the Board of
Directors of the Company at the request of Parent as of the Effective Time and
that (i) such resignation will be deemed to constitute an involuntary
termination of employment other than for "Cause" for purposes of the Employment
Agreement between Xxxxx and the Company dated October 1, 2005, (ii) Xxxxx will
be entitled to the severance payment specified on Schedule 5.5(g) of the Company
Disclosure Schedule and the health insurance continuation benefits specified in
Section 6(c) of that agreement, and (iii) all Company Options held by Xxxxx
shall be fully vested and all restrictions on Company Restricted Stock held by
Xxxxx shall lapse immediately prior to his resignation.
5.6 Stock Options and Restricted Stock.
(a) At the Effective Time, each then outstanding Company Option,
whether vested or unvested, shall be (i) assumed by Parent in accordance with
the terms and conditions of the applicable Company Stock Plan and option
agreement, together with amendments thereto, by which it is evidenced, except
that from and after the Effective Time, Parent and its Board of Directors or
Compensation Committee, as the case may be, shall be substituted for the Company
and its Board of Directors and Compensation Committee administering any such
Company Stock Plan, and (ii) converted into an option to acquire the number of
shares of Parent Common Stock equal to the number of shares of Company Common
Stock subject to such Company Option multiplied by the Exchange Ratio, which
converted option shall be exercisable on the terms and conditions as were
applicable under such Company Option and the applicable Company Stock Plan
(except as described below) for the aggregate exercise price equal to the number
of shares of Company Common Stock subject to such Company Option multiplied by
the exercise price per share of Company Common Stock stated in such Company
Option (such that, upon conversion of the Company Option into an option for an
aggregate number of shares of Parent Common Stock, then the exercise price per
whole share of Parent Common Stock for that converted option will be equal to
the quotient of the exercise price per share of Company Common Stock stated in
such Company Option divided by the Exchange Ratio). "Company Options" means any
option granted, and not exercised, expired or terminated, to a current or former
employee, director or independent contractor of the Company or any Subsidiaries
of the Company or any predecessor thereof to purchase shares of Company Common
Stock pursuant to the Company Stock Plans or any other contract or agreement
entered into by the Company or any Subsidiaries of the Company. In the event
that the exercise of any Company Option would result in the issuance of a
fractional share of Parent Common Stock, then (i) if the Company Option is
subject to a Company Stock Plan that addresses the treatment of such fractional
share, such fractional share shall be treated in accordance with the terms of
such Company Stock Plan, or (ii) if the Company Option is subject to a Company
Stock Plan that does not address the treatment of such fractional share, such
holder shall be entitled to receive a cash payment for such fractional share
based upon the last reported sale price per share of Parent Common Stock on the
trading day immediately preceding the date of exercise. Notwithstanding the
foregoing, in the case of
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any option to which Section 421 of the Code applies by reason of its
qualification under any of Sections 422-424 of the Code, the option price, the
number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code. Except as otherwise set forth in this Section
5.6, the term, status as an "incentive stock option" under Section 422 of the
Code, if applicable, all applicable restrictions or limitations on transfer and
all other terms and conditions of the Company Options will, to the extent
permitted by law and applicable agreements and plans and otherwise reasonably
practicable, be unchanged. Notwithstanding the foregoing, all Company Options
shall be fully exercisable immediately prior to the Effective Time. As soon as
practicable following the date of this Agreement, the Board of Directors of the
Company (or, if appropriate, any committee thereof administering the Company
Stock Plans) shall adopt such resolutions or take such other actions as may be
required to effect the provisions of this Section 5.6(a).
(b) As soon as reasonably practicable following the Effective Time and
in any event within two business days after the Effective Time, Parent shall
cause the shares of Parent Common Stock issuable upon exercise of the Company
Options to be assumed under paragraph (a) above that are held by holders the
issuance to which is eligible to be covered on a Form S-8 to be registered on
Form S-8 (or any successor form), and shall use its commercially reasonable
efforts to maintain the effectiveness of such registration statement for so long
as such assumed Company Options remain outstanding (it being expressly agreed
that the holders of the assumed Company Options shall be third party
beneficiaries of this Section 5.6(b), each of whom may enforce the provisions of
this Section 5.6(b)).
(c) As soon as reasonably practicable following the Effective Time,
Parent shall deliver to each holder of an assumed Company Option an appropriate
notice setting forth such holder's rights pursuant to such Company Option. The
Company and Parent shall take all commercially reasonable actions which are
necessary in order to effect the foregoing provisions of this Section 5.6 as of
the Effective Time. Parent shall take all corporate actions necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
upon exercise of the Company Options.
(d) Concurrently with the execution and delivery of this Agreement,
the Company is delivering to Parent the Option Cancellation Agreements and
Option Modification Agreements listed on Schedule 5.6(d) of the Company
Disclosure Schedule executed by the applicable optionees and shall take all
actions necessary to enforce such agreements prior to the Effective Time. Within
three days of the execution and delivery of this Agreement, the Company will
deliver to Parent the Option Conditional Exercise Agreements listed on Schedule
5.6(d) of the Company Disclosure Schedule executed by the applicable optionees
and shall take all actions necessary to enforce such agreements prior to the
Effective Time.
(e) All restrictions on shares of Company Restricted Stock shall lapse
and the restricted period shall end immediately prior to the Effective Time. As
soon as practicable following the date of this Agreement, the Board of Directors
of the Company (or, if appropriate, any committee thereof administering the
Company Stock Plans) shall adopt such resolutions or take such other actions as
may be required to effect the provisions of this Section 5.6(e).
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5.7 Indemnification; Directors' and Officers' Insurance.
(a) Parent agrees that all rights to indemnification by the Company
now existing in favor of each person who is now, or has been at any time prior
to the date hereof or who becomes prior to the Effective Time an officer or
director of the Company or any Subsidiary of the Company or an employee of the
Company or any Subsidiary of the Company or who acts as a fiduciary under any of
the Company Employee Benefit Plans (each a "Company Indemnified Party") as
provided in the Company's Certificate of Incorporation or Bylaws, in each case
as in effect on the date of this Agreement, or pursuant to any other agreements
in effect on the date hereof, copies of which have been provided to Parent,
including provisions relating to the advancement of expenses incurred in the
defense of any action or suit, shall survive the Merger and shall remain in full
force and effect with respect to all losses, claims, damages, liabilities, fees,
expenses, judgments and fines arising in whole or in part out of actions or
omissions in such person's capacity as such occurring at or prior to the
Effective Time. From and after the Effective Time, the Surviving Corporation
shall be liable to pay and perform in a timely manner such indemnification
obligations.
(b) The obligations of Parent and the Surviving Corporation under this
Section 5.7 shall survive the consummation of the Merger and shall not be
terminated or modified in such a manner as to adversely affect any Company
Indemnified Party to whom this Section 5.7 applies for a period of six years
from the Effective Time without the consent of such affected Company Indemnified
Party (it being expressly agreed that the Company Indemnified Parties to whom
this Section 5.7 applies shall be third party beneficiaries of this Section 5.7,
each of whom may enforce the provisions of this Section 5.7).
(c) Within two days after the date of this Agreement, the Company
shall execute and deliver to Parent letters changing the broker of record on the
Company's directors' and officers' liability insurance policies to an insurance
broker designated by Parent. Upon delivery of such letters, Parent shall use
commercially reasonable efforts to arrange to procure, and shall prior to the
Effective Time procure (and the Company shall cooperate prior to the Effective
Time in these efforts), through such insurance broker designated by Parent a
run-off directors' and officers' liability insurance policy for the Company's
current policies to be effective from and after the Effective Time with respect
to claims arising from facts or events which occurred prior to the Effective
Time and covering persons who are currently covered by such insurance, which
policy, without any lapse in coverage, will provide coverage for a period of six
years after the Effective Time (or the Surviving Corporation otherwise will
maintain coverage for such period) and contain terms and conditions which are
substantially comparable to the Company's existing directors' and officers'
liability insurance policy.
(d) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, in each such case, Parent shall
ensure that proper provisions shall be made so that the successors and assigns
of the Surviving Corporation or all or substantially all of its assets shall
assume the obligations set forth in this Section 5.7 (it being agreed that this
Section 5.7(d) shall be deemed satisfied if such obligations become the
obligations of any such successor or assign by operation of law).
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5.8 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
commercially reasonable efforts to defend against and respond thereto.
5.9 Public Announcements. The parties hereto will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement without the consent of
the other parties, except as may be reasonably determined to be required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange or transaction reporting system so long as the
other parties are notified promptly by the disclosing party of such press
release or public statement. Notwithstanding the foregoing, the parties hereto
acknowledge and agree that, (a) promptly following the execution and delivery of
this Agreement by all of the parties hereto, each of Parent and the Company
shall issue separate press releases announcing the execution and delivery of
this Agreement (provided that, prior to the public dissemination of each such
press release, each shall provide to the other a draft of such press release and
an opportunity to provide comments thereon, which comments such party shall not
unreasonably refuse to incorporate into such disclosure), (b) within four
business days after the date of this Agreement, Parent shall file with the SEC a
Current Report on Form 8-K to disclose this Agreement and attach a copy of the
press release to such Form 8-K, and (c) on the date the Proxy Statement is
mailed to holders of Company Common Stock, Parent shall file an amendment to
such Form 8-K attaching a copy of this Agreement (but not the Company Disclosure
Schedule or Parent Disclosure Schedule) as an exhibit to such Form 8-K
amendment.
5.10 Other Actions. Except as contemplated by this Agreement, neither
Parent nor the Company shall, nor shall Parent or the Company permit any of its
Subsidiaries to, take or agree or commit to take any action that is reasonably
likely to result in any of its respective representations or warranties
hereunder being untrue in any material respect or in any of the conditions to
the Merger set forth in Article VI not being satisfied. Subject to the terms of
this Agreement, each of the parties agrees to use its reasonable best efforts to
satisfy the conditions to Closing set forth in this Agreement.
5.11 Notification of Certain Matters; Governmental Filings. Parent and the
Company, as the case may be, shall confer on a regular basis with each other,
report on operational matters and promptly advise each other orally and in
writing of any change or event constituting or which could reasonably be
expected to result in a Parent Material Adverse Effect or a Company Material
Adverse Effect, as the case may be. The Company agrees to give prompt notice to
Parent of, and to use its commercially reasonable efforts to prevent or promptly
remedy, (a) the occurrence or failure to occur, or the impending or threatened
occurrence or failure to occur, of any event which occurrence or failure to
occur would be reasonably likely to cause the failure of any of the conditions
set forth in Section 6.2(a) or 6.2(b); provided, however, that the delivery of
any notice pursuant to this Section 5.11 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice. Parent agrees
to give prompt notice to the Company of, and to use its commercially reasonable
efforts to prevent or promptly remedy, (i) the occurrence or failure to occur,
or the impending or threatened occurrence or failure to occur,
75
of any event which occurrence or failure to occur would be reasonably likely to
cause the failure of any of the conditions set forth in Section 6.3(a) or
6.3(b); provided, however, that the delivery of any notice pursuant to this
Section 5.11 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice. Parent and the Company shall
promptly provide each other (or their respective counsel) copies of all filings
made by such party or its Subsidiaries with the SEC or any other state or
federal Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
5.12 Conveyance Taxes. Parent and the Company will (a) cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp Taxes, any transfer, recording,
registration and other fees and any similar Taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time, (b) cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any applicable exemptions to any such
Tax or fee, and (c) each pay any such Tax or fee which becomes payable by it on
or before the Effective Time.
5.13 Plan of Reorganization and Certain Tax Matters.
(a) Parent and the Company represent and agree:
(i) Parent and the Company shall each use their reasonable best
efforts to cause the Integrated Transaction to qualify as a "reorganization"
within the meaning of Section 368(a) of the Code, and before or after the
Effective Time, neither Parent nor the Company shall knowingly take any action,
cause any action to be taken, fail to take any action or cause any action to
fail to be taken which action or failure to act could cause the Integrated
Transaction to fail to qualify as a reorganization under Section 368(a) of the
Code.
(ii) Parent and the Company shall comply with the record keeping
and information reporting requirements set forth in Treasury Regulation Section
1.368-3.
(iii) This Agreement is intended to constitute a "plan of
reorganization" within the meaning of Treasury Regulation Section 1.368-2(g) and
an integrated plan within the meaning of Rev. Rul. 2001-46.
(iv) In connection with the delivery by Xxxxxxxx & Xxxxxx LLP,
Tax counsel to the Company (or, if Xxxxxxxx & Knight LLP is not able to deliver
such opinion, such other legal counsel that is reasonably acceptable to the
Company), of the opinion of counsel pursuant to Section 6.1(c), officers of
Parent, Merger Sub and the Company shall execute and deliver to Xxxxxxxx &
Xxxxxx LLP or such other legal counsel certificates substantially in the form
agreed to by the parties and such law firm at such time or times as may
reasonably be requested by such law firm, including prior to the Effective Time
(which certificates shall not, without the consent of the party delivering the
certificate, which consent shall not be unreasonably withheld, cover matters in
addition to those set forth in this Section 5.13 (or cover such matters more
broadly than this Section 5.13) with respect to such party).
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(v) The Company and Parent shall cooperate in the preparation,
execution and filing of all Tax Returns, questionnaires, applications or other
documents regarding any real property transfer or gains, sales, use, transfer,
value added, stock transfer and stamp Taxes, and transfer, recording,
registration and other fees and similar Taxes that become payable in connection
with the Integrated Transaction that are required or permitted to be filed on or
before the Effective Time. Each of Merger Sub and the Company shall pay, without
deduction from any amount payable to holders of Company Common Stock and without
reimbursement from the other party, any such Taxes or fees imposed on it by any
governmental entity that becomes payable in connection with the Integrated
Transaction (excluding, for the avoidance of doubt, any Tax imposed on the
holders of Company Common Stock).
(b) Parent and Merger Sub represent, with respect to themselves and
their Subsidiaries, and agree that:
(i) The Merger and the LLC Sub Merger will be carried out
strictly in accordance with this Agreement, and there are no other written or
oral agreements relating to the Merger or the LLC Sub Merger other than those
expressly referred to in this Agreement.
(ii) The Merger and the LLC Sub Merger are a part of an
integrated plan for Parent to acquire the assets of the Company. The parties
intend that, provided the continuity of interest requirement set forth in
Treasury Regulation Section 1.368-1(e) is met, the Merger and the LLC Sub Merger
will together be treated, for federal income tax purposes, as if parent had
directly acquired the Company's assets through a "statutory merger" as that term
is used in Section 368(a)(1)(A) of the Code.
(iii) Following the Integrated Transaction, Parent, LLC Sub or
one or more members of Parent's "qualified group" (as defined in Treasury
Regulation Section 1.368-1(d)(4)(ii)) will either continue the historic
businesses or use a significant portion of the Company's assets in a business
within the meaning of Treasury Regulation Section 1.368-1(d).
(iv) In connection with the Merger, no shares of Company Common
Stock have been acquired or will be acquired by Parent or a Parent Related
Person for consideration other than shares of Parent Common Stock other than (A)
the Cash Consideration, (B) cash in lieu of fractional shares of Parent Common
Stock paid pursuant to Section 2.6, (C) consideration paid to holders of
Appraisal Shares pursuant to Section 262 and (D) amounts payable pursuant to the
Registration Rights Agreement. Parent has no stock repurchase program and has no
current plan or intention to adopt such a plan other than a stock repurchase
program that complies with Rev. Rul. 99-58.
(v) Neither Parent nor any Parent Related Person will in
connection with the Merger purchase, redeem or otherwise acquire any of the
Parent Common Stock that is issued in the Merger other than any fractional share
for which Parent or any such related person pays cash as part of the Merger or
other than in open market purchases of Parent Common Stock that are described in
Rev. Rul. 99-58.
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(vi) The payment of cash in lieu of fractional shares of Parent
Common Stock in the Merger is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and is not separately
bargained for consideration.
(vii) Neither Parent nor Merger Sub will, when the Merger occurs,
be an "investment company," within the meaning of Section 368(a)(2)(F) of the
Code, and will not at that time be under the jurisdiction of a court in a title
11 or similar case, within the meaning of Section 368(a)(3)(A) of the Code.
(viii) There is no intercorporate indebtedness existing between
Parent and the Company that was issued, acquired or will be settled at a
discount.
(ix) None of the compensation received by any
shareholder-employees of the Company will be separate consideration for, or
allocable to, any of their shares of Company Common Stock; none of the shares of
Parent Common Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of the Company who continue as
employees of the Surviving Corporation following the Merger and LLC Sub Merger
will be for services actually rendered and will not exceed amounts paid to third
parties bargaining at arm's length for similar services.
(x) The assumption of liabilities of the Company pursuant to the
Merger and LLC Sub Merger is for a bona fide business purpose and the principal
purpose of the assumption is not the avoidance of federal income tax on the
transfer of assets of the Company to LLC Sub pursuant to the Merger and the LLC
Sub Merger.
(xi) No liabilities of any person other than the Company will be
assumed by LLC Sub in the Merger and the LLC Sub Merger, and none of the shares
of Company Common Stock to be surrendered in exchange for Parent Common Stock in
the Merger will be subject to any liabilities.
(xii) Parent and Merger Sub will each pay their respective
expenses, if any, incurred in connection with the Merger.
(xiii) Neither Parent nor any Parent Related Person owns, nor has
it owned during the past year, any shares of stock of the Company. Neither
Parent nor any Parent Related Person has caused any other person or entity to
acquire stock of the Company on behalf of Parent or any Parent Related Person,
and will not directly or indirectly acquire any stock of the Company in
connection with the Merger, except as described in this Agreement.
(xiv) Parent has not, directly or indirectly, transferred any
cash or property to the Company (or any entity controlled directly or indirectly
by the Company) for less than full and adequate consideration and has not made
any loan to the Company (or any entity controlled directly or indirectly by the
Company) in anticipation of the Merger.
(xv) Merger Sub is a Delaware corporation wholly and directly
owned by Parent and has been newly formed solely to consummate the Merger. Prior
to the Effective Time, Merger Sub will have no assets other than cash to satisfy
capital requirements under state
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law, and has not, and will not, conduct any business activities or other
operations of any kind other than the issuance of its stock to Parent or as
otherwise expressly required by this Agreement.
(xvi) At the Effective Time, Merger Sub will not have or issue
any warrants, options, convertible securities or any other type of right
pursuant to which any person or entity could acquire any stock in Merger Sub.
(xvii) Parent has no plan or intention to liquidate or merge the
Company or LLC Sub with or into another corporation (other than the merger of
the Company with and into LLC Sub pursuant to the LLC Sub Merger) or to sell or
otherwise dispose of any of the assets of the Company, except for (A)
dispositions made in the ordinary course of business, (B) sales to a person or
entity other than a Subsidiary of Parent or (C) transfers described in Section
368(a)(2)(C) of the Code or Treasury Regulation Section 1.368-2(k).
(xviii) Parent is paying no consideration for the shares of the
Company Common Stock other than (A) the Merger Consideration, (B) amounts paid
in respect of Appraisal Shares pursuant to Section 262 and (C) any amounts
payable pursuant to the Registration Rights Agreement.
(xix) No stock or securities of Parent will be issued for any
indebtedness owed to any Company stockholder in connection with the Merger.
(xx) No stock of Merger Sub will be issued to any person or
entity other than Parent in connection with the Merger.
(xxi) After the Effective Time, and at all times prior to and as
of the effective time of the LLC Sub Merger (the "Second Effective Time"),
Parent will be a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware. Subject to the accuracy of the
representations made by the Company in Section 3.1(a) of this Agreement, after
the Effective Time, and at all times prior to the Second Effective Time, the
Surviving Corporation will be a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware.
(xxii) After the Effective Time, and at all times prior to the
Second Effective Time, the Surviving Corporation's issued and outstanding
capital stock will consist solely of 10,000 shares of common stock, all of which
will be owned directly by Parent.
(xxiii) After the Effective Time, and at all times prior to the
Second Effective Time, the Surviving Corporation will not dispose of any assets
held by the Surviving Corporation.
(xxiv) After the Effective Time, and at all times prior to the
Second Effective Time, the Surviving Corporation will not incur any additional
liabilities, other than liabilities incurred in the ordinary course of business.
79
(xxv) After the Effective Time, and at all times prior to the
Second Effective Time, there will be no indebtedness existing between the
Surviving Corporation and Parent.
(xxvi) After the Second Effective Time, LLC Sub will not transfer
any of the assets of the Surviving Corporation except for (A) dispositions made
in the ordinary course of business, (B) sales to a person or entity other than a
Subsidiary of Parent or (C) transfers described in Section 368(a)(2)(C) of the
Code or Treasury Regulation Section 1.368-2(k)..
(xxvii) No stock or securities of Parent issued in connection
with the Merger will be issued to any Company stockholder for services rendered
to or for the benefit of Parent, Merger Sub or the Company (except to the extent
of outstanding Company Options described in Section 5.6 and Company Restricted
Stock).
(xxviii) For federal tax purposes, LLC Sub is classified as
disregarded as an entity separate from Parent in accordance with Treasury
Regulation Section 301.7701-3 and neither Parent nor LLC Sub has any plan or
intention to change the classification of LLC Sub as a disregarded entity for
federal tax purposes.
For purposes of this Section 5.13(b), a "Parent Related Person" with
respect to Parent or Merger Sub shall mean:
(i) a corporation that, immediately before or immediately after a
purchase, exchange, redemption, or other acquisition of Parent Common Stock, is
a member of an Affiliated Group (as defined herein) of which Parent (or any
successor corporation) is a member, or
(ii) a corporation in which Parent (or any successor
corporation), owns, or which owns with respect to Parent (or any successor
corporation), directly or indirectly, immediately before or immediately after
such purchase, exchange, redemption, or other acquisition, at least 50% of the
total combined voting power of all classes of stock entitled to vote or at least
50% of the total value of shares of all classes of stock, taking into account
for purposes of this clause (ii) any stock owned by 5% or greater stockholders
of Parent (or any successor) or such corporation, a proportionate share of the
stock owned by entities in which Parent (or any successor) or such corporation
owns an interest, and any stock which may be acquired pursuant to the exercise
of options.
(c) The Company represents, with respect to itself and its
Subsidiaries, and agrees that:
(i) The Merger will be carried out strictly in accordance with
this Agreement and the Company is not a party to any other written or oral
agreements regarding the Merger other than those expressly referred to in this
Agreement.
(ii) The Merger and the LLC Sub Merger are part of an integrated
plan for Parent to acquire the assets of the Company. The parties intend that,
provided the continuity of interest requirement set forth in Treasury Regulation
Section 1.368-1(e) is met, the Merger and the LLC Sub Merger will be treated,
for federal income tax purposes, as if Parent had
80
directly acquired the Company's assets through a "statutory merger" as that term
in used in Section 368(a)(1)(A) of the Code.
(iii) Neither the Company nor any Company Related Person has
redeemed or acquired any Parent Common Stock or any Company Common Stock since
September 23, 2005, or otherwise in connection with the Merger.
(iv) The Company has not made any distribution with respect to
Company Common Stock since September 23, 2005, or otherwise in connection with
the Merger.
(v) The liabilities of the Company assumed by LLC Sub and the
liabilities to which the transferred assets of the Company are subject were
incurred by the Company in the ordinary course of its business.
(vi) There is no intercorporate indebtedness existing between
Parent and the Company that was issued, acquired or will be settled at a
discount.
(vii) The fair market value and the federal income tax basis of
the assets of the Company to be transferred to LLC Sub in the Merger and the LLC
Sub Merger will equal or exceed the sum of the liabilities assumed by LLC Sub,
plus the amount of liabilities, if any, to which the transferred assets are
subject.
(viii) None of the compensation received by any
shareholder-employees of the Company will be separate consideration for, or
allocable to, any of their shares of Company Common Stock; none of the shares of
Parent Common Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of the Company who continue as
employees of the Surviving Corporation following the Merger and the LLC Sub
Merger will be for services actually rendered and will not exceed amounts paid
to third parties bargaining at arm's length for similar services.
(ix) The payment in lieu of fractional shares of Parent Common
Stock in the Merger is solely for the purpose of avoiding the expense and
inconvenience of issuing fractional shares and is not separately bargained for
consideration.
(x) The Company will not, when the Merger occurs, be an
"investment company," within the meaning of Section 368(a)(2)(F) of the Code,
and will not at that time be under the jurisdiction of a court in a title 11 or
similar case, within the meaning of Section 368(a)(3)(A) of the Code.
(xi) The assumption of liabilities of the Company pursuant to the
Merger and the LLC Sub Merger is for a bona fide business purpose and the
principal purpose of the assumption is not the avoidance of federal income tax
on the transfer of assets of the Company to LLC Sub pursuant to the Merger and
the LLC Sub Merger.
(xii) No liabilities of any person other than the Company will be
assumed by LLC Sub in the Merger and the LLC Sub Merger, and none of the shares
of
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Company Common Stock to be surrendered in exchange for Parent Common Stock in
the Merger will be subject to any liabilities.
(xiii) The Company and Company stockholders will each pay their
respective expenses, if any, incurred in connection with the Merger.
(xiv) No debt of the Company is guaranteed by any Company
stockholder.
(xv) The Company owns no Parent Common Stock.
(xvi) No assets of the Company have been sold, transferred or
otherwise disposed of which would prevent Parent and the Surviving Corporation
from continuing the historic business of the Company or from using a significant
portion of the Company's historic business assets in a business following the
Integrated Transaction, within the meaning of Treasury Regulation Section
1.368-1(d).
(xvii) The fair market value of the assets of the Company
transferred to Merger Sub in the Integrated Transaction will equal or exceed the
sum of the liabilities assumed or paid by Parent or Merger Sub, plus the amount
of liabilities, if any, to which the transferred assets are subject.
(xviii) The total adjusted basis of the assets of the Company
transferred to Merger Sub in the Integrated Transaction will equal or exceed the
sum of the liabilities assumed or paid by Parent or Merger Sub, plus the amount
of liabilities, if any, to which the transferred assets are subject.
(xix) The Company is not under the jurisdiction of a court in a
title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(xx) No stock or securities of the Company will be issued to any
Company stockholder for services rendered to or for the benefit of Parent,
Merger Sub, or the Company in connection with the Merger (except to the extent
of outstanding Company Options described in Section 5.6 and Company Restricted
Stock).
(xxi) No stock or securities of Parent or of the Company will be
issued to any Company stockholder for any indebtedness owed to any Company
stockholder in connection with the Merger.
(xxii) No assets were transferred to the Company, nor did the
Company assume any liabilities, in anticipation of the Merger.
(xxiii) At one or more times during the five-year period leading
up to and ending as of the Effective Time of the Merger, the Company was a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
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(xxiv) At the Effective Time, except as contemplated by Section
3.1(b)(i), the Company will not have outstanding any warrants, options,
convertible securities, or any other type of right pursuant to which any person
or entity could acquire stock in the Company.
For purposes of this Section 5.13(c), a "Company Related Person" with
respect to the Company shall mean:
(x) a corporation that, immediately before or immediately after a
purchase, exchange, redemption, or other acquisition of the Company Common
Stock, is a member of an Affiliated Group (as defined herein) of which the
Company (or any successor corporation) is a member, or
(y) a corporation in which the Company (or any successor corporation),
owns, or which owns with respect to the Company (or any successor corporation),
directly or indirectly, immediately before or immediately after the relevant
purchase, exchange, redemption, or other acquisition, at least 50% of the total
combined voting power of all classes of stock entitled to vote or at least 50%
of the total value of shares of all classes of stock, taking into account for
purposes of this clause (ii) any stock owned by 5% or greater stockholders of
the Company (or any successor) or such corporation, a proportionate share of the
stock owned by entities in which the Company (or any successor) or such
corporation owns an interest, and any stock which may be acquired pursuant to
the exercise of options.
For purposes of Section 5.13(b) and (c), "Affiliated Group" shall mean one
or more chains of corporations connected through stock ownership with a common
parent corporation, but only if:
(aa) the common parent owns directly stock that possesses at least 80%
of the total voting power, and has a value at least equal to 80% of the total
value, of the stock in at least one of the other corporations, and
(bb) stock possessing at least 80% of the total voting power, and
having a value at least equal to 80% of the total value, of the stock in each
corporation (except the common parent) is owned directly by one or more of the
other corporations.
For purposes of the preceding sentence, "stock" does not include any stock
that (a) is not entitled to vote, (b) is limited and preferred as to dividends
and does not participate in corporate growth to any significant extent, (c) has
redemption and liquidation rights that do not exceed the issue price of such
stock (except for a reasonable redemption or liquidation premium), and (d) is
not convertible into another class of stock.
(d) In no event will the aggregate Liquidated Damages (as defined in
the Registration Rights Agreement) that are paid in cash and other damages that
are paid in cash under the Registration Rights Agreement and under this
Agreement exceed an amount that would prevent the Merger from satisfying the
continuity of interest requirement under Treasury Regulation Section 1.368-1(e).
Such continuity of interest determination shall be made by the Tax counsel that
delivered the opinion of counsel described in Section 6.1(c) of this Agreement
or such other Tax counsel as may be selected by Parent in its reasonable
discretion. To the extent that Liquidated Damages and such other damages cannot
be paid in cash, they will be paid in shares of Parent Common Stock using the
Fair Market Value (as defined in the Registration
83
Rights Agreement) on the dates they accrue. Notwithstanding the foregoing, if
the Company does not receive the opinion of counsel described in Section 6.1(c)
of this Agreement, then this Section 5.13(d) shall not apply and shall have no
effect.
5.14 Financing. Prior to the Closing, the Company shall reasonably
cooperate with Parent, Parent's financing sources, and Parent's auditors and
attorneys in connection with Parent's financing efforts with respect to the
Merger. Without limiting the generality of the foregoing, the Company shall
provide, and the Company shall instruct its auditors to provide, to Parent such
financial and other information that Parent reasonably requests for inclusion in
any materials, including offering materials for the issuance of debt securities,
to be used by Parent in connection with such financing. In addition, the Company
shall, to the extent reasonably requested by Parent, use its best efforts to
cause the Company's auditors to provide the consent of such auditors to the
inclusion of any financial statements of the Company in any such materials used
by Parent.
5.15 Resignations. At or prior to the Closing, the Company shall obtain the
resignation, effective as of a time no later than the Effective Time, of each of
its and its Subsidiaries' officers, directors and limited liability company
managers, including those persons whose names are listed on Schedule 3.1(a) of
the Company Disclosure Schedule, from all such positions such persons hold with
the Company and each such Subsidiary, including offices, board positions and
committee positions (but not including any person's employment with the Company
or any such Subsidiaries).
5.16 Hedge Transactions. The Company has entered into the transactions set
forth on Schedule 3.1(x) of the Company Disclosure Schedule (the "Hedge
Transactions"), each of which is subject to either the ISDA Master Agreement
dated as of August 12, 2005 between the Company and BNP Paribas or the ISDA
Master Agreement dated as of February 23, 2006 between the Company and JPMorgan
Chase Bank, National Association ("JPMorgan"). The Company shall use
commercially reasonable efforts to promptly cause BNP Paribas and JPMorgan to
enter into a Novation Agreement with the Company, on terms acceptable to Parent,
pursuant to which all rights, liabilities, duties and obligations of BNP Paribas
under and in respect of each Hedge Transaction entered into between the Company
and BNP Paribas will be transferred to JPMorgan by novation, effective as of
prior to the Closing. The Company shall use commercially reasonable efforts to
cause all Hedge Transactions outstanding between the Company and JPMorgan at the
Closing to terminate no later than the close of business on the Closing Date.
5.17 Xxxxxxxx Stock Voting Agreement. The Company shall use commercially
reasonable efforts to obtain the signature of Xxxxxx X. Xxxxxxxx to the Stock
Voting Agreement as soon as practicable after the date hereof and shall, once
obtained, furnish the Stock Voting Agreement executed by Xxxxxx X. Xxxxxxxx and
the Company to Parent.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Company Stockholder Approval. The Stockholder Approval shall have
been obtained.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order preventing the consummation
of the Merger shall have been issued by any court of competent jurisdiction or
any other Governmental Entity and shall remain in effect, and no federal, state,
local, municipal, foreign or other law, statute, rule, regulation or decree that
makes consummation of the Merger illegal shall have been enacted, adopted or
deemed applicable to the Merger and shall remain in effect.
(c) Opinion of Counsel. The Company shall have received the opinion of
Xxxxxxxx & Xxxxxx LLP, counsel to the Company (or, if Xxxxxxxx & Knight LLP is
not able to deliver such opinion, such other legal counsel that is reasonably
acceptable to the Company), in form and substance reasonably satisfactory to the
Company dated as of the Closing Date, rendered on the basis of facts,
representations and assumptions set forth in such opinion and the certificates
obtained from officers of Parent, Merger Sub and the Company, all of which are
consistent with the state of facts existing as of the Effective Time, as
applicable, to the effect that (i) the Integrated Transaction will qualify as a
reorganization within the meaning of Section 368(a) of the Code and (ii) the
Company and Parent will each be a "party to the reorganization" within the
meaning of Section 368 of the Code. In rendering the opinion described in this
Section 6.1(c), Xxxxxxxx & Xxxxxx LLP (or such other legal counsel) shall have
received and may rely upon the representations and agreements referred to in
Section 5.13, provided, however, that this Section 6.1(c) shall not be a
condition to Closing if the number of shares of Parent Common Stock that is to
be paid as Merger Consideration, after giving effect to clause (y) of Section
2.1(b), is less than the number required in order for the Merger and the LLC Sub
Merger to satisfy the continuity of interest requirement under Treasury
Regulation Section 1.368-1(e) (provided that the determination of whether the
number of shares of Parent Common Stock that are to be paid as Merger
Consideration, after giving effect to clause (y) of Section 2.1(b), is
sufficient in order for the Merger and the LLC Sub Merger to satisfy such
requirement must be made by no later than five business days after the date that
the Stockholder Approval is obtained and if such determination is not made on or
before such time this Section 6.1(c) shall not be a condition to Closing).
6.2 Conditions of Obligations of Parent. The obligations of Parent to
effect the Merger are subject to the satisfaction of the following conditions,
any or all of which may be waived in whole or in part by Parent:
(a) Representations and Warranties of the Company. Each of the
representations and warranties of the Company contained in this Agreement shall
be true and correct as of the date of this Agreement and (except to the extent
such representations and
85
warranties speak as of an earlier date, in which case such representations and
warranties shall remain true and correct as of such earlier date) as of the
Closing Date as though made on and as of the Closing Date except for
inaccuracies of representations or warranties the circumstances giving rise to
which or the effects of which, individually or in the aggregate, could not
reasonably be expected to result in a Company Material Adverse Effect (provided
that, in determining the accuracy of such representations and warranties for
purposes of this Section 6.2(a), all "Company Material Adverse Effect" and
materiality qualifications contained in such representations and warranties
shall be disregarded), and Parent shall have received a certificate signed on
behalf of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to such effect.
(c) Approvals. The Company shall have delivered to Parent certified
copies of resolutions duly adopted by the Company's Board of Directors and
stockholders evidencing the approval of this Agreement and the Merger and the
other transactions contemplated hereby.
(d) Material Adverse Effect. No Company Material Adverse Effect shall
have occurred since December 31, 2005, and Parent shall have received a
certificate signed on behalf of the Company by the Chief Executive Officer and
Chief Financial Officer of the Company to such effect.
(e) Consulting Agreement. The Consulting Agreement shall remain in
full force and effect.
(f) Non-Competition Agreement. The Non-Competition Agreement shall
remain in full force and effect.
(g) Xxxxx Waiver Agreement. The waiver agreement executed by Xxxxxxx
X. Xxxxx on the date of this Agreement shall remain in full force and effect.
(h) Appraisal Shares. The aggregate number of Appraisal Shares shall
not exceed 7% of the total number of shares of Company Common Stock issued and
outstanding as of the record date for the Company Stockholders' Meeting and
entitled to vote on the proposed Merger at such meeting.
(i) Third Party Consents. All consents, waivers and approvals of third
parties with respect to the transactions contemplated hereby listed on Schedule
6.2(i) of the Company Disclosure Schedule shall have been obtained, shall be in
full force and effect, shall not have been revoked, shall be in form and
substance reasonably satisfactory to Parent, and, if obtained by the Company or
its Subsidiaries, copies thereof shall have been delivered to Parent.
(j) No Litigation. There shall not be pending or threatened any
material suit, action, proceeding or investigation: (i) challenging or seeking
to restrain or prohibit the
86
consummation of the Merger or any of the other transactions contemplated by this
Agreement; (ii) relating to the Merger and seeking to obtain from Parent or any
of its Subsidiaries any damages that are material to Parent; (iii) seeking to
prohibit or limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to
the stock of the Surviving Corporation; or (iv) which, if adversely determined,
could reasonably be expected to have a Company Material Adverse Effect or a
Parent Material Adverse Effect.
(k) Resignations. The Company shall have delivered to Parent the
written resignation, effective as of a time no later than the Effective Time, of
each officer, director and limited liability company manager of the Company and
the Company's Subsidiaries from any and all such positions each such person
shall hold with the Company and each such Subsidiary, including offices, board
positions and committee positions (but not including any person's employment
with the Company or any such Subsidiaries), which resignations shall be in form
and substance reasonably satisfactory to Parent.
(l) Blue Sky Approvals. Parent shall have received all state and
foreign securities and "blue sky" permits and approvals necessary to consummate
the transactions contemplated hereby.
(m) Option Modification Agreements, Option Conditional Exercise
Agreements and Option Cancellation Agreements. The Option Modification
Agreements, Option Conditional Exercise Agreements and Option Cancellation
Agreements listed on Schedule 5.6(d) of the Company Disclosure Schedule shall be
in full force and effect.
6.3 Conditions of Obligations of the Company. The obligation of the Company
to effect the Merger is subject to the satisfaction of the following conditions,
any or all of which may be waived in whole or in part by the Company:
(a) Representations and Warranties of Parent and Merger Sub. Each of
the representations and warranties of Parent and Merger Sub contained in this
Agreement shall be true and correct as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier date,
in which case such representations and warranties shall remain true and correct
as of such earlier date) as of the Closing Date as though made on and as of the
Closing Date except for inaccuracies of representations or warranties the
circumstances giving rise to which or the effects of which, individually or in
the aggregate, could not reasonably be expected to result in a Parent Material
Adverse Effect (provided that, in determining the accuracy of such
representations and warranties for purposes of this Section 6.3(a), all "Parent
Material Adverse Effect" and materiality qualifications contained in such
representations and warranties shall be disregarded), and the Company shall have
received a certificate signed on behalf of Parent by the Chief Executive Officer
and the Chief Financial Officer of Parent to such effect.
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of Parent by the Chief Executive Officer
and the Chief Financial Officer of Parent to such effect.
87
(c) Approvals. Parent shall have delivered to the Company certified
copies of resolutions duly adopted by Parent's Board of Directors evidencing the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby.
(d) Material Adverse Effect. No Parent Material Adverse Effect shall
have occurred since December 31, 2005, and the Company shall have received a
certificate signed on behalf of Parent by the Chief Executive Officer and Chief
Financial Officer of Parent to such effect.
(e) Registration Rights Agreement. The Registration Rights Agreement
shall remain in full force and effect.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
receipt of the Stockholder Approval (except with respect to Section 7.1(g), in
which case the termination must be prior to receipt of the Stockholder
Approval):
(a) by mutual written consent of Parent and the Company, or by mutual
action of their respective Boards of Directors;
(b) by either Parent or the Company if (i) any Governmental Entity
shall have issued any order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the consummation of
the Merger and such order, decree, ruling or other action shall have become
final and nonappealable; provided, however, that the right to terminate this
Agreement under this Section 7.1(b)(i) shall not be available to any party until
such party has used all reasonable efforts to remove such order, decree, ruling
or other action; or (ii) (A) the Stockholder Approval shall not have been
obtained by reason of the failure to obtain the required vote upon a vote held
at a duly held meeting of stockholders, or at any adjournment thereof, or (B) if
at a duly held meeting of the Company's stockholders, no vote shall have been
taken in respect of the Stockholder Approval; provided, however, that the right
to terminate this Agreement under this Section 7.1(b)(ii) shall not be available
to the Company if the Company's failure to fulfill any covenant or agreement
under this Agreement has been the cause of or resulted in the failure to obtain
the Stockholder Approval;
(c) by Parent or the Company if the Merger shall not have been
consummated (i) by August 1, 2006 or such other date, if any, as the Company and
Parent shall agree (the "Initial Termination Date") or (ii) if the Initial
Termination Date is extended pursuant to Section 5.3(a), by the date to which
the Initial Termination Date is extended pursuant to Section 5.3(a); provided,
however, that the right to terminate this Agreement under this Section 7.1(c)
shall not be available to any party whose breach of any representation or
warranty or failure to fulfill any covenant or agreement under this Agreement
has been the cause of or resulted in the failure of the Merger to occur on or
before such date;
(d) by Parent if (i) the Company shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement to be complied
88
with or performed by the Company at or prior to such date of termination
(provided that such breach has not been, or cannot be, cured within 15 days
following receipt by the Company of notice of such breach (but in any event not
later than the Initial Termination Date, as such may be extended pursuant to
Section 5.3(a)) and is existing at the time of termination of this Agreement);
(ii) any representation or warranty of the Company contained in this Agreement
shall not be true in all material respects (it being understood that, for
purposes of determining the accuracy of such representations and warranties, all
"Company Material Adverse Effect" and materiality qualifications contained in
such representations and warranties shall be disregarded) when made on or at the
time of termination as if made on such date of termination (except to the extent
it relates to a particular date), provided (A) such breach has not been, or
cannot be, cured within 15 days following receipt by the Company of notice of
such breach (but in any event not later than the Initial Termination Date, as
such may be extended pursuant to Section 5.3(a)) and is existing at the time of
termination of this Agreement and (B) the condition provided in Section 6.2(a),
other than the provision relating to receipt of a certificate, would not be
satisfied if Closing were to occur on the day on which Parent gives the Company
notice of such termination; or (iii) after the date hereof there has been any
Company Material Adverse Effect;
(e) by the Company if (i) Parent or Merger Sub shall have failed to
comply in any material respect with any of the covenants or agreements contained
in this Agreement to be complied with or performed by it at or prior to such
date of termination (provided such breach has not been, or cannot be, cured
within 15 days following receipt by Parent of notice of such breach (but in any
event not later than the Initial Termination Date, as such may be extended
pursuant to Section 5.3(a)) and is existing at the time of termination of this
Agreement); (ii) any representation or warranty of Parent or Merger Sub
contained in this Agreement shall not be true in all material respects (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, all "Parent Material Adverse Effect" and
materiality qualifications contained in such representations and warranties
shall be disregarded) when made or on or at the time of termination as if made
on such date of termination (except to the extent it relates to a particular
date), provided (A) such breach has not been, or cannot be, cured within 15 days
following receipt by Parent of notice of such breach (but in any event not later
than the Initial Termination Date, as such may be extended pursuant to Section
5.3(a)) and is existing at the time of termination of this Agreement and (B) the
condition provided in Section 6.3(a), other than the provision relating to
receipt of a certificate, would not be satisfied if Closing were to occur on the
day on which the Company gives Parent notice of such termination; or (iii) after
the date hereof there has been any Parent Material Adverse Effect;
(f) by Parent in the event that (i) the Board of Directors of the
Company shall have failed to reaffirm publicly its approval, as soon as
reasonably practicable, and in no event later than three business days, after
Parent's request for such reaffirmation, of the Merger and the transactions
contemplated by this Agreement, or shall have resolved not to reaffirm the
Merger, or (ii) the Board of Directors of the Company shall have failed to
include in the Proxy Statement its recommendation, without modification or
qualification, that the Company stockholders approve this Agreement and the
Merger, or (iii) the Board of Directors of the Company shall have a Change of
Recommendation, or (iv) the Board of Directors of the Company, within ten
business days after commencement of any tender or exchange offer for any shares
of Company Common Stock, shall have failed to recommend against acceptance of
such tender or exchange offer by its stockholders or shall have taken no
position with respect to the acceptance of such
89
tender or exchange offer by its stockholders, or (v) the Board of Directors of
the Company shall have approved, endorsed or recommended any Acquisition
Proposal other than the Merger, or (vi) the Company shall have entered into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement related to an Acquisition Proposal, or (vii) the Company shall have
failed to hold the Stockholders' Meeting as promptly as practicable and in any
event by no later than July 1, 2006;
(g) by the Company if, prior to receipt of the Stockholder Approval,
(i) the Board of Directors of the Company shall have concluded in good faith
(after consultation with and the receipt of advice from its outside legal
counsel and its financial advisor) that it has received a Superior Offer, (ii)
the Board of Directors of the Company shall have authorized the Company, subject
to complying with the terms of Section 4.2 and this Section 7.1(g), to enter
into a binding written agreement concerning the Superior Offer and the Company
shall have provided to Parent written notice which shall expressly state (A)
that it has received a Superior Offer, (B) the material terms and conditions of
the Superior Offer (including the most current version of any definitive
agreement proposed to be entered into in connection therewith and any subsequent
amendments or modifications) and the identity of the person, entity or Group
making the Superior Offer, and (C) that it intends to enter into a binding
written agreement with respect to such Superior Offer, (iii) the Company shall
have made available to Parent all materials and information made available to
the person, entity or Group making the Superior Offer in connection with such
Superior Offer that were not previously made available to Parent, (iv) at least
five business days shall have elapsed since the Company provided the written
notice described in clause (ii) of this Section 7.1(g) and Parent shall not have
made an offer that the Board of Directors of the Company shall have concluded in
good faith (following consultation with and receipt of advice from its financial
advisor and outside legal counsel) is at least as favorable, from a financial
point of view, to the Company stockholders as such Superior Offer, (v) the
Company (A) shall not have breached the provisions set forth in Section 4.2(a)
or Section 4.2(c)), (B) shall not have breached, in any material respect, any
other provisions set forth in Section 4.2, and (C) shall not then be in breach
of Section 4.2, and (vi) the Company shall have tendered to Parent payment in
full of the amount specified in Section 7.2 concurrently with delivery of notice
of termination pursuant to this Section 7.1(g).
A terminating party shall provide written notice of termination to the other
party specifying the reason for such termination. In exercising its termination
rights under Section 7.1(b)(ii) or Section 7.1(f), Parent may condition the
effectiveness of any such termination upon receipt of the Termination Fee that
is payable to Parent pursuant to Section 7.2(b) or the portion of the
Termination Fee that is payable to Parent pursuant to Section 7.2(c) upon the
termination of this Agreement.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement by any party hereto
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto except (i)
with respect to this Section 7.2, the second and third sentences of Section 5.2,
and Article VIII, and (ii) to the extent that such termination results from the
breach by a party hereto of any of its representations or warranties or
90
of any of its covenants or agreements contained in this Agreement, in which case
such party shall remain liable for its breach notwithstanding the termination.
(b) (i) If (A) Parent or the Company terminates this Agreement
pursuant to Section 7.1(b)(ii), (B) Parent terminates this Agreement pursuant to
Section 7.1(f) or (C) the Company terminates this Agreement pursuant to Section
7.1(c) and, at the time of such termination, Parent is entitled to terminate
this Agreement pursuant to Section 7.1(b)(ii) or 7.1(f); and as to either of
clauses (A), (B) or (C) above, prior to the termination of this Agreement, an
Acquisition Proposal has been proposed to the Company or otherwise publicly
announced or communicated to the holders of Company Common Stock; or
(ii) If the Company terminates this Agreement pursuant to Section
7.1(g);
then, subject to Section 7.2(c), the Company shall pay to Parent an amount equal
to the product of (A) 0.03 multiplied by (B) the sum of (1) the Total Merger
Consideration Value (provided that, for purposes of calculating the Total Merger
Consideration Value, the number of Company Closing Shares shall be deemed to be
the number of shares of Company Common Stock issued and outstanding on the
business day immediately preceding the date of termination of this Agreement,
and "Average Closing Price" shall be deemed to mean the average of the daily
closing prices for the shares of Parent Common Stock for the fifteen consecutive
full trading days on which such shares are actually traded on the NYSE (as
reported in The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by Parent) ending at the close of trading on the
fifth trading day prior to the date written notice of termination of this
Agreement is delivered by the party electing to terminate this Agreement), plus
(2) an amount equal to the difference of (a) the product of (x) the total number
of shares of Company Common Stock that are subject to Company Options that are
outstanding on the business day immediately preceding the date of termination of
this Agreement, multiplied by (y) the Per Share Cash Value, minus (b) the
aggregate exercise price for all of such Company Options (the "Termination
Fee"). If the Termination Fee shall be payable pursuant to subsection (b)(i) of
this Section 7.2 in connection with a termination by Parent, the Termination Fee
shall be paid in same-day funds no later than one business day after the date
written notice of termination of this Agreement is delivered by Parent to the
Company. If the Termination Fee shall be payable pursuant to subsection (b)(i)
of this Section 7.2 in connection with a termination by the Company or pursuant
to subsection (b)(ii) of this Section 7.2, the Termination Fee shall be paid in
same-day funds concurrently with the delivery of the notice of termination, and
as a condition precedent to the effectiveness of any termination, of this
Agreement.
(c) If (i) Parent or the Company terminates this Agreement pursuant to
Section 7.1(b)(ii), (ii) Parent terminates this Agreement pursuant to Section
7.1(f) other than under the circumstances described in any of clauses (iv), (v)
or (vi) of Section 7.1(f), or (iii) the Company terminates this Agreement
pursuant to Section 7.1(c) and, at the time of such termination, Parent is
entitled to terminate this Agreement pursuant to Section 7.1(b)(ii) or 7.1(f),
and, prior to the termination of this Agreement, an Acquisition Proposal has not
been proposed to the Company or otherwise publicly announced or communicated to
the holders of Company Common Stock, then the Company shall pay to Parent an
amount equal to the product of (A) 0.30 multiplied by (B) the Termination Fee,
with such payment to be made, if the termination is
91
by the Company, in same-day funds concurrently with the delivery of the notice
of termination, and as a condition precedent to the effectiveness of any
termination, of this Agreement or, if the termination is by Parent, in same-day
funds no later than one business day after the date written notice of
termination of this Agreement is delivered by Parent to the Company; provided
that, if the Company shall consummate an Acquisition Proposal within twelve
months of the date of such termination, then the Company shall pay, in addition
to the amount described above in this sentence, an amount equal to the balance
of the Termination Fee in same-day funds at or prior to the date of the
consummation of such Acquisition Proposal.
(d) The parties hereto acknowledge that the agreements contained in
paragraphs (b) and (c) of this Section 7.2 are an integral part of the
transactions contemplated by this Agreement, and that without these agreements,
they would not enter into this Agreement. Accordingly, if the Company fails to
pay promptly any fee payable by it pursuant to this Section 7.2, then the
Company shall pay to Parent Parent's costs and expenses (including attorneys'
fees) in connection with collecting such fee, together with interest on the
amount of the fee at the rate of LIBOR plus 150 basis points from the date such
payment was due under this Agreement until the date of payment. The fees payable
by the Company pursuant to this Section 7.2 shall be paid by the Company without
reservation of rights or protests, and the Company upon making any such payment
shall be deemed to have released and waived any and all claims that it may have
to recover such amounts.
(e) Nothing contained in this Section 7.2 shall constitute or shall be
deemed to constitute liquidated damages for the breach by the Company of the
terms of this Agreement or otherwise limit the rights of Parent.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after receipt of the Stockholder Approval, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without first obtaining such further approval. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed: (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Payment of Expenses. Each party hereto shall pay its own expenses
incident to preparing for entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
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8.2 Nonsurvival of Representations, Warranties and Agreements. Subject to
the remaining provisions of this Section 8.2, the representations, warranties
and agreements in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers,
directors, representatives or agents whether prior to or after the execution of
this Agreement. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time and any liability for breach or violation thereof
shall terminate absolutely and be of no further force and effect at and as of
the Effective Time, except for the agreements contained in Article II and
Sections 5.5, 5.6, 5.7 and 5.13 and Article VIII. The Confidentiality Agreement
shall survive the execution and delivery of this Agreement, and the provisions
of the Confidentiality Agreement shall apply to all information and material
delivered hereunder.
8.3 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received (i) when so delivered personally, (ii) upon receipt
of an appropriate electronic answerback or confirmation when so delivered by
telegraph or telecopy (to such number specified below or another number or
numbers as such person may subsequently designate by notice given hereunder), or
(iii) five business days after the date of mailing to the following address or
to such other address or addresses as such person may subsequently designate by
notice given hereunder, if so delivered by mail:
(a) if to Parent or Merger Sub, to:
Range Resources Corporation
000 Xxxx Xxxxxx
Xxxxx 000
Xxxx Xxxxx, Xxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
with a copy to:
Xxxxxx X. Xxxxx
Xxxxxx & Xxxxxx L.L.P.
Xxxxxxxx Xxxx Center
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Facsimile: (000) 000-0000
93
and (b) if to the Company, to:
Xxxxxx Energy, Inc.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000
Facsimile: Xxxxxxx X. Xxxxx
Attention: (000) 000-0000
with a copy to:
Xxxxxxxx & Knight L.L.P.
0000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax No.: (000) 000-0000
Attention: Xxx Xxxxxxxxxxx
8.4 Interpretation.
(a) Each of the parties hereto acknowledges that it has been
represented by independent counsel of its choice throughout all negotiations
that have preceded the execution of this Agreement and that it has executed the
same with consent and upon the advice of said independent counsel. Each party
and its counsel cooperated in the drafting and preparation of this Agreement and
the documents referred to herein, and any and all drafts relating thereto
exchanged between the parties shall be deemed the work product of the parties
and may not be construed against any party by reason of its preparation.
Accordingly, any rule of law or any legal decision that would require
interpretation of any ambiguities in this Agreement against any party that
drafted it is of no application and is hereby expressly waived.
(b) All references in this Agreement to Exhibits, Schedules, Articles,
Sections, subsections and other subdivisions refer to the corresponding
Exhibits, Schedules, Articles, Sections, subsections and other subdivisions of
this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any Articles, Sections, subsections or other subdivisions of this
Agreement are for convenience only, do not constitute any part of such Articles,
Sections, subsections or other subdivisions, and shall be disregarded in
construing the language contained therein. The words "this Agreement," "herein,"
"hereby," "hereunder" and "hereof" and words of similar import, refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. The words "this Section," "this subsection" and words of similar
import, refer only to the Sections or subsections hereof in which such words
occur. The word "including" (in its various forms) means "including, without
limitation." Pronouns in masculine, feminine or neuter genders shall be
construed to state and include any other gender and words, terms and titles
(including terms defined herein) in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise expressly
requires. Unless the context otherwise requires, all defined terms contained
herein shall include the singular and plural and the conjunctive and disjunctive
forms of such defined terms. Unless the context otherwise requires, all
references to a specific time shall refer to Dallas, Texas time.
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8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreement and any other documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereto and (b) except as provided
in Sections 5.5, 5.6, 5.7 and 5.13, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
8.8 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
THAT CANNOT BE WAIVED, EACH PARTY HEREBY IRREVOCABLY WAIVES AND COVENANTS THAT
IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING IN WHOLE OR IN PART UNDER, RELATED TO, BASED ON, OR IN
CONNECTION WITH, THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN TORT OR CONTRACT OR
OTHERWISE. ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION 8.8 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY
TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
8.9 Consent to Jurisdiction; Venue. The parties hereto submit to the
personal jurisdiction of the courts of the State of Texas and the Federal courts
of the United States sitting in Tarrant County, and any appellate court from any
such state or Federal court, and hereby irrevocably and unconditionally agree
that all claims with respect to any such claim may be heard and determined in
such Texas court or, to the extent permitted by law, in such Federal court. The
parties hereto agree that a final judgment in any such claim shall be conclusive
and may be enforced in any other jurisdiction by suit on the judgment or in any
other manner provided by law. Nothing in this Agreement shall affect any right
that any party may otherwise have to bring any claim relating to this Agreement
or any related matter against any other party or its assets or properties in the
courts of any jurisdiction.
Each of the parties hereto irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any related matter in any Texas
state or Federal court located in Tarrant County and the defense of an
inconvenient forum to the maintenance of such claim in any such court.
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8.10 Severability. If any term or other provision of this Agreement is
determined by a court of competent jurisdiction to be invalid, illegal, or
incapable of being enforced under any rule of applicable 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 herein are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated herein are consummated as originally
contemplated to the fullest extent possible.
8.11 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns.
8.12 Specific Performance. The parties hereby acknowledge and agree that
the failure of any party to this Agreement to perform its obligations hereunder
in accordance with their specific terms or otherwise to comply with such
obligations, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties to this Agreement for which damages, even if available, will not
be an adequate remedy. Accordingly, each of the parties hereto consents to, in
addition to any other remedies which may be available, the issuance of
injunctive relief by any court of competent jurisdiction to compel performance
of any party's obligations, including an injunction to prevent breaches, and to
the granting by any such court of the remedy of specific performance of the
terms and conditions hereof, without the necessity of posting bond or proving
actual damages.
8.13 Schedule Definitions. All capitalized terms in the Company Disclosure
Schedule or Parent Disclosure Schedule shall have the meanings ascribed to them
herein, unless the context otherwise requires or as otherwise defined.
8.14 Time of the Essence. It is expressly agreed by the parties hereto that
time is of the essence with respect to this Agreement.
8.15 Defined Terms. As used herein, the following terms shall have the
meanings set forth below:
"Acceptable Title" means, as to each Xxxxxx Oil and Gas Interest listed in
the Company Reserve Reports, such right, title and interest that (i) is owned of
record (either from the records of the applicable county and/or, in the case of
state leases, from the General Land Office of the State of Texas or the
applicable state office), (ii) which entitles the Company and its Subsidiaries
to receive not less than the interest set forth in the Company Reserve Reports
as the net revenue interest with respect to all of the oil, gas, and other
Hydrocarbons produced, saved and marketed from or otherwise attributable to each
unit or well, as the case may be, identified in the Company Reserve Reports,
(iii) obligates the Company and its Subsidiaries to pay costs and expenses
attributable to the operation and development of such unit or well in an amount
not greater than
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the working interest set forth in the Company Reserve Reports, and (iv) except
for Permitted Encumbrances, is free and clear of all Liens.
"Defensible Title" means such right, title and interest that is (i) as to
real property interests, evidenced by an instrument or instruments filed of
record in accordance with the conveyance and recording laws of the applicable
jurisdiction to the extent necessary to prevail against competing claims of bona
fide purchasers for value without notice, and (ii) subject to Permitted
Encumbrances, free and clear of all Liens.
"Hydrocarbons" mean crude oil, natural gas, casinghead gas, condensate,
natural gas liquids and other liquid or gaseous hydrocarbons.
"Hydrocarbon Contracts" means (a) all Hydrocarbon Purchase Agreements, (b)
all Hydrocarbon Sales Agreements, (c) all other Hydrocarbon processing
agreements, exploration and development agreements, farmout or farmin
agreements, participation agreements, drilling contracts, well line agreements,
joint operating agreements, water disposal agreements, compressor agreements and
joint bidding agreements directly related to the Xxxxxx Oil and Gas Interests,
or part thereof, (d) area of mutual interest agreements to which the Company or
any of its Subsidiaries is a party or pursuant to which any of the Xxxxxx Oil
and Gas Interests are bound or subject and (e) all other Contracts materially
affecting oil and gas operations on, or which impose any material monetary
liability or obligation or other material liability or obligation with respect
to the ownership in or operation of, the Xxxxxx Oil and Gas Interests.
"Hydrocarbon Purchase Agreement" means any material sales, purchase,
exchange or marketing Contract that is currently in effect and under which the
Company or any of its Subsidiaries is a buyer of Hydrocarbons for resale (other
than purchase agreements entered into in the Ordinary Course of Business with a
term of three months or less, terminable by the Company or its Subsidiary which
is a party thereto without penalty on 30 days' notice or less, which provide for
a price not greater than the market value price that would be paid pursuant to
an arm's-length contract for the same term with an unaffiliated third-party
seller, and which do not obligate the purchaser to take any specified quantity
of Hydrocarbons or to pay for any deficiencies in quantities of Hydrocarbons not
taken).
"Hydrocarbon Sales Agreement" means any material sales, purchase, exchange
or marketing Contract that is currently in effect and under which the Company or
any of its Subsidiaries is a seller of Hydrocarbons (other than "spot" sales
agreements entered into in the Ordinary Course of Business with a term of six
months or less, and which provide for a price not less than the price that would
be received pursuant to an arm's-length contract for the same term with an
unaffiliated third party purchaser).
"Lien" means any lien, mortgage, security interest, pledge, deposit, claim,
production payment, restriction, burden, encumbrance, right of purchase, rights
of a vendor under any title retention or conditional sale agreement, or lease or
other arrangement substantially equivalent thereto.
"Oil and Gas Interests" means: (i) direct and indirect interests in and
rights with respect to oil, gas, mineral and related properties (including
revenues therefrom) and assets of any kind
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and nature, direct or indirect, including working, royalty and overriding
royalty interests, mineral interests, leasehold interests, production payments,
operating rights, net profits interests, other non-working interests and
non-operating interests, (ii) interests in and rights with respect to
Hydrocarbons and other minerals or revenues therefrom and Company Contracts in
connection therewith and claims and rights thereto (including oil and gas
leases, operating agreements, unitization and pooling agreements and orders,
division orders, transfer orders, mineral deeds, royalty deeds, oil and gas
sales, exchange and processing contracts and agreements and, in each case,
interests thereunder), surface interests, fee interests, reversionary interests,
reservations and concessions, (iii) easements, rights of way, licenses, permits,
leases, and other interests associated with, appurtenant to, or necessary for
the operation of any of the foregoing and (iv) interests in equipment and
machinery (including well equipment and machinery), oil and gas production,
gathering, transmission, compression, treating, processing and storage
facilities (including tanks, tank batteries, pipelines and gathering systems),
pumps, water plants, electric plants, gasoline and gas processing plants,
refineries and other tangible personal property and fixtures associated with,
appurtenant to, or necessary for the operation of any of the foregoing,
regardless of location.
"Oil and Gas Lease" means any Company Contract pursuant to which the
Company or any of its Subsidiaries leases, has rights of ingress, egress,
easement or passage, or otherwise has rights in or access to surface or
subsurface real property and/or the Hydrocarbons or other minerals located
thereon or thereunder for the purpose or use of exploration, drilling,
production, gathering or transportation of Hydrocarbons, including each Company
Contract and each amendment, ratification, settlement agreement and letter
agreement pertaining thereto as listed in Schedule 8.15 of the Company
Disclosure Schedule.
"Ordinary Course of Business" shall mean, with respect to the Company, the
ordinary course of business of the Company and its Subsidiaries, taken as a
whole, consistent with past custom and practice (including with respect to
quantity and frequency), and, with respect to Parent, shall mean, the ordinary
course of business of Parent and its Subsidiaries, taken as a whole, consistent
with past custom and practice (including with respect to quantity and
frequency).
"Permitted Encumbrances" mean any of the following matters:
(a) the terms, conditions, restrictions, exceptions, reservations
limitations and other matters contained in the Company Contracts, instruments
and documents which create or reserve to the Company and its Subsidiaries any
Oil and Gas Interests, provided that such matters, individually or in the
aggregate, do not (i) materially adversely affect the value of such Oil and Gas
Interest to which such matters relate or materially interfere with the oil and
gas operations on or with respect to such Oil and Gas Interest and which are of
a nature that would be reasonably acceptable to a prudent oil and gas
exploration and production operator or (ii) operate to reduce the net revenue
interest, nor increase the working interest, of the Company and its Subsidiaries
as reflected in the Company Reserve Reports;
(b) any (i) undetermined or inchoate Liens or charges constituting or
securing the payment of expenses which were incurred in the Ordinary Course of
Business incidental to maintenance, development, production or operation of the
Xxxxxx Oil and Gas Interests or
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processing Hydrocarbons attributable thereto or therein and (ii) materialman's,
mechanics', repairman's, employees', contractors, operators' or other similar
Liens or charges for amounts arising in the Ordinary Course of Business;
(c) any Liens for current taxes for tax year 2006 and future periods
that are not yet due and payable;
(d) easements for streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other similar rights-of-way, on, over, or in
respect of property owned or leased by the Company and its Subsidiaries or over
which the Company and its Subsidiaries own rights-of-way, easements, permits, or
licenses to the extent such matters, individually or in the aggregate, do not
materially interfere with the oil and gas operations on such oil and gas
properties and which are of a nature that would be reasonably acceptable to a
prudent oil and gas exploration and production operator;
(e) all lessors' royalties, overriding royalties, net profits
interest, carried interest, and reversionary interests if the net cumulative
effect of such burdens does not operate to reduce the net revenue interest of
the Company and its Subsidiaries as reflected in the Company Reserve Reports;
and
(f) Liens under the Company Credit Facility.
"Xxxxxx Oil and Gas Interests" means all Oil and Gas Interests in which the
Company or any of its Subsidiaries has any ownership interest (including fee or
leasehold interest), including the Oil and Gas Interests set forth in Schedule
8.15 of the Company Disclosure Schedule.
"Xxxxxx Well" means any Hydrocarbon well or well site owned, operated or
leased by the Company or any of its Subsidiaries or in which the Company or any
of its Subsidiaries has any Oil and Gas Interest, including those set forth in
Schedule 8.15 of the Company Disclosure Schedule.
[Remainder of page is intentionally blank.]
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IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its respective officers thereunto duly authorized, all as of the date first
written above.
RANGE RESOURCES CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President
RANGE ACQUISITION TEXAS, INC.
By: /s/ Xxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President
XXXXXX ENERGY, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President & CEO
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
