AGREEMENT
AND
PLAN OF MERGER
Among
MAGNUM HUNTER RESOURCES, INC. ("Parent"),
PINTAIL ENERGY, INC. ("Merger Sub")
And
PRIZE ENERGY CORP. ("Prize")
December 17, 2001
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.........................................................1
1.1 Defined Terms......................................................1
1.2 References and Titles.............................................11
ARTICLE 2 THE MERGER.........................................................12
2.1 The Merger........................................................12
2.2 Effect of the Merger..............................................12
2.3 Governing Instruments, Directors and Officers
of the Surviving Corporation....................................12
2.4 Effect on Securities..............................................12
2.5 Exchange of Certificates..........................................14
2.6 Closing...........................................................17
2.7 Effective Time of the Merger......................................17
2.8 Taking of Necessary Action; Further Action........................17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PRIZE............................18
3.1 Organization......................................................18
3.2 Other Equity Interests............................................18
3.3 Authority and Enforceability......................................18
3.4 No Violations.....................................................19
3.5 Consents and Approvals............................................19
3.6 SEC Documents.....................................................20
3.7 Financial Statements..............................................20
3.8 Capital Structure.................................................20
3.9 No Undisclosed Liabilities........................................21
3.10 Absence of Certain Changes or Events..............................21
3.11 Compliance with Laws, Material Agreements and Permits.............23
3.12 Governmental Regulation...........................................24
3.13 Litigation........................................................24
3.14 No Restrictions...................................................24
3.15 Tax Audits and Settlements........................................24
3.16 Taxes.............................................................24
3.17 Employee Benefit Plans............................................26
3.18 Employment Contracts and Benefits.................................28
3.19 Labor Matters.....................................................28
3.20 Accounts Receivable...............................................29
3.21 Insurance.........................................................29
3.22 Intangible Property...............................................29
3.23 Title to Assets...................................................30
3.24 Oil and Gas Operations............................................30
3.25 Financial and Commodity Hedging...................................30
3.26 Environmental Matters.............................................30
3.27 Books and Records.................................................32
3.28 Brokers...........................................................32
i
3.29 Vote Required.....................................................32
3.30 Powers of Attorney; Authorized Signatories........................32
3.31 Gas Imbalances....................................................32
3.32 Royalties.........................................................32
3.33 Prepayments.......................................................33
3.34 Reserve Report....................................................33
3.35 State Takeover Laws...............................................33
3.36 Disclosure........................................................33
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB.......................................................33
4.1 Organization......................................................33
4.2 Other Equity Interests............................................33
4.3 Authority and Enforceability......................................33
4.4 No Violations.....................................................34
4.5 Consents and Approvals............................................34
4.6 SEC Documents.....................................................35
4.7 Financial Statements..............................................35
4.8 Capital Structure.................................................35
4.9 No Undisclosed Liabilities........................................36
4.10 Absence of Certain Changes or Events..............................37
4.11 Compliance with Laws, Material Agreements and Permits.............39
4.12 Governmental Regulation...........................................39
4.13 Litigation........................................................39
4.14 Interim Operations of Merger Sub..................................39
4.15 No Restrictions...................................................40
4.16 Tax Audits and Settlements........................................40
4.17 Taxes.............................................................40
4.18 Employee Benefit Plans............................................41
4.19 Employment Contracts and Benefits.................................44
4.20 Labor Matters.....................................................44
4.21 Accounts Receivable...............................................44
4.22 Insurance.........................................................44
4.23 Intellectual Property.............................................45
4.24 Title to Assets...................................................45
4.25 Oil and Gas Operations............................................46
4.26 Financial and Commodity Hedging...................................46
4.27 Environmental Matters.............................................46
4.28 Books and Records.................................................47
4.29 Funding...........................................................47
4.30 Brokers...........................................................48
4.31 Vote Required.....................................................48
4.32 Gas Imbalances....................................................48
4.33 Royalties.........................................................48
4.34 Prepayments.......................................................48
ii
4.35 Rights Agreement..................................................48
4.36 Reserve Report....................................................48
4.37 State Takeover Laws...............................................48
4.38 Disclosure........................................................49
ARTICLE 5 COVENANTS..........................................................49
5.1 Conduct of Business by Parent Pending Closing.....................49
5.2 Conduct of Business by Prize Pending Closing......................52
5.3 Access to Assets, Personnel and Information.......................55
5.4 No Solicitation...................................................57
5.5 Prize Stockholders Meeting........................................58
5.6 Parent Stockholders Meeting.......................................59
5.7 Registration Statement and Proxy Statement/Prospectus.............59
5.8 Stock Exchange Listing............................................61
5.9 Additional Arrangements...........................................61
5.10 Agreements of Affiliates..........................................61
5.11 Public Announcements..............................................61
5.12 Notification of Certain Matters...................................62
5.13 Payment of Expenses...............................................62
5.14 Registration Rights...............................................62
5.15 Indemnification and Insurance.....................................62
5.16 Prize Employees...................................................64
5.17 Severance Plan....................................................64
5.18 Termination of Certain Agreement..................................64
5.19 Parent Board of Directors.........................................65
5.20 Registration Statements Relating to Prize Warrants................65
5.21 Bank Credit Agreements............................................65
ARTICLE 6 CONDITIONS.........................................................65
6.1 Conditions to Each Party's Obligation to Effect the Merger........65
6.2 Conditions to Obligations of Parent and Merger Sub................67
6.3 Conditions to Obligation of Prize.................................68
ARTICLE 7 TERMINATION........................................................69
7.1 Termination Rights................................................69
7.2 Effect of Termination.............................................70
7.3 Fees and Expenses.................................................71
ARTICLE 8 MISCELLANEOUS......................................................71
8.1 Nonsurvival of Representations and Warranties.....................71
8.2 Amendment.........................................................71
8.3 Notices...........................................................71
8.4 Counterparts......................................................72
8.5 Severability......................................................73
8.6 Entire Agreement; No Third Party Beneficiaries....................73
8.7 Applicable Law....................................................73
8.8 No Remedy in Certain Circumstances................................73
8.9 Assignment........................................................73
8.10 Waivers...........................................................73
8.11 Confidentiality Agreement.........................................74
iii
8.12 Incorporation.....................................................74
SCHEDULES
Prize Disclosure Schedule
Parent Disclosure Schedule
EXHIBITS
5.10 - Form of Affiliate Letter
5.14 - Registration Rights Agreement
iv
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of the 17th day of December, 2001, by and among Magnum Hunter Resources,
Inc., a Nevada corporation ("Parent"); Pintail Energy, Inc., a Texas corporation
("Merger Sub"); and Prize Energy Corp., a Delaware corporation ("Prize").
Recitals
A. The board of directors of each of Parent and Prize has determined
that it is in the best interests of its respective stockholders to approve the
strategic alliance of Parent and Prize by means of the merger of Prize with and
into Merger Sub upon the terms and subject to the conditions set forth in this
Agreement.
B. For federal income tax purposes, it is intended that such merger qualify
as a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
C. Parent, Merger Sub and Prize (the "Parties") desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger.
NOW, THEREFORE, for and in consideration of the recitals and the mutual
covenants and agreements set forth in this Agreement, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, each of the following terms
has the meaning set forth below:
"Affiliate" means, with respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person. The
term "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, of the actual power to
direct or cause the direction of the management policies of a Person, whether
through the ownership of stock, by contract, credit arrangement or otherwise.
"Agreement" means this Agreement and Plan of Merger, as amended,
supplemented or modified from time to time.
"Alternative Proposal" has the meaning specified in Section 5.4(b).
"AMEX" means The American Stock Exchange.
"Articles of Merger" means the articles of merger, prepared and executed in
accordance with the applicable provisions of the TBCA, filed with the Secretary
of State of Texas to effect the Merger in Texas.
"Capital Expenditures" means costs and expenses associated with the
acquisition, development or redevelopment of Oil and Gas Interests or any other
fixed or capital assets of the Prize Companies or Parent Companies, as
applicable, which pursuant to GAAP are required to be capitalized and subject to
depletion, depreciation or amortization, including Drilling or Completion
Expenditures.
"Capital Project" means any project, transaction, agreement, arrangement or
series of transactions, agreements or arrangements to which a Person is a party
involving a Capital Expenditure, including (a) any purchase, lease, acquisition,
developmental drilling, completion and/or recompletion of proved developed
producing, proved developed non-producing, or proved undeveloped Oil and Gas
Interests; (b) any purchase, lease or acquisition and/or exploratory drilling of
Oil and Gas Interests; and (c) any purchase, lease, acquisition, construction,
development or completion of transportation, compression, gathering or related
facilities for oil, gas or related products or the provision of services,
equipment or other property for use in developing, completing or transporting
oil, gas or related products or otherwise directly related and ancillary to the
oil and gas business, including the transportation, production, storage and
handling of water utilized or disposed of in oil and gas production.
"Cash Consideration" means an amount of cash equal to $24.00 minus the
product (rounded to the second decimal place) of 2.50 times the Market Price,
but in any event not less than $0.25 and not greater than $5.25.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and any regulations promulgated thereunder.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System List.
"Certificate of Merger" means the certificate of merger, prepared and
executed in accordance with the applicable provisions of the DGCL, filed with
the Secretary of State of Delaware to effect the Merger in Delaware.
"Closing" means the closing of the Merger and the consummation of the other
transactions contemplated by this Agreement.
"Closing Date" means the date on which the Closing occurs, which date shall
be the first business day following the day on which both the Prize Meeting and
the Parent Meeting have been held (or such later date as is agreed upon by the
Parties).
2
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means the letter agreement dated October 30,
2001, between Prize and Parent relating to Prize's furnishing of information to
Parent and Parent's furnishing of information to Prize in connection with
Parent's and Prize's evaluation of the possibility of the Merger.
"Conversion Number" means 2.50.
"DGCL" means the Delaware General Corporation Law.
"Defensible Title" means such right, title and interest that is (a)
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 (b) subject to Permitted Encumbrances, free and clear of all
Liens, claims, infringements, burdens and other defects.
"Disclosure Schedule" means, as applicable, the Prize Disclosure Schedule
or the Parent Disclosure Schedule.
"Dissenting Stockholder" means a holder of Prize Common Stock who has
validly perfected appraisal rights under Section 262 of the DGCL.
"Drilling or Completion Expenditures" means any expenditure incurred, or
required to be incurred by the Prize Companies or Parent Companies, as
applicable, with respect to exploratory drilling of Oil and Gas Interests or any
developmental drilling, completion and/or recompletion of proved developed
producing, proved developed non-producing, or proved undeveloped Oil and Gas
Interests.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Effective Time" has the meaning specified in Section 2.7.
"Environmental Law" means any federal, state, local or foreign statute,
code, ordinance, rule, regulation, policy, guideline, permit, consent, approval,
license, judgment, order, writ, decree, common law, injunction or other
authorization (collectively, "Laws") in effect on the date hereof or at a
previous time applicable to the operations of the Prize Companies or the Parent
Companies, as applicable: (a) relating to emissions, discharges, releases or
threatened releases of Hazardous Materials into the environment, including into
ambient air, soil, sediments, land surface or subsurface, buildings or
facilities, surface water, groundwater, publicly-owned treatment works, septic
systems or land; (b) relating to the generation, treatment, storage, disposal,
use, handling, manufacturing, recycling, transportation or shipment of Hazardous
Materials; (c) relating to occupational health and safety; or (d) otherwise
relating to the pollution of the environment, solid waste handling, treatment or
disposal, reclamation or remediation activities, or protection of
3
environmentally sensitive areas; provided, however, that the term Environmental
Law shall not include any Laws relating to plugging and abandonment obligations
and liabilities.
"Exchange Agent" means Securities Transfer Corporation, the transfer agent
for shares of Parent Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Fund" has the meaning specified in Section 2.5(a).
"Failure Amount" has the meaning, as applicable, specified in Section
6.2(a) or Section 6.3(a).
"GAAP" means generally accepted accounting principles, as recognized by the
U.S. Financial Accounting Standards Board (or any generally recognized
successor).
"Governmental Action" means any authorization, application, approval,
consent, exemption, filing, license, notice, registration, permit or other
requirement of, to or with any Governmental Authority.
"Governmental Authority" means any national, state, county, parish or
municipal government, domestic or foreign, any agency, board, bureau,
commission, court, department or other instrumentality of any such government,
or any arbitrator in any case that has jurisdiction over any of the Prize
Companies or the Parent Companies or any of their respective properties or
assets.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended.
"Hazardous Material" means (a) any "hazardous substance," as defined by
CERCLA; (b) any "hazardous waste" or "solid waste," in either case as defined by
RCRA; (c) any solid, hazardous, dangerous or toxic chemical, material, waste or
substance, within the meaning of and regulated by any Environmental Law; (d) any
radioactive material, excluding any naturally occurring radioactive material,
and any source, special or byproduct material as defined in 42 U.S.C. 2011 et
seq.; (e) any asbestos-containing materials in any form or condition; (f) any
polychlorinated biphenyls in any form or condition; or (g) petroleum, petroleum
hydrocarbons, petroleum products or any fraction or byproducts thereof.
"Hydrocarbons" means oil, condensate, gas, casinghead gas and other liquid
or gaseous hydrocarbons.
"Indemnified Parties" has the meaning specified in Section 5.15(b).
"Lien" means any lien, mortgage, security interest, pledge, deposit,
production payment, restriction, burden, encumbrance, rights of a vendor under
any title retention or conditional sale agreement, or lease or other arrangement
substantially equivalent thereto.
4
"Major Prize Stockholders" means Xxxxxx X. Xxxxx, Xxx X. Xxxx and Natural
Gas Partners V, L.P., a Delaware limited partnership.
"Market Price" means the average (rounded to the second decimal place) of
the per share closing sales prices of the Parent Common Stock on the AMEX (as
reported by The Wall Street Journal, or if not so reported, by another
authoritative source) over the 20 trading days ending on the fourth trading day
preceding the Closing Date.
"Material Adverse Effect" means: (a) when used with respect to Prize, a
result or consequence that would (i) materially adversely affect the condition
(financial or otherwise), results of operations or business of the Prize
Companies (taken as a whole) or the aggregate value of their assets, except for
results or consequences attributable to the effects of, or changes in, general
economic or capital markets conditions or effects and changes that generally
affect the energy industry, such as commodity prices, (ii) materially impair the
ability of the Prize Companies (taken as a whole) to own, hold, develop and
operate their assets, or (iii) impair Prize's ability to perform its obligations
hereunder or consummate the transactions contemplated hereby; and (b) when used
with respect to Parent, a result or consequence that would (i) materially
adversely affect the condition (financial or otherwise), results of operations
or business of the Parent Companies (taken as a whole) or the aggregate value of
their assets, except for results or consequences attributable to the effects of,
or changes in, general economic or capital markets conditions or effects and
changes that generally affect the energy industry, such as commodity prices,
(ii) materially impair the ability of the Parent Companies (taken as a whole) to
own, hold, develop and operate their assets, or (iii) impair Parent's or Merger
Sub's ability to perform its respective obligations hereunder or consummate the
transactions contemplated hereby.
"Merger" has the meaning specified in Section 2.1.
"Merger Consideration" means the sum of (a) the Cash Consideration plus (b)
the product of the Conversion Number and the Market Price.
"Merger Sub" means Pintail Energy, Inc., a Texas corporation and a
wholly-owned subsidiary of Parent.
"Merger Sub Common Stock" means the common stock, par value $.01 per share,
of Merger Sub.
"National Stock Exchange" means AMEX, the New York Stock Exchange or the
Nasdaq Stock Market.
"NGCL" means the General Corporation Law of Nevada.
"Oil and Gas Interest(s)" means: (a) direct and indirect interests in and
rights with respect to oil, gas, mineral and related properties and assets of
any kind and nature, direct or indirect, including working, royalty and
overriding royalty interests, production payments, operating rights, net profits
interests, other non-working interests and non-operating interests; (b)
interests in
5
and rights with respect to Hydrocarbons and other minerals or revenues
therefrom and 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; (c) 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 (d) 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.
References in this Agreement to the "Oil and Gas Interests of Prize" or "Prize's
Oil and Gas Interests" mean the collective Oil and Gas Interests of the Prize
Companies. References in this Agreement to the "Oil and Gas Interests of Parent"
or "Parent's Oil and Gas Interests" mean the collective Oil and Gas Interests of
the Parent Companies.
"Ownership Interests" means, as applicable: (a) the ownership interests of
Prize in its proved properties, as set forth in the Prize Reserve Report; (b)
the ownership interests of Parent in its proved properties, as set forth in the
Parent Reserve Report; (c) the 100 percent ownership interest of the Prize
Companies in the Xxxxxx City gas processing plant and associated gathering
systems; and (d) the 50 percent, 50 percent and 59 percent ownership interests
of the Parent Companies in the Xxxxxx, XxXxxx and Xxxxxx Creek gas processing
plants, respectively, and associated gathering systems.
"Parent" has the meaning specified in the introductory paragraph of this
Agreement.
"Parent Bank Credit Agreement" means the Third Amended and Restated Credit
Agreement, dated May 17, 2001, between Parent, as borrower, and Bankers Trust
Company and others, as agents and lenders (as amended and supplemented).
"Parent Certificate" means a certificate representing shares of Parent
Common Stock.
"Parent Common Stock" means the common stock, par value $.002 per share, of
Parent.
"Parent Companies" means Parent and each of the Parent Subsidiaries.
"Parent Disclosure Schedule" means the Parent Disclosure Schedule attached
hereto and any documents listed on such Parent Disclosure Schedule or expressly
incorporated therein by reference.
"Parent Employee Benefit Plans" has the meaning specified in Section
4.18(a).
"Parent Financial Statements" means the audited and unaudited consolidated
financial statements of Parent and its subsidiaries (including the related
notes) included (or incorporated by
6
reference) in Parent's Annual Report on Form 10-K for the year ended
December 31, 2000, and Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001, in each case as filed with the SEC.
"Parent Material Agreement(s)" means (a) the Parent Bank Credit Agreement,
(b) any hedging agreement to which any of the Parent Companies is a party or by
which any of its assets is bound, (c) any agreement, contract, commitment or
understanding, written or oral, granting any Person registration, purchase or
sale rights with respect to any security of any Parent Company, (d) any
agreement, contract, commitment or understanding, written or oral, granting any
Person a right of indemnification and/or contribution by any Parent Company, (e)
any voting agreement relating to any security of any Parent Company, and/or (f)
any other written or oral agreement, contract, commitment or understanding to
which any of the Parent Companies is a party, by which any of the Parent
Companies is directly or indirectly bound, or to which any asset of any of the
Parent Companies may be subject, outside the ordinary course of business of the
Parent Companies, in each case as amended or supplemented.
"Parent Meeting" means the meeting of the stockholders of Parent called for
the purpose of voting on the Prize Proposal, or any adjournment thereof.
"Parent Permits" has the meaning specified in Section 4.11.
"Parent Preferred Stock" means the preferred stock, par value $.001 per
share, of Parent.
"Parent Representative" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors) or other
representative of Parent or its subsidiaries.
"Parent Reserve Report" means the reserve report dated October 1, 2001,
prepared by Parent and provided to Prize.
"Parent Rights" means the preferred share purchase rights issued pursuant
to the Parent Rights Agreement.
"Parent Rights Agreement" means that certain Stockholder Rights Agreement
dated January 1, 1998, as amended, between Parent and Securities Transfer
Corporation, as Rights Agent.
"Parent SEC Documents" has the meaning specified in Section 4.6.
"Parent Subsidiary(ies)" means those entities identified as wholly owned
subsidiaries of Parent on the Parent Disclosure Schedule.
"Parties" has the meaning specified in the Recitals to this Agreement.
"Permitted Encumbrances" means: (a) Liens for Taxes, assessments or other
governmental charges or levies if the same shall not at the particular time in
question be due and delinquent or (if foreclosure, distraint, sale or other
similar proceedings shall not have been commenced or, if
7
commenced, shall have been stayed) are being contested in good faith by
appropriate proceedings and if any of the Prize Companies or the Parent
Companies, as applicable, shall have set aside on its books such reserves
(segregated to the extent required by sound accounting practices) as may be
required by or consistent with GAAP and, whether reserves are set aside or not,
are listed on the applicable Disclosure Schedule; (b) Liens of carriers,
warehousemen, mechanics, laborers, materialmen, landlords, vendors, workmen and
operators arising by operation of law in the ordinary course of business or by a
written agreement existing as of the date hereof and necessary or incident to
the exploration, development, operation and maintenance of Hydrocarbon
properties and related facilities and assets for sums not yet due or being
contested in good faith by appropriate proceedings, if any of the Prize
Companies or the Parent Companies, as applicable, shall have set aside on its
books such reserves (segregated to the extent required by sound accounting
practices) as may be required by or consistent with GAAP and, whether reserves
are set aside or not, are listed on the applicable Disclosure Schedule, to the
extent that such are in existence as of the date hereof; (c) Liens incurred in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation (other than ERISA)
which would not and will not, individually or in the aggregate, result in a
Material Adverse Effect on the Prize Companies or the Parent Companies, as
applicable; (d) Liens incurred in the ordinary course of business to secure the
performance of bids, tenders, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance and repayment bonds and other obligations
of a like nature which would not and will not, individually or in the aggregate,
result in a Material Adverse Effect on the Prize Companies or the Parent
Companies, as applicable; (e) Liens, easements, rights-of-way, restrictions,
servitudes, permits, conditions, covenants, exceptions, reservations and other
similar encumbrances incurred in the ordinary course of business or existing on
property and not materially impairing the value of the assets of any of the
Prize Companies or any of the Parent Companies, as applicable, or interfering
with the ordinary conduct of the business of any of the Prize Companies or any
of the Parent Companies, as applicable, or rights to any of their assets; (f)
Liens created or arising by operation of law to secure a party's obligations as
a purchaser of oil and gas; (g) all rights to consent by, required notices to,
filings with, or other actions by Governmental Authorities to the extent
customarily obtained subsequent to closing; (h) farm-out, carried working
interest, joint operating, unitization, royalty, overriding royalty, sales and
similar agreements relating to the exploration or development of, or production
from, Hydrocarbon properties entered into in the ordinary course of business and
not in violation of Section 5.1(a), 5.1(b), 5.2(a) or 5.2(b), as applicable,
provided the effect thereof of any of such in existence as of the date hereof on
the working and net revenue interest of the Prize Companies or the Parent
Companies, as applicable, has been properly reflected in its respective
Ownership Interests; (i) any defects, irregularities or deficiencies in title to
easements, rights-of-way or other surface use agreements that do not materially
adversely affect the value of any asset of any of the Prize Companies or any of
the Parent Companies, as applicable, by an amount in excess of $100,000 or
$1,000,000 in the aggregate; (j) Liens arising under or created pursuant to the
Parent Bank Credit Agreement or the Prize Bank Credit Agreement, as applicable;
(k) Liens described on the applicable Disclosure Schedule; and (l) defects in
title assumed or waived in the ordinary course of business (included unrecorded
contractual Ownership Interests) which would not, individually or in the
aggregate, result in a Material Adverse Effect on the Prize Companies or the
Parent Companies, as applicable.
8
"Person" means any natural person, corporation, company, limited or general
partnership, joint stock company, joint venture, association, limited liability
company, trust, bank, trust company, land trust, business trust or other entity
or organization, whether or not a Governmental Authority.
"Prize" has the meaning set forth in the introductory paragraph hereof.
"Prize Bank Credit Agreement" means the Amended and Restated Credit
Agreement, dated as of February 8, 2000, between Prize Energy Resources, L.P., a
Prize Subsidiary, as borrower, Prize, as parent guarantor, and Fleet National
Bank, as administrative agent, certain other agents, and various banks, as
lenders (as amended and supplemented).
"Prize Certificate" means a certificate representing shares of Prize Common
Stock.
"Prize Common Stock" means the common stock, par value $.01 per share, of
Prize.
"Prize Companies" means Prize and each of the Prize Subsidiaries.
"Prize Disclosure Schedule" means the Prize Disclosure Schedule attached
hereto and any documents listed on such Prize Disclosure Schedule or expressly
incorporated therein by reference.
"Prize Employee Benefit Plans" has the meaning specified in Section
3.17(a).
"Prize Extraordinary Transaction Compensation Policy" means that certain
policy of Prize as provided to Parent.
"Prize Financial Statements" means the audited and unaudited consolidated
financial statements of Prize and its subsidiaries (including the related notes)
included (or incorporated by reference) in Prize's Annual Report on Form 10-K
for the year ended December 31, 2000, and Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001, in each case as filed with the SEC.
"Prize Material Agreement(s)" means (a) the Prize Bank Credit Agreement,
(b) any agreement or contract, written or oral, between any of the Prize
Companies and Natural Gas Partners V, L.P. or any Affiliate thereof, (c) any
hedging agreement to which any of the Prize Companies is a party or by which any
of its assets is bound, (d) any agreement, contract, commitment or
understanding, written or oral, granting any Person registration, purchase or
sale rights with respect to any security of any Prize Company, (e) any
agreement, contract, commitment or understanding, written or oral, granting any
Person a right of indemnification and/or contribution by any Prize Company, (f)
any voting agreement relating to any security of any Prize Company, and/or (g)
any other written or oral agreement, contract, commitment or understanding to
which any of the Prize Companies is a party, by which any of the Prize Companies
is directly or indirectly bound, or to which any asset of any of the Prize
Companies may be subject, outside the ordinary course of business of any of the
Prize Companies, in each case as amended and supplemented.
9
"Prize Meeting" means the meeting of the stockholders of Prize called for
the purpose of voting on the Prize Proposal or any adjournment thereof.
"Prize Permits" has the meaning specified in Section 3.11.
"Prize Preferred Stock" means the preferred stock, par value $.01 per
share, of Prize.
"Prize Proposal" means the proposal to approve this Agreement and the
Merger, which proposal is to be presented to the stockholders of Prize and
Parent in the Proxy Statement/Prospectus.
"Prize Representative" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors) or other
representative of any of the Prize Companies.
"Prize Reserve Report" means the reserve report dated October 1, 2001,
prepared by Prize and provided to Parent.
"Prize SEC Documents" has the meaning specified in Section 3.6.
"Prize Stock Option" means an option (issued and outstanding immediately
prior to the Effective Time) to acquire shares of Prize Common Stock granted
pursuant to the Prize Energy Corp. Amended and Restated Option Plan or the Prize
Energy Corp. 1998 Key Employee Stock Option Plan, as amended.
"Prize Subsidiary(ies)" means those entities identified as wholly owned
subsidiaries of Prize on the Prize Disclosure Schedule.
"Prize Voting and Shareholders Agreement" means that certain Amended and
Restated Voting and Shareholders Agreement dated as of February 8, 2000, among
Prize and certain of its stockholders, as the same may be amended from time to
time in accordance with its terms.
"Prize Warrant" means a common stock purchase warrant (issued and
outstanding on the date hereof and at the Effective Time) representing the right
to purchase shares or a fraction of a share of Prize Common Stock.
"Proxy Statement/Prospectus" means a joint proxy statement in definitive
form relating to the Prize Meeting and the Parent Meeting, which proxy statement
will be included in the prospectus contained in the Registration Statement.
"RCRA" means the Resource Conservation and Recovery Act, as amended, and
any regulations promulgated thereunder.
"Registration Rights Agreement" means a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit 5.14, to be entered into at
the Closing among Parent and the Major Prize Stockholders.
10
"Registration Statement" means the Registration Statement on Form S-4 to be
filed by Parent in connection with the issuance of Parent Common Stock pursuant
to the Merger.
"Reserve Data Value" means the 10 percent present value of the proved
reserves contained in Parent's Oil and Gas Interests, as shown on the Parent
Reserve Report, or Prize's Oil and Gas Interests, as shown on the Prize Reserve
Report, as applicable.
"Retained Employees" has the meaning specified in Section 5.16.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Superior Proposal" has the meaning specified in Section 5.4(d).
"Surviving Corporation" has the meaning specified in Section 2.2.
"Tax Returns" has the meaning specified in Section 3.16(a).
"Taxes" means taxes of any kind, levies or other like assessments, customs,
duties, imposts, charges or fees, including income, gross receipts, ad valorem,
value added, excise, real or personal property, asset, sales, use, federal
royalty, license, payroll, transaction, capital, net worth and franchise taxes,
estimated taxes, withholding, employment, social security, workers'
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes and other
governmental taxes imposed or payable to the United States or any state, local
or foreign governmental subdivision or agency thereof, and in each instance such
term shall include any interest, penalties or additions to tax attributable to
any such tax, including penalties for the failure to file any Tax Return or
report.
"TBCA" means the Texas Business Corporation Act.
"Third-Party Consent" means the consent or approval of any Person other
than any of the Prize Companies, any of the Parent Companies or any Governmental
Authority.
1.2 References and Titles. 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 or to 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 this Agreement, and shall be disregarded in construing the language
hereof. 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
Article," "this Section" and "this subsection," and words of similar import,
refer only to the Article, Section or subsection hereof in which such words
occur. The word "or" is not exclusive,
11
and 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 requires.
As used in the representations and warranties contained in this Agreement,
the phrase "to the knowledge" of the representing Party shall mean that
Responsible Officers of such Party, individually or collectively, either (a)
know that the matter being represented and warranted is true and accurate or (b)
have no reason, after reasonable inquiry, to believe that the matter being
represented and warranted is not true and accurate.
ARTICLE 2
THE MERGER
2.1 The Merger. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Prize shall be merged with and into Merger Sub
in accordance with the provisions of this Agreement. Such merger is referred to
herein as the "Merger."
2.2 Effect of the Merger. Upon the effectiveness of the Merger, the
separate existence of Prize shall cease and Merger Sub, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under the laws of the State of Texas. The Merger shall have
the effects specified in this Agreement, the DGCL and the TBCA.
2.3 Governing Instruments, Directors and Officers of the Surviving
Corporation.
(a) The articles of incorporation of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the articles of incorporation of the
Surviving Corporation until duly amended in accordance with their terms and
applicable law.
(b) The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until duly
amended in accordance with their terms and applicable law.
(c) The directors and officers of Merger Sub at the Effective Time shall be
the directors and officers, respectively, of the Surviving Corporation from the
Effective Time until their respective successors have been duly elected or
appointed in accordance with the certificate of incorporation and by-laws of the
Surviving Corporation and applicable law.
2.4 Effect on Securities.
(a) Merger Sub Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of any holder thereof, each share of Merger Sub
Common Stock outstanding immediately prior to the Effective Time shall remain
outstanding and continue as one share of capital stock of the Surviving
Corporation and each certificate evidencing ownership of any
12
such shares shall continue to evidence ownership of the same number of
shares of the capital stock of the Surviving Corporation.
(b) Parent Capital Stock. At the Effective Time, each share of Parent
capital stock then issued and outstanding shall remain issued, outstanding and
unchanged.
(c) Prize Securities.
(i) Prize Common Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of any holder thereof (but subject to the
provisions of Section 2.5(e)), each share of Prize Common Stock that is issued
and outstanding immediately prior to the Effective Time (other than shares of
Prize Common Stock held by Dissenting Stockholders) shall be converted into the
right to receive (A) shares of validly issued, fully paid and nonassessable
Parent Common Stock, with each such share of Prize Common Stock being converted
into that number of shares of Parent Common Stock equal to the Conversion
Number; and (B) cash in the amount of the Cash Consideration. Each share of
Prize Common Stock, when so converted, shall automatically be cancelled and
retired, shall cease to exist and shall no longer be outstanding; and the holder
of any certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Parent Common
Stock to be issued in exchange therefor and the Cash Consideration (along with
any cash in lieu of fractional shares of Parent Common Stock as provided in
Section 2.5(e) and any unpaid dividends and distributions with respect to such
shares of Parent Common Stock as provided in Section 2.5(c)), without interest,
upon the surrender of such certificate in accordance with Section 2.5.
(ii) Prize Treasury Stock. At the Effective Time, by virtue of the Merger,
all shares of Prize Common Stock that are issued and held as treasury stock
shall be cancelled and retired and shall cease to exist, and no shares of Parent
Common Stock, Cash Consideration or other consideration shall be paid or payable
in exchange therefor.
(iii) Prize Stock Options. The Parties acknowledge that each Prize Stock
Option shall be or become fully vested prior to the Effective Time. At the
Effective Time, by virtue of the Merger and without any action on the part of
the holder thereof, each Prize Stock Option shall be cancelled and converted
into the right to receive, for each Deemed Outstanding Prize Option Share, the
Merger Consideration that is payable in respect of each outstanding share of
Prize Common Stock pursuant to Section 2.4(c)(i). For purposes hereof, the
"Deemed Outstanding Prize Option Shares" attributable to each Prize Stock Option
shall be equal to the net number of shares of Prize Common Stock (rounded to the
nearest one thousandth of a share) that would be issued upon a cashless exercise
of such Option immediately before the Effective Time, computed by assuming that
the exercise price of such Option and all amounts required to be withheld and
paid by Prize in respect of federal taxes and other payroll withholding
obligations as a result of such exercise, using an assumed tax rate of 40% ("Tax
Withholding Amounts"), were satisfied by deducting from the shares issued to the
holder, the number of shares of Prize Common Stock ("Deemed Surrendered
13
Shares") with a fair value equal to such exercise price and Tax Withholding
Amounts. For purposes hereof, the fair value of each Deemed Surrendered Share
shall be equal to the amount of the Merger Consideration that is payable in
respect of each outstanding share of Prize Common Stock pursuant to Section
2.4(c)(i).
(iv) Prize Warrants. All Prize Warrants shall remain outstanding following
the Effective Time. At the Effective Time, by virtue of the Merger and without
any action on the part of Prize or any holder thereof, each Prize Warrant shall
be assumed by Parent and shall be exercisable on the same terms and conditions
as apply immediately prior to the Effective Time, except that each Prize Warrant
shall be exercisable for that number of shares of Parent Common Stock and the
amount of Cash Consideration into which the number of shares of Prize Common
Stock subject to such Prize Warrant immediately prior to the Effective Time
would be converted under Section 2.4(c)(i).
(v) Other Interests. Except as provided in this Section 2.4(c) or as
otherwise agreed to by the Parties, the provisions of any other plan, program or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of the Prize Companies shall become null and void.
(vi) Shares of Dissenting Stockholders. Any issued and outstanding shares
of Prize Common Stock held by a Dissenting Stockholder shall be converted into
the right to receive such consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the DGCL; provided, however, shares of Prize
Common Stock outstanding at the Effective Time and held by a Dissenting
Stockholder who shall, after the Effective Time, withdraw his demand for
appraisal or lose his right of appraisal as provided in the DGCL, shall be
deemed to be converted, as of the Effective Time, into the right to receive the
shares of Parent Common Stock and the Cash Consideration (without interest)
specified in Section 2.4(c)(i) in accordance with the procedures specified in
Section 2.5(c). Prize shall give Parent (A) prompt notice of any written demands
for appraisal, withdrawals of demands for appraisal and any other instruments
served pursuant to the DGCL received by Prize, and (B) the opportunity to direct
all negotiations and proceedings with respect to demands for appraisal under the
DGCL. Prize will not voluntarily make any payment with respect to any demands
for appraisal and will not, except with the prior written consent of Parent,
settle or offer to settle any such demands.
2.5 Exchange of Certificates.
(a) Exchange Fund. Immediately after the Effective Time, Parent shall
deposit with the Exchange Agent, for the benefit of the holders of shares of
Prize Common Stock and for exchange in accordance with this Agreement,
certificates representing the shares of Parent Common Stock to be issued, and
funds necessary to pay the Cash Consideration, in exchange for shares of Prize
Common Stock pursuant to Section 2.4(b)(i). Such shares of Parent Common Stock,
together with any dividends or distributions with respect thereto (as provided
in Section 2.5(c)) and such funds, are referred to herein as the "Exchange
Fund." The Exchange Agent, pursuant to irrevocable instructions consistent with
the terms of this Agreement, shall deliver the Parent Common Stock and
14
the Cash Consideration to be issued or paid pursuant to Section 2.4(b)(i)
out of the Exchange Fund, and the Exchange Fund shall not be used for any other
purpose whatsoever. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the Parent Common Stock held by it from
time to time hereunder, except that it shall receive and hold all dividends or
other distributions paid or distributed with respect thereto for the account of
Persons entitled thereto.
(b) Exchange Procedures.
(i) As soon as reasonably practicable after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record of a Prize
Certificate that, immediately prior to the Effective Time, represented shares of
Prize Common Stock, which was converted into the right to receive Parent Common
Stock and Cash Consideration pursuant to Section 2.4(b)(i), a letter of
transmittal to be used to effect the exchange of such Prize Certificate for a
Parent Certificate (and cash in lieu of fractional shares) and the Cash
Consideration, along with instructions for using such letter of transmittal to
effect such exchange. The letter of transmittal (or the instructions thereto)
shall specify that delivery of any Prize Certificate shall be effected, and risk
of loss and title thereto shall pass, only upon delivery of such Prize
Certificate to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify.
(ii) Upon surrender to the Exchange Agent of a Prize Certificate for
cancellation, together with a duly completed and executed letter of transmittal
and any other required documents (including, in the case of any Person
constituting an "affiliate" of Prize for purposes of Rule 145(c) and (d) under
the Securities Act, a written agreement from such Person as described in Section
5.10, if not theretofore delivered to Parent): (A) the holder of such Prize
Certificate shall be entitled to receive in exchange therefor a Parent
Certificate representing the number of whole shares of Parent Common Stock and
Cash Consideration that such holder has the right to receive pursuant to Section
2.4(b)(i), any cash in lieu of fractional shares of Parent Common Stock as
provided in Section 2.5(e), and any unpaid dividends and distributions that such
holder has the right to receive pursuant to Section 2.5(c) (after giving effect
to any required withholding of taxes); and (B) the Prize Certificate so
surrendered shall forthwith be cancelled. No interest shall be paid or accrued
on the Cash Consideration, cash in lieu of fractional shares and unpaid
dividends and distributions, if any, payable to holders of Prize Certificates.
(iii) In the event of a transfer of ownership of Prize Common Stock that is
not registered in the transfer records of Prize, a Parent Certificate
representing the appropriate number of shares of Parent Common Stock and the
appropriate Cash Consideration (along with any cash in lieu of fractional shares
and any unpaid dividends and distributions that such holder has the right to
receive) may be issued or paid to a transferee if the Prize Certificate
representing such shares of Prize Common Stock is presented to the Exchange
Agent accompanied by all documents required to evidence and effect such
transfer, including such signature guarantees as Parent or the Exchange Agent
may request, and to evidence that any applicable stock transfer taxes have been
paid.
15
(iv) Until surrendered as contemplated by this Section 2.5(b), each Prize
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender a Parent Certificate representing
shares of Parent Common Stock and Cash Consideration as provided in Section
2.4(b)(i) (along with any cash in lieu of fractional shares and any unpaid
dividends and distributions).
(c) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Stock declared or made after the
Effective Time with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Prize Certificate. Subject to the effect of
applicable laws: (i) at the time of the surrender of a Prize Certificate for
exchange in accordance with the provisions of this Section 2.5, there shall be
paid to the surrendering holder, without interest, the amount of dividends or
other distributions (having a record date after the Effective Time but on or
prior to surrender and a payment date on or prior to surrender) theretofore paid
with respect to the number of whole shares of Parent Common Stock that such
holder is entitled to receive (less the amount of any withholding taxes that may
be required with respect thereto); and (ii) at the appropriate payment date,
and, without duplicating any payment made under clause (i) above, there shall be
paid to the surrendering holder, without interest, the amount of dividends or
other distributions (having a record date after the Effective Time but on or
prior to surrender and a payment date subsequent to surrender) payable with
respect to the number of whole shares of Parent Common Stock that such holder
receives (less the amount of any withholding taxes that may be required with
respect thereto).
(d) No Further Ownership Rights in Prize Common Stock. All shares of Parent
Common Stock issued, and the Cash Consideration paid, upon the surrender for
exchange of shares of Prize Common Stock in accordance with the terms hereof
(including any cash paid pursuant to Section 2.5(c) or (e)) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Prize Common Stock. After the Effective Time, there shall be no further
registration of transfers on the Surviving Corporation's stock transfer books of
the shares of Prize Common Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, a Prize Certificate is presented
to the Surviving Corporation for any reason, it shall be cancelled and exchanged
as provided in this Section 2.5.
(e) Treatment of Fractional Shares. No Parent Certificates or scrip
representing fractional shares of Parent Common Stock shall be issued in the
Merger and, except as provided in this Section 2.5(e), no dividend or other
distribution, stock split or interest shall relate to any such fractional share,
and such fractional share shall not entitle the owner thereof to vote or to any
other rights of a stockholder of Parent. In lieu of any fractional share of
Parent Common Stock to which a holder of Prize Common Stock would otherwise be
entitled, such holder, upon surrender of a Prize Certificate as described in
this Section 2.5, shall be paid an amount in cash (without interest) determined
by multiplying (i) the Market Price by (ii) the fraction of a share of Parent
Common Stock to which such holder would otherwise be entitled, in which case
Parent shall make available to the Exchange Agent, without regard to any other
cash being provided to the Exchange Agent, the amount of cash necessary to make
such payments.
16
(f) Termination of Exchange Fund. Any portion of the Exchange Fund and cash
held by the Exchange Agent in accordance with the terms of this Section 2.5 that
remains unclaimed by the former stockholders of Prize for a period of one year
following the Effective Time shall be delivered to Parent, upon demand.
Thereafter, any former stockholders of Prize who have not theretofore complied
with the provisions of this Section 2.5 shall look only to Parent for payment of
their claim for Parent Common Stock, the Cash Consideration, any cash in lieu of
fractional shares of Parent Common Stock and any dividends or distributions with
respect to Parent Common Stock (all without interest).
(g) No Liability. Neither Parent, Prize, the Surviving Corporation, the
Exchange Agent nor any other Person shall be liable to any former holder of
shares of Prize Common Stock for any amount properly delivered to any public
official pursuant to any applicable abandoned property, escheat or similar law.
Any amounts remaining unclaimed by former holders of Prize Common Stock for a
period of three years following the Effective Time (or such earlier date
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.
(h) Lost, Stolen, or Destroyed Prize Certificates. If any Prize Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Prize Certificate to be lost, stolen or
destroyed, and, if required by Parent or the Exchange Agent, the posting by such
Person of a bond, in such reasonable amount as Parent or the Exchange Agent may
direct, as indemnity against any claims that may be made against it with respect
to such Prize Certificate, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed Prize Certificate the shares of Parent Common Stock
and the Cash Consideration (along with any cash in lieu of fractional shares
pursuant to Section 2.5(e) and any unpaid dividends and distributions pursuant
to Section 2.5(c)) deliverable with respect thereto pursuant to this Agreement.
2.6 Closing. The Closing shall take place on the Closing Date at such time
and place as is agreed upon by Parent and Prize.
2.7 Effective Time of the Merger. The Merger shall become effective
immediately when the Certificate of Merger is accepted for filing by the
Secretary of State of Delaware and the Articles of Merger are accepted for
filing by the Secretary of State of Texas, or at such time thereafter as is
provided in the Certificate of Merger and the Articles of Merger (the "Effective
Time"). As soon as practicable after the Closing, the Certificate of Merger and
the Articles of Merger shall be filed, and the Effective Time shall occur, on
the Closing Date; provided, however, that the Certificate of Merger and the
Articles of Merger may be filed prior to the Closing Date or prior to the
Closing so long as it provides for an effective time that occurs on the Closing
Date immediately after the Closing.
2.8 Taking of Necessary Action; Further Action. Each of Parent, Merger Sub
and Prize shall use all reasonable efforts to take all such actions as may be
necessary or appropriate in order to effectuate the Merger under the DGCL and
the TBCA as promptly as commercially
17
practicable. If, at any time after the Effective Time, any further action
is necessary or desirable to carry out the purposes of this Agreement and to
vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of either of Merger
Sub or Prize, the officers and directors of the Surviving Corporation are fully
authorized, in the name of the Surviving Corporation or otherwise to take, and
shall take, all such lawful and necessary action.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PRIZE
Prize hereby represents and warrants to Parent and Merger Sub as follows:
3.1 Organization. Each of the Prize Companies: (a) is a corporation or a
limited partnership, as applicable, duly organized, validly existing and in good
standing under the laws of its state of incorporation or formation; (b) has the
requisite power and authority to own, lease and operate its properties and to
conduct its business as it is presently being conducted; and (c) is duly
qualified to do business as a foreign corporation or limited partnership, as
applicable, and is in good standing, in each jurisdiction where the character of
the properties owned or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so qualified as a
foreign corporation, limited partnership or limited liability company or to be
in good standing would not, individually or in the aggregate, have a Material
Adverse Effect on Prize). Accurate and complete copies of the certificate of
incorporation, bylaws, minute books and/or other organizational documents of
each of the Prize Companies have heretofore been delivered to Parent. Prize has
no corporate or other subsidiaries other than the Prize Subsidiaries.
3.2 Other Equity Interests. None of the Prize Companies owns any equity
interest in any general or limited partnership, corporation, limited liability
company or joint venture other than the Prize Companies and as set forth on the
Prize Disclosure Schedule (other than joint operating and other ownership
arrangements and tax partnerships entered into in the ordinary course of
business that, individually or in the aggregate, are not material to the
operations or business of the Prize Companies, taken as a whole), and that do
not entail any material liabilities.
3.3 Authority and Enforceability. Prize has the requisite corporate power
and authority to enter into and deliver this Agreement and (with respect to
consummation of the Merger, subject to the valid approval of the Prize Proposal
by the stockholders of Prize) to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and (with respect to
consummation of the Merger, subject to the valid approval of the Prize
18
Proposal by the stockholders of Prize) the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Prize, including approval by the board of
directors of Prize, and no other corporate proceedings on the part of Prize are
necessary to authorize the execution or delivery of this Agreement or (with
respect to consummation of the Merger, subject to the valid approval of the
Prize Proposal by the stockholders of Prize) to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Prize and (with respect to consummation of the Merger, subject to
the valid approval of the Prize Proposal by the stockholders of Prize and
assuming that this Agreement constitutes a valid and binding obligation of
Parent and Merger Sub) constitutes a valid and binding obligation of Prize,
enforceable against Prize in accordance with its terms.
3.4 No Violations. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance by Prize
with the provisions hereof will not, conflict with, result in any violation of
or default (with or without notice or lapse of time or both) under, give rise to
a right of termination, cancellation or acceleration of any obligation or to the
loss of a material benefit under, or result in the creation of any Lien on any
of the properties or assets of any of the Prize Companies under, any provision
of (a) the certificate or articles of incorporation, bylaws or any other
organizational documents of any of the Prize Companies, (b) any loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or other agreement or instrument applicable to any of the
Prize Companies, or (c) assuming the consents, approvals, authorizations,
permits, filings and notifications referred to in Section 3.5 are duly and
timely obtained or made, any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to any of the Prize Companies or any of their
respective properties or assets, other than (y) in the case of clause (b) above,
any such conflict, violation, default, right, loss or Lien that may arise under
the Prize Bank Credit Agreement, and (z) in the case of clause (b) or (c) above,
any such conflict, violation, default, right, loss or Lien that, individually or
in the aggregate, would not have a Material Adverse Effect on Prize.
3.5 Consents and Approvals. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to any of the Prize Companies in
connection with the execution and delivery of this Agreement by Prize or the
consummation by Prize of the transactions contemplated hereby, except for the
following: (a) any such consent, approval, order, authorization, registration,
declaration, filing or permit which the failure to obtain or make would not,
individually or in the aggregate, have a Material Adverse Effect on Prize; (b)
the filing of the Certificate of Merger with the Secretary of State of Delaware
pursuant to applicable provisions of the DGCL and the filing of the Articles of
Merger with the Secretary of State of Texas pursuant to applicable provisions of
the TBCA; (c) the filing of a pre-merger notification report by Prize as may be
required under the HSR Act and the expiration or termination of the applicable
waiting period; (d) the filing with the SEC of the Proxy Statement/Prospectus
and such reports under Section 13(a) of the Exchange Act and such other
compliance with the Exchange Act and the Securities Act and the rules and
regulations of the SEC thereunder as may be required in connection with this
Agreement and the transactions contemplated hereby and the obtaining from the
SEC of such orders as may be so required; (e) such filings and approvals as may
be required by any applicable state securities, "blue sky" or takeover laws or
Environmental Laws; and (f) such filings and approvals as may be required by any
foreign pre-merger notification, securities, corporate or other law, rule or
regulation. No Third-Party Consent is required by or with respect to any of the
Prize Companies in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (x) any
such Third-Party Consent which the failure to obtain would not, individually or
in the aggregate, have a Material Adverse Effect on Prize, (y) the valid
approval of the Prize Proposal by the stockholders of Prize, and (z) any
consent, approval or waiver required by the terms of the Prize Bank Credit
Agreement.
19
3.6 SEC Documents. Prize has made available to Parent a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Prize with the SEC since January 1, 2000, and prior to the
date of this Agreement (the "Prize SEC Documents"), which are all the documents
(other than preliminary material) that Prize was required to file with the SEC
since such date. As of their respective dates, the Prize SEC Documents complied
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 Prize SEC Documents, and none of the Prize 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.
3.7 Financial Statements. The Prize Financial Statements 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 unaudited
statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly
present, in accordance with applicable requirements of GAAP (in the case of the
unaudited statements, subject to normal, recurring adjustments), the
consolidated financial position of Prize and its subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Prize and its subsidiaries for the periods presented therein.
3.8 Capital Structure.
(a) The authorized capital stock of Prize consists of 50,000,000 shares of
Prize Common Stock and 10,000,000 shares of Prize Preferred Stock.
(b) As of the date hereof, there were (i) 12,529,106 issued and outstanding
shares of Prize Common Stock, (ii) Prize Stock Options relating to 2,240,027
shares of Prize Common Stock that have been, or prior to the Effective Time will
be, issued, and (iii) Prize Warrants relating to 1,708,724 shares of Prize
Common Stock that were issued and outstanding. As of the date hereof, 2,085,481
shares of Prize Common Stock were held by Prize as treasury stock.
(c) Except as set forth in Section 3.8(b), there are outstanding (i) no
shares of capital stock or other voting securities of Prize, (ii) no securities
of Prize or any other Person convertible into or exchangeable or exercisable for
shares of capital stock or other voting securities of Prize, and (iii) no
subscriptions, options, warrants, calls, rights (including preemptive rights),
commitments, understandings or agreements to which Prize is a party or by which
it is bound obligating Prize to issue, deliver, sell, purchase, redeem or
acquire shares of capital stock or other voting securities of Prize (or
securities convertible into or exchangeable or exercisable for shares of capital
stock or other voting securities of Prize) or obligating Prize to grant, extend
or enter into any such subscription, option, warrant, call, right, commitment,
understanding or agreement.
(d) All outstanding shares of Prize capital stock are validly issued, fully
paid and nonassessable and not subject to any preemptive right.
20
(e) All outstanding shares of capital stock and other voting securities of
each of the corporate Prize Subsidiaries are (i) validly issued, fully paid and
nonassessable and not subject to any preemptive right, and (ii) owned by the
Prize Companies, free and clear of all Liens, claims and options of any nature
(except for Permitted Encumbrances). There are outstanding (y) no securities of
any Prize Subsidiary or any other Person convertible into or exchangeable or
exercisable for shares of capital stock, other voting securities or other equity
interests of such Prize Subsidiary, and (z) no subscriptions, options, warrants,
calls, rights (including preemptive rights), commitments, understandings or
agreements to which any Prize Subsidiary is a party or by which it is bound
obligating such Prize Subsidiary to issue, deliver, sell, purchase, redeem or
acquire shares of capital stock, other voting securities or other equity
interests of such Prize Subsidiary (or securities convertible into or
exchangeable or exercisable for shares of capital stock, other voting securities
or other equity interests of such Prize Subsidiary) or obligating any Prize
Subsidiary to grant, extend or enter into any such subscription, option,
warrant, call, right, commitment, understanding or agreement.
(f) Except for the Prize Voting and Shareholders Agreement, there is no
stockholder agreement, voting trust or other agreement or understanding to which
Prize is a party or by which it is bound relating to the voting of any shares of
the capital stock of any of the Prize Companies.
3.9 No Undisclosed Liabilities. There are no liabilities of any of the
Prize Companies of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, that are reasonably likely to have a
Material Adverse Effect on Prize, other than (a) liabilities adequately provided
for in the Prize Financial Statements, (b) liabilities incurred in the ordinary
course of business subsequent to September 30, 2001, (c) liabilities under this
Agreement, and (d) liabilities set forth on the Prize Disclosure Schedule.
3.10 Absence of Certain Changes or Events. Except as set forth in the Prize
Disclosure Schedule or as specifically contemplated by this Agreement, since
September 30, 2001, none of the Prize Companies has done any of the following:
(a) Discharged or satisfied any Lien or paid any obligation or liability,
absolute or contingent, other than current liabilities incurred and paid in the
ordinary course of business and consistent with past practices;
(b) Paid or declared any dividends or distributions, purchased, redeemed,
acquired or retired any indebtedness, stock or other securities from its
stockholders or other securityholders, made any loans or advances or guaranteed
any loans or advances to any Person (other than loans, advances or guaranties
made in the ordinary course of business and consistent with past practices), or
otherwise incurred or suffered to exist any liabilities (other than current
liabilities incurred in the ordinary course of business and consistent with past
practices);
(c) Except for Permitted Encumbrances, suffered or permitted any Lien to
arise or be granted or created against or upon any of its assets;
21
(d) Canceled, waived or released any rights or claims against, or
indebtedness owed by, third parties;
(e) Amended its certificate of incorporation, bylaws or other
organizational documents;
(f) Made or permitted any amendment, supplement, modification or
termination of, or any acceleration under, any Prize Material Agreement;
(g) Sold, leased, transferred, assigned or otherwise disposed of (i) any
Oil and Gas Interests of Prize that, individually or in the aggregate, had a
value of $2,000,000 or more, or (ii) any other assets that, individually or in
the aggregate, had a value at the time of such lease, transfer, assignment or
disposition of $2,000,000 or more (and, in each case where a sale, lease,
transfer, assignment or other disposition was made, it was made for fair
consideration in the ordinary course of business); provided, however, that this
Section 3.10(g) shall not apply to the sale of Hydrocarbons in the ordinary
course of business;
(h) Made any investment in or contribution, payment, advance or loan to any
Person (other than investments, contributions, payments or advances, or
commitments with respect thereto, less than $500,000 in the aggregate, made in
the ordinary course of business and consistent with past practices);
(i) Paid, loaned or advanced (other than the payment, advance or
reimbursement of expenses in the ordinary course of business) any amounts to, or
sold, transferred or leased any of its assets to, or entered into any other
transaction with, any of its Affiliates other than the Prize Companies;
(j) Made any material change in any of the accounting principles followed
by it or the method of applying such principles;
(k) Entered into any material transaction (other than this Agreement)
except in the ordinary course of business and consistent with past practices;
(l) Increased benefits or benefit plan costs or changed bonus, insurance,
pension, compensation or other benefit plan or arrangement or granted any bonus
or increase in wages, salary or other compensation or made any other change in
employment terms to any officer, director or employee of any of the Prize
Companies (except in the ordinary course of business);
(m) Issued any note, bond or other debt security or created, incurred,
assumed, or guaranteed any indebtedness for borrowed money or capitalized lease
obligation involving more than $500,000 in the aggregate (other than pursuant to
the Prize Bank Credit Agreement);
(n) Delayed or postponed the payment of accounts payable or other
liabilities (except in the ordinary course of business);
22
(o) Canceled, compromised, waived or released any right or claim (or series
of related rights and claims) involving more than $500,000 in the aggregate
(except in the ordinary course of business);
(p) Issued, sold, or otherwise disposed of any of its capital stock or
other equity interest or granted any option, warrant, or other right to purchase
or obtain (including upon conversion, exchange, or exercise) any of its capital
stock or other equity interest;
(q) Made any loan to, or entered into any other transaction with, any of
its directors, officers or employees (except in the ordinary course of business
and not involving more than $100,000 in the aggregate);
(r) Made or pledged to make any charitable or other capital contribution
outside the ordinary course of business;
(s) Made or committed to make capital expenditures in excess of $2,000,000
in the aggregate;
(t) Made any change in any material Tax election or the manner Taxes are
reported;
(u) Otherwise been involved in any other material occurrence, event,
incident, action, failure to act, or transaction involving any of the Prize
Companies (except in the ordinary course of business);
(v) Agreed, whether in writing or otherwise, to do any of the foregoing; or
(w) Suffered any Material Adverse Effect (other than changes or trends,
including changes or trends in commodity prices, generally prevalent in or
affecting the oil and gas industry).
3.11 Compliance with Laws, Material Agreements and Permits. None of the
Prize Companies is in violation of, or in default under, and no event has
occurred that (with notice or the lapse of time or both) would constitute a
violation of or default under: (a) its certificate of incorporation, bylaws or
other organizational documents, (b) any applicable law, rule, regulation,
ordinance, order, writ, decree or judgment of any Governmental Authority, or (c)
any Prize Material Agreement, except (in the case of clause (b) or (c) above)
for any violation or default that would not, individually or in the aggregate,
have a Material Adverse Effect on Prize. Each of the Prize Companies has
obtained and holds all permits, licenses, variances, exemptions, orders,
franchises, approvals and authorizations of all Governmental Authorities
necessary for the lawful conduct of its business and the lawful ownership, use
and operation of its assets ("Prize Permits"), except for Prize Permits which
the failure to obtain or hold would not, individually or in the aggregate, have
a Material Adverse Effect on Prize. None of the Prize Permits will be adversely
affected by the consummation of the transactions contemplated under this
Agreement or requires any filing or consent in connection therewith. Each of the
Prize Companies is in compliance with the terms of its Prize Permits, except
where the failure to comply would not, individually or in the aggregate, have a
23
Material Adverse Effect on Prize. No investigation or review by any Governmental
Authority with respect to any of the Prize Companies is pending or, to the
knowledge of Prize, threatened, other than those the outcome of which would not,
individually or in the aggregate, have a Material Adverse Effect on Prize. To
the knowledge of Prize, no other party to any Prize Material Agreement is in
material breach of the terms, provisions or conditions of such Prize Material
Agreement.
3.12 Governmental Regulation. No Prize Company is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940 or any state public
utilities laws.
3.13 Litigation. Except as set forth in the Prize Disclosure Schedule: (a)
no litigation, arbitration, investigation or other proceeding is pending or, to
the knowledge of Prize, threatened against any of the Prize Companies or their
respective assets which, if adversely determined, could reasonably be expected
to have a Material Adverse Effect on Prize; and (b) no Prize Company is subject
to any outstanding injunction, judgment, order, decree or ruling (other than
routine oil and gas field regulatory orders). There is no litigation, proceeding
or investigation pending or, to the knowledge of Prize, threatened against or
affecting any of the Prize Companies that questions the validity or
enforceability of this Agreement or any other document, instrument or agreement
to be executed and delivered by Prize in connection with the transactions
contemplated hereby.
3.14 No Restrictions. None of the Prize Companies is a party to: (a) any
agreement, indenture or other instrument that contains restrictions with respect
to the payment of dividends or other distributions with respect to its capital,
other than the Prize Bank Credit Agreement; (b) any financial arrangement with
respect to or creating any indebtedness to any Person (other than indebtedness
(i) reflected in the Prize Financial Statements, (ii) under the Prize Bank
Credit Agreement, or (iii) incurred in the ordinary course of business since
September 30, 2001), unless such indebtedness would not, individually or in the
aggregate, result in a Material Adverse Effect on the Prize Companies; (c) any
agreement, contract or commitment relating to the making of any advance to, or
investment in, any Person (other than restrictions under the Prize Bank Credit
Agreement and advances in the ordinary course of business); (d) any guaranty or
other contingent liability with respect to any indebtedness or obligation of any
Person (other than (i) guaranties pursuant to the Prize Bank Credit Agreement,
(ii) guaranties undertaken in the ordinary course of business, and (iii) the
endorsement of negotiable instruments for collection in the ordinary course of
business); or (e) any agreement, contract or commitment limiting in any respect
its ability to compete with any Person or otherwise conduct business of any line
or nature.
3.15 Tax Audits and Settlements. None of the Prize Companies is a party or
subject to any unresolved or incomplete Tax audit or settlement.
3.16 Taxes.
(a) Each of the Prize Companies and any affiliated, combined or unitary
group of which any such entity is or was a member has (i) timely filed all
federal, state, local and foreign returns, declarations, reports, estimates,
information returns and statements ("Tax Returns") required to be filed by it
with respect to any Taxes, (ii) timely paid all Taxes that are due and payable
24
(except for Taxes that are being contested in good faith by appropriate
proceedings and for which sufficient reserves have been established) for which
any of the Prize Companies may be liable, (iii) complied with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes,
and (iv) timely withheld from employee wages and paid over to the proper
Governmental Authorities all amounts required to be so withheld and paid over,
except where the failure to file, pay, comply with or withhold would not have a
Material Adverse Effect on Prize.
(b) Except as set forth in the Prize Disclosure Schedule: (i) no audits or
other administrative or court proceedings are presently pending with regard to
any federal, state, local or foreign income or franchise Taxes for which any of
the Prize Companies would be liable; and (ii) there are no pending requests for
Tax rulings from any Governmental Authority, no outstanding subpoenas or
requests for information by any Governmental Authority with respect to any
Taxes, no proposed reassessments by any Governmental Authority of any property
owned or leased, and no agreements in effect to extend the time to file any Tax
Return or the period of limitations for the assessment or collection of any
Taxes for which any of the Prize Companies would be liable.
(c) Except as set forth in the Prize Disclosure Schedule: (i) there are no
Liens on any of the assets of the Prize Companies for unpaid Taxes, other than
Liens for Taxes not yet due and payable; (ii) no Prize Company has any liability
under Treasury Regulation ss. 1.1502-6 or any analogous state, local or foreign
law by reason of having been a member of any consolidated, combined or unitary
group, other than the affiliated group of which Prize is the common parent
corporation; and (iii) no Prize Company is or has been a party to any Tax
sharing agreement between related corporations.
(d) The amount of liability for unpaid Taxes of the Prize Companies does
not, in the aggregate, materially exceed the amount of the liability accruals
for Taxes reflected on the Prize Financial Statements.
(e) Prize has made available to Parent complete copies of all Tax Returns
filed by the Prize Companies with respect to any Taxes and all Tax audit
reports, work papers, statements of deficiencies, and closing or other
agreements with respect thereto with respect to Tax years 1999, 2000 and 2001.
(f) Except as set forth in the Prize Disclosure Schedule: (i) no Prize
Company is required to treat any of its assets as owned by another person for
federal income tax purposes or as tax-exempt bond financed property or
tax-exempt use property within the meaning of Section 168 of the Code; (ii) no
election has been made under Section 338 of the Code and no events have occurred
which would result in a deemed election under Section 338 of the Code with
respect to any Prize Company; (iii) no election has been made under Section
341(f) of the Code with respect to any Prize Company; (iv) no Prize Company has
participated in any international boycott as defined in Code Section 999; (v)
there are no outstanding balances of deferred gain or loss accounts with respect
to any Prize Company under Treas. Xxx.xx.xx. 1.1502-13 or 1.1502-13T; (vi) no
Prize Company has made or will make any election under Treas. Xxx.xx.
1.502-20(g)(1) with respect to the reattribution of net operating losses; and
(vii) no Prize Company has or has ever conducted branch operations in any
foreign country within the meaning of Treas. Xxx.xx. 1.367(a)-6T.
25
(g) The books and records of Prize contain accurate and complete
information with respect to: (i) all material Tax elections in effect with
respect to the Prize Companies; (ii) the current Tax basis of the assets of the
Prize Companies; (iii) any excess loss accounts of any Prize Company; (iv) the
current and accumulated earnings and profits of Prize; (v) the net operating
losses and net capital losses of the Prize Companies, the years that such net
operating and net capital losses expire, and any restrictions to which such net
operating and net capital losses are subject under any provision of the Code or
consolidated return regulations; (vi) Tax credit carryovers of the Prize
Companies; and (vii) any overall foreign losses to the Prize Companies under
Section 904(f) of the Code.
(h) No shareholder of Prize that is a foreign corporation or a nonresident
alien individual has owned as much as five percent of the outstanding stock of
Prize at any time during the five-year period ending on the date hereof.
3.17 Employee Benefit Plans.
(a) The Prize Disclosure Schedule sets forth a complete and accurate list
of each of the following which is or has been sponsored, maintained or
contributed to by Prize or any trade or business, whether or not incorporated (a
"Prize ERISA Affiliate"), or in which any employee or co-employee of any of the
Prize Companies participates or is covered, that together with Prize would be
considered affiliated with Prize or any Prize ERISA Affiliate under Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA for the
benefit of any person who, as of the Closing, is a current or former employee or
subcontractor of Prize or any Prize ERISA Affiliate: (i) each "employee benefit
plan," as such term is defined in Section 3(3) of ERISA (each, a "Prize Plan");
and (ii) each personnel policy, stock option plan, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance pay plan,
policy, program or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, retiree benefit plan
or arrangement, fringe benefit program or practice (whether or not taxable),
employee loan, consulting agreement, employment agreement and each other
employee benefit plan, agreement, arrangement, program, practice or
understanding which is not described in clause (i) above (each, a "Prize Benefit
Program or Agreement") (the Prize Plans and Prize Benefit Programs or Agreements
are sometimes collectively referred to in this Agreement as the "Prize Employee
Benefit Plans").
(b) True, correct and complete copies of each of the Prize Plans and
related trusts, if applicable, including all amendments thereto, have been
furnished or made available to Parent. There has also been furnished or made
available to Parent, with respect to each Prize Plan required to file such
report and description, the report on Form 5500 for the past three years, to the
extent applicable, and the most recent summary plan description and summaries of
material modifications thereto. True, correct and complete copies or
descriptions of all Prize Benefit Programs or Agreements have also been
furnished or made available to Parent.
(c) Except as otherwise set forth on the Prize Disclosure Schedule: (i)
none of Prize, any Prize ERISA Affiliate or any entity that, at any time during
the past six years, was required
26
to be treated as a single employer together with Prize or a Prize ERISA
Affiliate pursuant to Section 414 of the Code contributes to or has an
obligation to contribute to, nor has at any time contributed to or had an
obligation to contribute to, a multiemployer plan within the meaning of Section
3(37) of ERISA or any other plan subject to Title IV of ERISA; (ii) each of
Prize and the Prize ERISA Affiliates has performed all obligations, whether
arising by operation of law or by contract, including ERISA and the Code,
required to be performed by it in connection with the Prize Employee Benefit
Plans, and, to the knowledge of Prize, there have been no defaults or violations
by any other party to the Prize Employee Benefit Plans; (iii) all reports,
returns, notices, disclosures and other documents relating to the Prize Plans
required to be filed with or furnished to governmental entities, plan
participants or plan beneficiaries have been timely filed or furnished in
accordance with applicable law, and each Prize Employee Benefit Plan has been
administered in compliance with its governing written documents; (iv) each of
the Prize Plans intended to be qualified under Section 401 of the Code satisfies
the requirements of such Section and has received a favorable determination
letter from the Internal Revenue Service (the "IRS") regarding such qualified
status and has not been amended, operated or administered in a way which would
adversely affect such qualified status; (v) there are no actions, suits or
claims pending (other than routine claims for benefits) or, to the knowledge of
Prize, contemplated or threatened against, or with respect to, any of the Prize
Employee Benefit Plans or their assets; (vi) each trust maintained in connection
with each Prize Plan, which is qualified under Section 401 of the Code, is tax
exempt under Section 501 of the Code; (vii) all contributions required to be
made to the Prize Employee Benefit Plans have been made timely; (viii) no
accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code has been incurred, and there has
been no termination or partial termination of any Prize Plan within the meaning
of Section 411(d)(3) of the Code; (ix) no act, omission or transaction has
occurred which could result in imposition on Prize or any Prize ERISA Affiliate
of (A) breach of fiduciary duty liability damages under Section 409 of ERISA,
(B) a civil penalty assessed pursuant to subsections (c), (i) or (1) of Section
502 of ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle D of the
Code; (x) to the knowledge of Prize, there is no matter pending with respect to
any of the Prize Plans before the IRS, the Department of Labor or the Pension
Benefit Guaranty Corporation (the "PBGC"); (xi) each of the Prize Employee
Benefit Plans complies, in form and operation, with the applicable provisions of
the Code and ERISA; (xii) each Prize Employee Benefit Plan may be unilaterally
amended or terminated in its entirety without any liability or other obligation;
(xiii) Prize and the Prize ERISA Affiliates have no liabilities or other
obligations, whether actual or contingent, under any Prize Employee Benefit Plan
for post-employment benefits of any nature (other than COBRA continuation
coverage); and (xiv) neither Prize nor any of the Prize ERISA Affiliates or any
present or former director, officer, employee or other agent of Prize or any of
the Prize ERISA Affiliates has made any written or oral representations or
promises to any present or former director, officer, employee or other agent
concerning his or her terms, conditions or benefits of employment, including the
tenure of any such employment or the conditions under which such employment may
be terminated by Prize, any of the Prize ERISA Affiliates or Parent which will
be binding upon or enforceable against Parent or Prize after the Effective Time.
(d) Except as otherwise set forth on the Prize Disclosure Schedule, no
employee is currently on a leave of absence due to sickness or disability and no
claim is pending or expected to
27
be made by an employee, former employee or independent contractor for
workers' compensation benefits.
(e) With respect to the Prize Employee Benefit Plans, there exists no
condition or set of circumstances in connection with any of the Prize Companies
that could be expected to result in liability reasonably likely to have a
Material Adverse Effect on Prize under ERISA, the Code or any other applicable
law. With respect to the Prize Employee Benefit Plans, individually and in the
aggregate, there are no unfunded benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
GAAP, on the financial statements of the Prize Companies, which obligations are
reasonably likely to have a Material Adverse Effect on Prize.
(f) Except pursuant to the Prize Extraordinary Transaction Compensation
Policy, neither the execution or delivery of this Agreement nor the consummation
of the transactions contemplated hereby will result in any payment becoming due
to any employee or group of employees of any of the Prize Companies.
(g) Except as set forth in the Prize Disclosure Schedule, no amounts
payable or that could become payable under any Prize Employee Benefit Plan
(including the Prize Extraordinary Transaction Compensation Policy) as a result
of the consummation of the transactions contemplated by this Agreement will fail
to be deductible for Federal income tax purposes by virtue of either Section
280G or 162(m) of the Code.
3.18 Employment Contracts and Benefits. Except as set forth in the Prize
Disclosure Schedule or otherwise provided for in any Prize Employee Benefit
Plan: (a) none of the Prize Companies is subject to or obligated under any
consulting, employment, severance, termination or similar arrangement, any
employee benefit, incentive or deferred compensation plan with respect to any
Person, or any bonus, profit sharing, pension, stock option, stock purchase or
similar plan or other arrangement or other fringe benefit plan entered into or
maintained for the benefit of employees of any of the Prize Companies or any
other Person; and (b) no employee of any of the Prize Companies or any other
Person owns, or has any right granted by any of the Prize Companies to acquire,
any interest in any of the assets or business of any of the Prize Companies.
3.19 Labor Matters.
(a) No employees of any of the Prize Companies are represented by any labor
organization. No labor organization or group of employees of any of the Prize
Companies has made a demand for recognition or certification as a union or other
labor organization, and there are no representation or certification proceedings
or petitions seeking a representation or certification proceeding presently
pending or threatened in writing to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority. There are no
organizing activities involving any of the Prize Companies pending with any
labor organization or group of employees of any of the Prize Companies.
(b) Each of the Prize Companies is in compliance with all laws, rules,
regulations and orders relating to the employment of labor, including all such
laws, rules, regulations and orders
28
relating to wages, hours, collective bargaining, discrimination, civil
rights, safety and health, workers' compensation and the collection and payment
of income Tax withholding, Social Security Taxes, Medicare Taxes and similar
Taxes, except where the failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect on Prize.
3.20 Accounts Receivable. Except as set forth in the Prize Disclosure
Schedule: (a) all of the accounts, notes and loans receivable that have been
recorded on the books of the Prize Companies are bona fide and represent
accounts, notes and loans receivable validly due for goods sold or services
rendered and are reasonably expected to be collected in full within 90 days
after the applicable invoice or note maturity date (other than such accounts,
notes and loans receivable that, individually or in the aggregate, do not have a
book value as of the date hereof in excess of $500,000); (b) except for
Permitted Encumbrances, all of such accounts, notes and loans receivable are
free and clear of any and all Liens and other adverse claims and charges, and
none of such accounts, notes or loans receivable is subject to any offset or
claim of offset; and (c) none of the obligors on such accounts, notes or loans
receivable has given notice to any of the Prize Companies that it will or may
refuse to pay the full amount or any portion thereof.
3.21 Insurance. Each of the Prize Companies maintains, and through the
Closing Date will maintain, insurance with reputable insurers (or pursuant to
prudent self-insurance programs described in the Prize Disclosure Schedule) in
such amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of the Prize
Companies and owning properties in the same general area in which the Prize
Companies conduct their businesses. None of such insurance coverage was obtained
through the use of false or misleading information or the failure to provide the
insurer with all information requested in order to evaluate the liabilities and
risks insured. There is no material default with respect to any provision
contained in any such policy or binder, and none of the Prize Companies has
failed to give any notice or present any claim under any such policy or binder
in due and timely fashion. There are no billed but unpaid premiums past due
under any such policy or binder. Except as set forth in the Prize Disclosure
Schedule: (a) there are no outstanding claims under any such policies or binders
and, to the knowledge of Prize, there has not occurred any event that might
reasonably form the basis of any claim against or relating to any of the Prize
Companies that is not covered by any of such policies or binders; (b) no notice
of cancellation or non-renewal of any such policies or binders has been
received; and (c) there are no performance bonds outstanding with respect to any
of the Prize Companies.
3.22 Intellectual Property. There are no material trademarks, trade names,
patents, service marks, brand names, computer programs, databases, industrial
designs, copyrights or other intangible property that are necessary for the
operation, or continued operation, of the business of any of the Prize Companies
or for the ownership and operation, or continued ownership and operation, of any
of their assets, for which the Prize Companies do not hold valid and continuing
authority in connection with the use thereof. The businesses of the Prize
Companies, as presently conducted, do not conflict with, infringe or violate any
intellectual property rights of any other Person, except where any such
conflict, infringement or violation could not reasonably be expected to have a
Material Adverse Effect on Prize.
29
3.23 Title to Assets. The Prize Companies (individually or collectively)
have Defensible Title to the Oil and Gas Interests of Prize included or
reflected in Prize's Ownership Interests. Each Oil and Gas Interest included or
reflected in Prize's Ownership Interests entitles the Prize Companies
(individually or collectively) to receive not less than the undivided interest
set forth in (or derived from) the Ownership Interests of Prize of all
Hydrocarbons produced, saved and sold from or attributable to such Oil and Gas
Interest, and the portion of the costs and expenses of operation and development
of such Oil and Gas Interest that is borne or to be borne by the Prize Companies
(individually or collectively) is not greater than the undivided interest set
forth in (or derived from) Prize's Ownership Interests. No fact, circumstance or
condition of the title to an Oil and Gas Interest shall be considered to effect
a reduction in the value of the assets, unless due consideration has been given
to (a) the length of time that such Oil and Gas Interest has been producing
Hydrocarbons and has been credited to and accounted for by the Prize Companies
and their predecessors in title, if any, and (b) whether any such fact,
circumstance or condition is of the type that can generally be expected to be
encountered in the area involved and is usually and customarily acceptable to
reasonable and prudent operators, interest owners and purchasers engaged in the
business of the ownership, development and operation of oil and gas properties.
3.24 Oil and Gas Operations. Except as set forth in the Prize Disclosure
Schedule:
(a) All xxxxx included in the Oil and Gas Interests of Prize have been
drilled and (if completed) completed, operated and produced in accordance with
generally accepted oil and gas field practices and in compliance in all material
respects with applicable oil and gas leases and applicable laws, rules and
regulations, except where any failure or violation could not reasonably be
expected to have a Material Adverse Effect on Prize; and
(b) Proceeds from the sale of Hydrocarbons produced from Prize's Oil and
Gas Interests are being received by the Prize Companies in a timely manner and
are not being held in suspense for any reason (except in the ordinary course of
business).
3.25 Financial and Commodity Hedging. The Prize Disclosure Schedule
accurately summarizes as of the date hereof the outstanding Hydrocarbon and
financial hedging positions of the Prize Companies (including fixed price
controls, collars, swaps, caps, xxxxxx and puts).
3.26 Environmental Matters. Except as set forth in the Prize Disclosure
Schedule:
(a) Each of the Prize Companies has conducted its business and operated its
assets, and is conducting its business and operating its assets, in compliance
with all Environmental Laws, other than any noncompliance that (i) is typical in
the ordinary course of business for oil and gas properties of the type owned by
the Prize Companies, and (ii) would not be reasonably expected to result in a
Material Adverse Effect on Prize;
(b) To the knowledge of Prize, none of the Prize Companies has been
notified by any Governmental Authority or other third party that any of the
operations or assets of any of the Prize Companies is the subject of any
investigation or inquiry by any Governmental Authority or other third party
evaluating whether any remedial action is needed to respond to a release or
30
threatened release of any Hazardous Material or to the improper storage or
disposal (including storage or disposal at offsite locations) of any Hazardous
Material;
(c) None of the Prize Companies and, to the knowledge of Prize, no other
Person has filed any notice under any federal, state or local law indicating
that (i) any of the Prize Companies is responsible for the improper release into
the environment, or the improper storage or disposal, of any Hazardous Material,
or (ii) any Hazardous Material is improperly stored or disposed of upon any
property of any of the Prize Companies;
(d) None of the Prize Companies has any liability in excess of $2,000,000
in the aggregate in connection with (i) the release or threatened release into
the environment at, beneath or on any property now or previously owned, leased
or operated by any of the Prize Companies, (ii) any obligations under or
violations of Environmental Laws, or (iii) the use, release, storage or disposal
of any Hazardous Material;
(e) None of the Prize Companies has received any claim, complaint, notice,
inquiry or request for information involving any matter which remains unresolved
with respect to any alleged violation of any Environmental Law or regarding
potential liability under any Environmental Law relating to operations or
conditions of any facilities or property (including off-site storage or disposal
of any Hazardous Material from such facilities or property) currently or
formerly owned, leased or operated by any of the Prize Companies;
(f) No property now or previously owned, leased or operated by any of the
Prize Companies is listed on the National Priorities List pursuant to CERCLA or
on the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup;
(g) To the knowledge of Prize, none of the Prize Companies is transporting,
has transported, or is arranging or has arranged for the transportation of any
Hazardous Material to any location which is listed on the National Priorities
List pursuant to CERCLA, on the CERCLIS, or on any similar federal or state list
or which is the subject of federal, state or local enforcement actions or other
investigations that may lead to claims in excess of $100,000 against any of the
Prize Companies for removal or remedial work, contribution for removal or
remedial work, damage to natural resources or personal injury, including claims
under CERCLA;
(h) None of the Prize Companies owns or operates any underground storage
tanks or solid waste storage, treatment and/or disposal facilities;
(i) To the knowledge of Prize, no asbestos, asbestos containing materials
or polychlorinated biphenyls are present on or at any property or facility
owned, leased or operated by any of the Prize Companies, other than gas
processing plants and associated gathering systems;
(j) None of the Prize Companies is operating, or required to be operating,
any of its properties or facilities under any compliance or consent order,
decree or agreement issued or entered into under, or pertaining to matters
regulated by, any Environmental Law; and
31
(k) To the knowledge of Prize, Prize has provided or made available to
Parent copies of all environmental audits, assessments and evaluations of any of
the Prize Companies or any of their properties or assets.
3.27 Books and Records. All books, records and files of the Prize Companies
(including those pertaining to Prize's Oil and Gas Interests, xxxxx and other
assets, those pertaining to the production, gathering, transportation and sale
of Hydrocarbons, and corporate, accounting, financial and employee records): (a)
have been prepared, assembled and maintained in accordance with usual and
customary policies and procedures, and (b) fairly and accurately reflect the
ownership, use, enjoyment and operation by the Prize Companies of their
respective assets.
3.28 Brokers. Except as set forth on the Prize Disclosure Schedule, no
broker, finder, investment banker or other Person is or will be, in connection
with the transactions contemplated by this Agreement, entitled to any brokerage,
finder's or other fee or compensation based on any arrangement or agreement made
by or on behalf of Prize and for which Parent, or any of the Prize Companies
will have any obligation or liability.
3.29 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Prize Common Stock is the only vote of the holders of
any class or series of Prize capital stock or other voting securities necessary
to approve this Agreement, the Merger and the transactions contemplated hereby.
3.30 Powers of Attorney; Authorized Signatories. The Prize Disclosure
Schedule lists: (a) the names and addresses of all Persons holding powers of
attorney on behalf of any of the Prize Companies; and (b) the names of all banks
and other financial institutions in which any of the Prize Companies currently
have one or more bank accounts or safe deposit boxes, along with the account
numbers and the names of all persons authorized to draw on such accounts or to
have access to such safe deposit boxes.
3.31 Gas Imbalances. Except as set forth on the Prize Disclosure Schedule,
none of the Prize Companies has received any deficiency payment under any gas
contract for which any Person has a right to take deficiency gas from any Prize
Company, nor have any of the Prize Companies received any payment for production
which is subject to refund or recoupment out of future production.
3.32 Royalties. To the knowledge of Prize as to xxxxx not operated by a
Prize Company, and without qualification as to knowledge as to all xxxxx
operated by a Prize Company, all royalties, overriding royalties, compensatory
royalties and other payments due from or in respect of production with respect
to Prize's Oil and Gas Interests, have been or will be, prior to the Effective
Time, properly and correctly paid or provided for in all material respects,
except for those for which a Prize Company has a valid right to suspend.
32
3.33 Prepayments. Except as set forth on the Prize Disclosure Schedule, no
prepayment for Hydrocarbon sales has been received by any of the Prize Companies
for Hydrocarbons which have not been delivered.
3.34 Reserve Report. The Prize Reserve Report was generally prepared in
accordance with all applicable guidelines of the Society of Petroleum Engineers
and on a basis consistent with the reserve report referred to in Prize's Annual
Report on Form 10-K for the year ended December 31, 2000.
3.35 State Takeover Laws. Prize has taken all necessary action to exempt
the Merger from any applicable moratorium, fair price, business combination,
control share and other anti-takeover laws under the DGCL.
3.36 Disclosure. No representation or warranty of Prize set forth in this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein not
misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
Prize as follows:
4.1 Organization. Each of Parent and Merger Sub: (a) is a corporation, duly
organized, validly existing and in good standing under the laws of its state of
incorporation, (b) has the requisite power and authority to own, lease and
operate its properties and to conduct its business as it is presently being
conducted, and (c) is duly qualified to do business as a foreign corporation,
and is in good standing, in each jurisdiction where the character of the
properties owned or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so qualified as a
foreign corporation or to be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on Parent). Copies of the articles of
incorporation and bylaws of each of Parent and Merger Sub have heretofore been
delivered to Prize, and such copies are accurate and complete as of the date
hereof. Parent has no corporate or other subsidiaries other than the Parent
Subsidiaries.
4.2 Other Equity Interests. None of the Parent Companies owns any equity
interest in any general or limited partnership, corporation, limited liability
company or joint venture other than as set forth on the Parent Disclosure
Schedule (other than joint operating and other ownership arrangements and tax
partnerships entered into in the ordinary course of business that, individually
or in the aggregate, are not material to the operations or business of the
Parent Companies, taken as a whole), and that do not entail material
liabilities.
4.3 Authority and Enforceability. Each of Parent and Merger Sub has the
requisite corporate power and authority to enter into and deliver this Agreement
and (with respect to consummation of the Merger, subject to the valid approval
of the Prize Proposal by the stockholders
33
of Parent) to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and (with respect to consummation of
the Merger, subject to the valid approval of the Prize Proposal by the
stockholders of Parent) the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of Parent and Merger Sub, including approval by the board of directors of
Parent and the board of directors and stockholders of Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize the execution or delivery of this Agreement or (with respect to
consummation of theMerger, subject to the valid approval of the Prize Proposal
by the stockholders of Parent) to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Parent and Merger Sub and (with respect to consummation of theMerger, subject to
the valid approval of the Prize Proposal by the stockholders of Parent, and
assuming that this Agreement constitutes a valid and binding obligation of
Prize) constitutes a valid and binding obligation of each of Parent and Merger
Sub enforceable against each of them in accordance with its terms.
4.4 No Violations. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance by
Parent and Merger Sub with the provisions hereof will not, conflict with, result
in any violation of or default (with or without notice or lapse of time or both)
under, give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of any of the Parent Companies
under, any provision of (a) the certificate or articles of incorporation, bylaws
or any other organizational documents of any of the Parent Companies, (b) any
loan or credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or other agreement or instrument applicable to
any of the Parent Companies (other than any such conflict, violation, default,
right, loss or Lien that may arise under the Parent Bank Credit Agreement), or
(c) assuming the consents, approvals, authorizations, permits, filings and
notifications referred to in Section 4.5 are duly and timely obtained or made,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to any of the Parent Companies or any of their respective properties
or assets, other than, in the case of clause (b) or (c) above, any such
conflict, violation, default, right, loss or Lien that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent.
4.5 Consents and Approvals. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to Parent or Merger Sub 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 the following: (a) any such consent, approval, order,
authorization, registration, declaration, filing or permit which the failure to
obtain or make would not, individually or in the aggregate, have a Material
Adverse Effect on Parent; (b) the filing of the Certificate of Merger with the
Secretary of State of Delaware pursuant to applicable provisions of the DGCL and
the filing of the Articles of Merger with the Secretary of State of Texas
pursuant to applicable provisions of the TBCA; (c) the filing of a pre-merger
notification report by Parent as may be required under the HSR Act and the
expiration or termination of the applicable waiting period; (d) the filing with
the SEC of the Registration Statement and such reports under Section 13(a) of
the Exchange Act and such other compliance with the Exchange Act and the
Securities Act and the rules
34
and regulations of the SEC thereunder as may be required in connection with
this Agreement and the transactions contemplated hereby and the obtaining from
the SEC of such orders as may be so required; (e) the filing with a National
Stock Exchange of a listing application relating to the shares of Parent Common
Stock to be issued pursuant to the Merger and the obtaining from such exchange
of its approvals thereof; (f) such filings and approvals as may be required by
any applicable state securities, "blue sky" or takeover laws or Environmental
Laws; and (g) such filings and approvals as may be required by any foreign
pre-merger notification, securities, corporate or other law, rule or regulation.
No Third-Party Consent is required by or with respect to Parent, Merger Sub or
any Parent Subsidiary in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (x) any such Third-Party Consent which the failure to obtain would not,
individually or in the aggregate, have a Material Adverse Effect on Parent, (y)
the valid approval of the Prize Proposal (including the issuance of the Parent
Common Stock in the Merger) by the stockholders of Parent, and (z) any consent,
approval or waiver required by the terms of the Parent Bank Credit Agreement.
4.6 SEC Documents. Parent has made available to Prize a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Parent with the SEC since January 1, 2000, and prior to the
date of this Agreement and any amendments thereto (the "Parent SEC Documents"),
which are all the documents (other than preliminary material) that Parent was
required to file with the SEC since such date. As of their respective dates, the
Parent SEC Documents (as amended) complied 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 (as amended) 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.
4.7 Financial Statements. The Parent Financial Statements 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 unaudited
statements, as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly
present, in accordance with applicable requirements of GAAP (in the case of the
unaudited statements, subject to normal, recurring adjustments), the
consolidated financial position of Parent and its subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Parent and its subsidiaries for the periods presented therein.
4.8 Capital Structure.
(a) The authorized capital stock of Parent consists of 100,000,000 shares
of Parent Common Stock and 10,000,000 shares of Parent Preferred Stock. The
authorized capital stock of Merger Sub consists of 1,000 shares of Merger Sub
Common Stock.
(b) As of September 30, 2001, there were issued and outstanding 35,674,468
shares of Parent Common Stock and 80,000 shares of Parent Preferred Stock.
4,731,249 shares of Parent Common Stock are issuable upon exercise of
outstanding stock options and warrants. As of
35
September 30, 2001, 514,713 shares of Parent Common Stock and no shares of
Parent Preferred Stock were held by Parent as treasury stock.
(c) Except as set forth in Section 4.8(b) or in the Parent Disclosure
Schedule, there are outstanding (i) no shares of capital stock or other voting
securities of Parent, (ii) no securities of Parent or any other Person
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities of Parent, and (iii) no subscriptions, options,
warrants, calls, rights (including preemptive rights, commitments,
understandings or agreements to which Parent is a party or by which it is bound)
obligating Parent to issue, deliver, sell, purchase, redeem or acquire shares of
capital stock or other voting securities of Parent (or securities convertible
into or exchangeable or exercisable for shares of capital stock or other voting
securities of Parent) or obligating Parent to grant, extend or enter into any
such subscription, option, warrant, call, right, commitment, understanding or
agreement.
(d) All outstanding shares of Parent capital stock are, and (when issued)
the shares of Parent Common Stock to be issued pursuant to the Merger and upon
exercise of the Prize Stock Options and Prize Warrants will be, validly issued,
fully paid and nonassessable and not subject to any preemptive right.
(e) 100 shares of Merger Sub Common Stock are issued and outstanding, all
of which are owned by Parent. All outstanding shares of capital stock and other
voting securities of Merger Sub and of each of the other corporate Parent
Subsidiaries are (i) validly issued, fully paid and nonassessable and not
subject to any preemptive right, and (ii) owned by the Parent Companies, free
and clear of all Liens, claims and options of any nature (except Permitted
Encumbrances). There are outstanding (y) no securities of any Parent Subsidiary
or any other Person convertible into or exchangeable or exercisable for shares
of capital stock, other voting securities or other equity interests of such
Parent Subsidiary, and (z) no subscriptions, options, warrants, calls, rights
(including preemptive rights), commitments, understandings or agreements to
which any Parent Subsidiary is a party or by which it is bound obligating such
Parent Subsidiary to issue, deliver, sell, purchase, redeem or acquire shares of
capital stock, other voting securities or other equity interests of such Parent
Subsidiary (or securities convertible into or exchangeable or exercisable for
shares of capital stock, other voting securities or other equity interests of
such Parent Subsidiary) or obligating any Parent Subsidiary to grant, extend or
enter into any such subscription, option, warrant, call, right, commitment,
understanding or agreement.
(f) Except as set forth in the Parent Disclosure Schedule, there is no
stockholder agreement, voting trust or other agreement or understanding to which
Parent is a party or by which it is bound relating to the voting of any shares
of the capital stock of any of the Parent Companies.
4.9 No Undisclosed Liabilities. There are no liabilities of any of the
Parent Companies of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, that are reasonably likely to have a
Material Adverse Effect on Parent, other than (a) liabilities adequately
provided for in the Parent Financial Statements, (b) liabilities incurred in the
ordinary course of business subsequent to September 30, 2001, (c) liabilities
under this Agreement, and (d) liabilities set forth on the Parent Disclosure
Schedule.
36
4.10 Absence of Certain Changes or Events. Except as set forth in the
Parent Disclosure Schedule or as specifically contemplated by this Agreement,
since September 30, 2001, none of the Parent Companies has done any of the
following:
(a) Discharged or satisfied any Lien or paid any obligation or liability,
absolute or contingent, other than current liabilities incurred and paid in the
ordinary course of business and consistent with past practices;
(b) Paid or declared any dividends or distributions, purchased, redeemed,
acquired or retired any indebtedness, stock or other securities from its
stockholders or other securityholders, made any loans or advances or guaranteed
any loans or advances to any Person (other than loans, advances or guaranties
made in the ordinary course of business and consistent with past practices), or
otherwise incurred or suffered to exist any liabilities (other than current
liabilities incurred in the ordinary course of business and consistent with past
practices);
(c) Except for Permitted Encumbrances, suffered or permitted any Lien to
arise or be granted or created against or upon any of its assets;
(d) Canceled, waived or released any rights or claims against, or
indebtedness owed by, third parties;
(e) Amended its certificate or articles of incorporation, bylaws or other
organizational documents;
(f) Made or permitted any amendment, supplement, modification or
termination of, or any acceleration under, any Parent Material Agreement;
(g) Sold, leased, transferred, assigned or otherwise disposed of (i) any
Oil and Gas Interests of Parent that, individually or in the aggregate, had a
value of $2,000,000 or more, or (ii) any other assets that, individually or in
the aggregate, had a value at the time of such lease, transfer, assignment or
disposition of $2,000,000 or more (and, in each case where a sale, lease,
transfer, assignment or other disposition was made, it was made for fair
consideration in the ordinary course of business); provided, however, that this
Section 4.10(g) shall not apply to the sale of Hydrocarbons in the ordinary
course of business;
(h) Made any investment in or contribution, payment, advance or loan to any
Person (other than investments, contributions, payments or advances, or
commitments with respect thereto, less than $500,000 in the aggregate, made in
the ordinary course of business and consistent with past practices);
(i) Paid, loaned or advanced (other than the payment, advance or
reimbursement of expenses in the ordinary course of business) any amounts to, or
sold, transferred or leased any of its assets to, or entered into any other
transaction with, any of its Affiliates other than the Parent Companies;
37
(j) Made any material change in any of the accounting principles followed
by it or the method of applying such principles;
(k) Entered into any material transaction (other than this Agreement)
except in the ordinary course of business and consistent with past practices;
(l) Increased benefits or benefit plan costs or changed bonus, insurance,
pension, compensation or other benefit plan or arrangement or granted any bonus
or increase in wages, salary or other compensation or made any other change in
employment terms to any officer, director or employee of any of the Parent
Companies (except in the ordinary course of business);
(m) Issued any note, bond or other debt security or created, incurred,
assumed or guaranteed any indebtedness for borrowed money or capitalized lease
obligation involving more than $500,000 in the aggregate (other than pursuant to
the Parent Bank Credit Agreement);
(n) Delayed or postponed the payment of accounts payable or other
liabilities (except in the ordinary course of business);
(o) Canceled, compromised, waived or released any right or claim (or series
of related rights and claims) involving more than $500,000 in the aggregate
(except in the ordinary course of business);
(p) Issued, sold, or otherwise disposed of any of its capital stock or
other equity interest or granted any option, warrant, or other right to purchase
or obtain (including upon conversion, exchange, or exercise) any of its capital
stock or other equity interest;
(q) Made any loan to, or entered into any other transaction with, any of
its directors, officers or employees (except in the ordinary course of business
and not involving more than $100,000 in the aggregate);
(r) Made or pledged to make any charitable or other capital contribution
outside the ordinary course of business;
(s) Made or committed to make capital expenditures in excess of $2,000,000
in the aggregate;
(t) Made any change in any material Tax election or the manner Taxes are
reported;
(u) Otherwise been involved in any other material occurrence, event,
incident, action, failure to act, or transaction involving any of the Parent
Companies (except in the ordinary course of business);
(v) Agreed, whether in writing or otherwise, to do any of the foregoing; or
38
(w) Suffered any Material Adverse Effect (other than changes or trends,
including changes or trends in commodity prices, generally prevalent in or
affecting the oil and gas industry).
4.11 Compliance with Laws, Material Agreements and Permits. None of the
Parent Companies is in violation of, or in default under, and no event has
occurred that (with notice or the lapse of time or both) would constitute a
violation of or default under: (a) its certificate or articles of incorporation,
bylaws or other organizational documents, (b) any applicable law, rule,
regulation, ordinance, order, writ, decree or judgment of any Governmental
Authority, or (c) any Parent Material Agreement, except (in the case of clause
(b) or (c) above) for any violation or default that would not, individually or
in the aggregate, have a Material Adverse Effect on Parent. Each of the Parent
Companies has obtained and holds all permits, licenses, variances, exemptions,
orders, franchises, approvals and authorizations of all Governmental Authorities
necessary for the lawful conduct of its business and the lawful ownership, use
and operation of its assets ("Parent Permits"), except for Parent Permits which
the failure to obtain or hold would not, individually or in the aggregate, have
a Material Adverse Effect on Parent. None of the Parent Permits will be
adversely affected by the consummation of the transactions contemplated under
this Agreement or requires any filing or consent in connection therewith. Each
of the Parent Companies is in compliance with the terms of its Parent Permits,
except where the failure to comply would not, individually or in the aggregate,
have a Material Adverse Effect on Parent. No investigation or review by any
Governmental Authority with respect to any of the Parent Companies is pending
or, to the knowledge of Parent, threatened, other than those the outcome of
which would not, individually or in the aggregate, have a Material Adverse
Effect on Parent. To the knowledge of Parent, no other party to any Parent
Material Agreement is in material breach of the terms, provisions or conditions
of such Parent Material Agreement.
4.12 Governmental Regulation. No Parent Company is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940 or any state public
utilities laws.
4.13 Litigation. Except as set forth in the Parent Disclosure Schedule: (a)
no litigation, arbitration, investigation or other proceeding is pending or, to
the knowledge of Parent, threatened against any of the Parent Companies or their
respective assets which, if adversely determined, could reasonably be expected
to have a Material Adverse Effect on Parent; and (b) no Parent Company is
subject to any outstanding injunction, judgment, order, decree or ruling (other
than routine oil and gas field regulatory orders). There is no litigation,
proceeding or investigation pending or, to the knowledge of Parent, threatened
against or affecting any of the Parent Companies that questions the validity or
enforceability of this Agreement or any other document, instrument or agreement
to be executed and delivered by Parent in connection with the transactions
contemplated hereby.
4.14 Interim Operations of Merger Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement and has
not engaged in any business or activity (or conducted any operations) of any
kind, entered into any agreement or arrangement with any person or entity, or
incurred, directly or indirectly, any liabilities or obligations, except in
39
connection with its incorporation, the negotiation of this Agreement, the Merger
and the transactions contemplated hereby.
4.15 No Restrictions. Except as set forth in the Parent Disclosure
Schedule, none of the Parent Companies is a party to: (a) any agreement,
indenture or other instrument that contains restrictions with respect to the
payment of dividends or other distributions with respect to its capital, other
than the Parent Bank Credit Agreement and antidilution adjustments under the
Parent Warrants; (b) any financial arrangement with respect to or creating any
indebtedness to any Person (other than indebtedness (i) reflected in the Parent
Financial Statements, (ii) under the Parent Bank Credit Agreement, or (iii)
incurred in the ordinary course of business since September 30, 2001) unless
such indebtedness would not, individually or in the aggregate, result in a
Material Adverse Effect on the Parent Companies; (c) any agreement, contract or
commitment relating to the making of any advance to, or investment in, any
Person (other than restrictions under the Parent Bank Credit Agreement and
advances in the ordinary course of business); (d) any guaranty or other
contingent liability with respect to any indebtedness or obligation of any
Person (other than (i) guaranties pursuant to the Parent Bank Credit Agreement,
(ii) guaranties undertaken in the ordinary course of business, and (iii) the
endorsement of negotiable instruments for collection in the ordinary course of
business); or (e) any agreement, contract or commitment limiting in any respect
its ability to compete with any Person or otherwise conduct business of any line
or nature.
4.16 Tax Audits and Settlements. Except as set forth in the Parent
Disclosure Schedule, none of the Parent Companies is a party or subject to any
unresolved or incomplete Tax audit or settlement.
4.17 Taxes.
(a) Each of the Parent Companies and any affiliated, combined or unitary
group of which any such entity is or was a member has: (i) timely filed all Tax
Returns required to be filed by it with respect to any Taxes, (ii) timely paid
all Taxes that are due and payable (except for Taxes that are being contested in
good faith by appropriate proceedings and for which sufficient reserves have
been established) for which any of the Parent Companies may be liable, (iii)
complied with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes, and (iv) timely withheld from employee wages and paid
over to the proper Governmental Authorities all amounts required to be so
withheld and paid over, except where the failure to file, pay, comply with or
withhold would not have a Material Adverse Effect on Parent.
(b) Except as set forth in the Parent Disclosure Schedule: (i) no audits or
other administrative or court proceedings are presently pending with regard to
any federal, state, local or foreign income or franchise Taxes for which any of
the Parent Companies would be liable; and (ii) there are no pending requests for
Tax rulings from any Governmental Authority, no outstanding subpoenas or
requests for information by any Governmental Authority with respect to any
Taxes, no proposed reassessments by any Governmental Authority of any property
owned or leased, and no agreements in effect to extend the time to file any Tax
Return or the period of limitations for the assessment or collection of any
Taxes for which any of the Parent Companies would be liable.
40
(c) Except as set forth in the Parent Disclosure Schedule: (i) there are no
Liens on any of the assets of the Parent Companies for unpaid Taxes, other than
Liens for Taxes not yet due and payable; (ii) no Parent Company has any
liability under Treasury Regulation ss. 1.1502-6 or any analogous state, local
or foreign law by reason of having been a member of any consolidated, combined
or unitary group, other than the affiliated group of which Parent is the common
parent corporation; and (iii) no Parent Company is or has been a party to any
Tax sharing agreement between related corporations.
(d) The amount of liability for unpaid Taxes of the Parent Companies does
not, in the aggregate, materially exceed the amount of the liability accruals
for Taxes reflected on the Parent Financial Statements.
(e) Parent has made available to Prize complete copies of all Tax Returns
filed by the Parent Companies with respect to any Taxes and all Tax audit
reports, work papers, statements of deficiencies, and closing or other
agreements with respect thereto with respect to Tax years 1999, 2000 and 2001.
(f) Except as set forth in the Parent Disclosure Schedule: (i) no Parent
Company is required to treat any of its assets as owned by another person for
federal income tax purposes or as tax-exempt bond financed property or
tax-exempt use property within the meaning of Section 168 of the Code; (ii) no
election has been made under Section 338 of the Code and no events have occurred
which would result in a deemed election under Section 338 of the Code with
respect to any Parent Company; (iii) no election has been made under Section
341(f) of the Code with respect to any Parent Company; (iv) no Parent Company
has participated in any international boycott as defined in Code Section 999;
(v) there are no outstanding balances of deferred gain or loss accounts with
respect to any Parent Company under Treas. Xxx.xx.xx. 1.1502-13 or 1.1502-13T;
(vi) no Parent Company has made or will make any election under Treas. Xxx.xx.
1.502-20(g)(1) with respect to the reattribution of net operating losses; and
(vii) no Parent Company has or has ever conducted branch operations in any
foreign country within the meaning of Treas. Xxx.xx. 1.367(a)-6T.
(g) The books and records of Parent contain accurate and complete
information with respect to: (i) all material Tax elections in effect with
respect to the Parent Companies; (ii) the current Tax basis of the assets of the
Parent Companies; (iii) any excess loss accounts of any Parent Company; (iv) the
current and accumulated earnings and profits of Parent; (v) the net operating
losses and net capital losses of the Parent Companies, the years that such net
operating and net capital losses expire, and any restrictions to which such net
operating and net capital losses are subject under any provision of the Code or
consolidated return regulations; (vi) Tax credit carryovers of the Parent
Companies; and (vii) any overall foreign losses to the Parent Companies under
Section 904(f) of the Code.
4.18 Employee Benefit Plans.
(a) The Parent Disclosure Schedule sets forth a complete and accurate list
of each of the following which is or has been sponsored, maintained or
contributed to by Parent or any
41
trade or business, whether or not incorporated (a "Parent ERISA
Affiliate"), that together with Parent would be considered affiliated with
Parent or any Parent ERISA Affiliate under Section 414(b), (c), (m) or (o) of
the Code or Section 4001(b)(1) of ERISA for the benefit of any person who, as of
the Closing, is a current or former employee or subcontractor of Parent: (i)
each "employee benefit plan," as such term is defined in Section 3(3) of ERISA
(each, a "Parent Plan"); and (ii) each personnel policy, stock option plan,
bonus plan or arrangement, incentive award plan or arrangement, vacation policy,
severance pay plan, policy, program or agreement, deferred compensation
agreement or arrangement, executive compensation or supplemental income
arrangement, retiree benefit plan or arrangement, fringe benefit program or
practice (whether or not taxable), employee loan, consulting agreement,
employment agreement and each other employee benefit plan, agreement,
arrangement, program, practice or understanding which is not described in clause
(i) above (each, a "Parent Benefit Program or Agreement") (the Parent Plans and
Parent Benefit Programs or Agreements are sometimes collectively referred to in
this Agreement as the "Parent Employee Benefit Plans").
(b) True, correct and complete copies of each of the Parent Plans and
related trusts, if applicable, including all amendments thereto, have been
furnished or made available to Prize. There has also been furnished or made
available to Prize, with respect to each Parent Plan required to file such
report and description, the report on Form 5500 for the past three years, to the
extent applicable, and the most recent summary plan description and summaries of
material modifications thereto. True, correct and complete copies or
descriptions of all Parent Benefit Programs or Agreements have also been
furnished or made available to Prize.
(c) Except as otherwise set forth on the Parent Disclosure Schedule: (i)
none of Parent, any Parent ERISA Affiliate or any entity that, at any time
during the past six years, was required to be treated as a single employer
together with Parent or a Parent ERISA Affiliate pursuant to Section 414 of the
Code contributes to or has an obligation to contribute to, nor has at any time
contributed to or had an obligation to contribute to, a multiemployer plan
within the meaning of Section 3(37) of ERISA or any other plan subject to Title
IV of ERISA; (ii) each of Parent and the Parent ERISA Affiliates has performed
all obligations, whether arising by operation of law or by contract, including
ERISA and the Code, required to be performed by it in connection with the Parent
Employee Benefit Plans, and, to the knowledge of Parent, there have been no
defaults or violations by any other party to the Parent Employee Benefit Plans;
(iii) all reports, returns, notices, disclosures and other documents relating to
the Parent Plans required to be filed with or furnished to governmental
entities, plan participants or plan beneficiaries have been timely filed or
furnished in accordance with applicable law, and each Parent Employee Benefit
Plan has been administered in compliance with its governing written documents;
(iv) each of the Parent Plans intended to be qualified under Section 401 of the
Code satisfies the requirements of such Section and has received a favorable
determination letter from the IRS regarding such qualified status and has not
been amended, operated or administered in a way which would adversely affect
such qualified status; (v) there are no actions, suits or claims pending (other
than routine claims for benefits) or, to the knowledge of Parent, contemplated
or threatened against, or with respect to, any of the Parent Employee Benefit
Plans or their assets; (vi) each trust maintained in connection with each Parent
Plan, which is qualified under Section 401 of the Code, is tax exempt under
Section 501 of the Code; (vii) all contributions required to be made to the
Parent Employee Benefit Plans have been made
42
timely; (viii) no accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or Section 412 of the Code has been
incurred, and there has been no termination or partial termination of any Parent
Plan within the meaning of Section 411(d)(3) of the Code; (ix) no act, omission
or transaction has occurred which could result in imposition on Parent or any
Parent ERISA Affiliate of (A) breach of fiduciary duty liability damages under
Section 409 of ERISA, (B) a civil penalty assessed pursuant to subsections (c),
(i) or (1) of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter 43
of Subtitle D of the Code; (x) to the knowledge of Parent, there is no matter
pending with respect to any of the Parent Plans before the IRS, the Department
of Labor or the PBGC; (xi) each of the Parent Employee Benefit Plans complies,
in form and operation, with the applicable provisions of the Code and ERISA;
(xii) each Parent Employee Benefit Plan may be unilaterally amended or
terminated in its entirety without any liability or other obligation; (xiii)
Parent and the Parent ERISA Affiliates have no liabilities or other obligations,
whether actual or contingent, under any Parent Employee Benefit Plan for
post-employment benefits of any nature (other than COBRA continuation coverage
and severance benefits under Parent's Severance Benefit Plan referred to in
Section 5.16); and (xiv) neither Parent nor any of the Parent ERISA Affiliates
or any present or former director, officer, employee or other agent of Parent or
any of the Parent ERISA Affiliates has made any written or oral representations
or promises to any present or former director, officer, employee or other agent
concerning his or her terms, conditions or benefits of employment, including the
tenure of any such employment or the conditions under which such employment may
be terminated by Parent, any of the Parent ERISA Affiliates or Prize which will
be binding upon or enforceable against Parent or Prize after the Effective Time.
(d) Except as otherwise set forth on the Parent Disclosure Schedule, no
employee is currently on a leave of absence due to sickness or disability and no
claim is pending or expected to be made by an employee, former employee or
independent contractor for workers' compensation benefits.
(e) Except as set forth in the Parent Disclosure Schedule: (i) with respect
to the Parent Employee Benefit Plans, there exists no condition or set of
circumstances in connection with any of the Parent Companies that could be
expected to result in liability reasonably likely to have a Material Adverse
Effect on Parent under ERISA, the Code or any other applicable law; and (ii)
with respect to the Parent Employee Benefit Plans, individually and in the
aggregate, there are no unfunded benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
GAAP, on the financial statements of the Parent Companies, which obligations are
reasonably likely to have a Material Adverse Effect on Parent.
(f) Except as set forth in the Parent Disclosure Schedule, neither the
execution or delivery of this Agreement nor the consummation of the transactions
contemplated hereby will result in any payment becoming due to any employee or
group of employees of any of the Parent Companies.
(g) Except as set forth in the Parent Disclosure Schedule, no amounts
payable or that could become payable under any Parent Employee Benefit Plan as a
result of the consummation of the transactions contemplated by this Agreement
will fail to be deductible for Federal income tax purposes by virtue of either
Section 280G or 162(m) of the Code.
43
4.19 Employment Contracts and Benefits. Except as set forth in the Parent
Disclosure Schedule or otherwise provided for in any Parent Employee Benefit
Plan: (a) none of the Parent Companies is subject to or obligated under any
consulting, employment, severance, termination or similar arrangement, any
employee benefit, incentive or deferred compensation plan with respect to any
Person, or any bonus, profit sharing, pension, stock option, stock purchase or
similar plan or other arrangement or other fringe benefit plan entered into or
maintained for the benefit of employees of any of the Parent Companies or any
other Person; and (b) no employee of any of the Parent Companies or any other
Person owns, or has any right granted by any of the Parent Companies to acquire,
any interest in any of the assets or business of any of the Parent Companies.
4.20 Labor Matters.
(a) No employees of any of the Parent Companies are represented by any
labor organization. No labor organization or group of employees of any of the
Parent Companies has made a demand for recognition or certification as a union
or other labor organization, and there are no representation or certification
proceedings or petitions seeking a representation or certification proceeding
presently pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority. There are no organizing activities involving any of the Parent
Companies pending with any labor organization or group of employees of any of
the Parent Companies.
(b) Each of the Parent Companies is in compliance with all laws, rules,
regulations and orders relating to the employment of labor, including all such
laws, rules, regulations and orders relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of income Tax withholding, Social
Security Taxes, Medicare Taxes and similar Taxes, except where the failure to
comply would not, individually or in the aggregate, have a Material Adverse
Effect on Parent.
4.21 Accounts Receivable. Except as set forth in the Parent Disclosure
Schedule: (a) all of the accounts, notes and loans receivable that have been
recorded on the books of the Parent Companies are bona fide and represent
accounts, notes and loans receivable validly due for goods sold or services
rendered and are reasonably expected to be collected in full within 90 days
after the applicable invoice or note maturity date (other than such accounts,
notes and loans receivable that, individually or in the aggregate, do not have a
book value as of the date hereof in excess of $500,000); (b) except for
Permitted Encumbrances, all of such accounts, notes and loans receivable are
free and clear of any and all Liens and other adverse claims and charges, and
none of such accounts, notes or loans receivable is subject to any offset or
claim of offset; and (c) none of the obligors on such accounts, notes or loans
receivable has given notice to any of the Parent Companies that it will or may
refuse to pay the full amount or any portion thereof.
4.22 Insurance. Each of the Parent Companies maintains, and through the
Closing Date will maintain, insurance with reputable insurers (or pursuant to
prudent self-insurance programs described in the Parent Disclosure Schedule) in
such amounts and covering such risks as are in accordance with normal industry
practice for companies engaged in businesses similar to those of the
44
Parent Companies and owning properties in the same general area in which
the Parent Companies conduct their businesses. Each of the Parent Companies may
terminate each of its insurance policies or binders at or after the Closing and
will incur no penalties or other material costs in doing so. None of such
insurance coverage was obtained through the use of false or misleading
information or the failure to provide the insurer with all information requested
in order to evaluate the liabilities and risks insured. There is no material
default with respect to any provision contained in any such policy or binder,
and none of the Parent Companies has failed to give any notice or present any
claim under any such policy or binder in due and timely fashion. There are no
billed but unpaid premiums past due under any such policy or binder. Except as
set forth in the Parent Disclosure Schedule: (a) there are no outstanding claims
under any such policies or binders and, to the knowledge of Parent, there has
not occurred any event that might reasonably form the basis of any claim against
or relating to any of the Parent Companies that is not covered by any of such
policies or binders; (b) no notice of cancellation or non-renewal of any such
policies or binders has been received; and (c) there are no performance bonds
outstanding with respect to any of the Parent Companies.
4.23 Intellectual Property. There are no material trademarks, trade names,
patents, service marks, brand names, computer programs, databases, industrial
designs, copyrights or other intangible property that are necessary for the
operation, or continued operation, of the business of any of the Parent
Companies, or for the ownership and operation, or continued ownership and
operation, of any of their assets, for which the Parent Companies do not hold
valid and continuing authority in connection with the use thereof. The
businesses of the Parent Companies, as presently conducted, do not conflict
with, infringe or violate any intellectual property rights of any other Person,
except where any such conflict, infringement or violation could not reasonably
be expected to have a Material Adverse Effect on Parent.
4.24 Title to Assets. The Parent Companies (individually or collectively)
have Defensible Title to the Oil and Gas Interests of Parent included or
reflected in Parent's Ownership Interests. Each Oil and Gas Interest included or
reflected in the Parent's Ownership Interests entitles the Parent Companies
(individually or collectively) to receive not less than the undivided interest
set forth in (or derived from) Parent's Ownership Interests of all Hydrocarbons
produced, saved and sold from or attributable to such Oil and Gas Interest, and
the portion of the costs and expenses of operation and development of such Oil
and Gas Interest that is borne or to be borne by the Parent Companies
(individually or collectively) is not greater than the undivided interest set
forth in (or derived from) Parent's Ownership Interests. No fact, circumstance
or condition of the title to an Oil and Gas Interest shall be considered to
effect a reduction in the value of the assets, unless due consideration has been
given to (a) the length of time that such Oil and Gas Interest has been
producing Hydrocarbons and has been credited to and accounted for by the Parent
Companies and their predecessors in title, if any, and (b) whether any such
fact, circumstance or condition is of the type that can generally be expected to
be encountered in the area involved and is usually and customarily acceptable to
reasonable and prudent operators, interest owners and purchasers engaged in the
business of the ownership, development and operation of oil and gas properties.
45
4.25 Oil and Gas Operations. Except as set forth in the Parent Disclosure
Schedule:
(a) All xxxxx included in the Oil and Gas Interests of Parent have been
drilled and (if completed) completed, operated and produced in accordance with
generally accepted oil and gas field practices and in compliance in all material
respects with applicable oil and gas leases and applicable laws, rules and
regulations, except where any failure or violation could not reasonably be
expected to have a Material Adverse Effect on Parent; and
(b) Proceeds from the sale of Hydrocarbons produced from Parent's Oil and
Gas Interests are being received by the Parent Companies in a timely manner and
are not being held in suspense for any reason (except in the ordinary course of
business).
4.26 Financial and Commodity Hedging. The Parent Disclosure Schedule
accurately summarizes the currently outstanding Hydrocarbon and financial
hedging positions of the Parent Companies (including fixed price controls,
collars, swaps, caps, xxxxxx and puts).
4.27 Environmental Matters. Except as set forth in the Parent Disclosure
Schedule:
(a) Each of the Parent Companies has conducted its business and operated
its assets, and is conducting its business and operating its assets, in
compliance with all Environmental Laws, other than any noncompliance that (i) is
typical in the ordinary course of business for oil and gas properties of the
type owned by the Parent Companies, and (ii) would not be reasonably expected to
result in a Material Adverse Effect on Parent;
(b) To the knowledge of Parent, none of the Parent Companies has been
notified by any Governmental Authority or other third party that any of the
operations or assets of any of the Parent Companies is the subject of any
investigation or inquiry by any Governmental Authority or other third party
evaluating whether any remedial action is needed to respond to a release or
threatened release of any Hazardous Material or to the improper storage or
disposal (including storage or disposal at offsite locations) of any Hazardous
Material;
(c) None of the Parent Companies and, to the knowledge of Parent, no other
Person has filed any notice under any federal, state or local law indicating
that (i) any of the Parent Companies is responsible for the improper release
into the environment, or the improper storage or disposal, of any Hazardous
Material; or (ii) any Hazardous Material is improperly stored or disposed of
upon any property of any of the Parent Companies;
(d) None of the Parent Companies has any liability in excess of $2,000,000
in the aggregate in connection with (i) the release or threatened release into
the environment at, beneath or on any property now or previously owned, leased
or operated by any of the Parent Companies, (ii) any obligations under or
violations of Environmental Laws, or (iii) the use, release, storage or disposal
of any Hazardous Material;
(e) None of the Parent Companies has received any claim, complaint, notice,
inquiry or request for information involving any matter which remains unresolved
with respect to any
46
alleged violation of any Environmental Law or regarding potential liability
under any Environmental Law relating to operations or conditions of any
facilities or property (including off-site storage or disposal of any Hazardous
Material from such facilities or property) currently or formerly owned, leased
or operated by any of the Parent Companies;
(f) No property now or previously owned, leased or operated by any of the
Parent Companies is listed on the National Priorities List pursuant to CERCLA or
on the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup;
(g) To the knowledge of Parent, none of the Parent Companies is
transporting, has transported, or is arranging or has arranged for the
transportation of any Hazardous Material to any location which is listed on the
National Priorities List pursuant to CERCLA, on the CERCLIS, or on any similar
federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations that may lead to claims in excess of
$100,000 against any of the Parent Companies for removal or remedial work,
contribution for removal or remedial work, damage to natural resources or
personal injury, including claims under CERCLA;
(h) None of the Parent Companies owns or operates any underground storage
tanks or solid waste storage, treatment and/or disposal facilities;
(i) To the knowledge of Parent, no asbestos, asbestos containing materials
or polychlorinated biphenyls are present on or at any property or facility
owned, leased or operated by any of the Parent Companies, other than gas
processing plants and associated gathering systems;
(j) None of the Parent Companies is operating, or required to be operating,
any of its properties or facilities under any compliance or consent order,
decree or agreement issued or entered into under, or pertaining to matters
regulated by, any Environmental Law; and
(k) To the knowledge of Parent, Parent has provided or made available to
Prize copies of all environmental audits, assessments and evaluations of any of
the Parent Companies or any of their properties or assets.
4.28 Books and Records. All books, records and files of the Parent
Companies (including those pertaining to Parent's Oil and Gas Interests, xxxxx
and other assets, those pertaining to the production, gathering, transportation
and sale of Hydrocarbons, and corporate, accounting, financial and employee
records): (a) have been prepared, assembled and maintained in accordance with
usual and customary policies and procedures, and (b) fairly and accurately
reflect the ownership, use, enjoyment and operation by the Parent Companies of
their respective assets.
4.29 Funding. Parent has available adequate funds in an aggregate amount
sufficient to pay (a) all amounts required to be paid to the stockholders of
Prize upon consummation of the Merger, (b) all amounts required to be paid in
respect of all Prize Stock Options and Prize Warrants upon exercise thereof, and
(c) all expenses incurred by Parent and Merger Sub in connection with this
Agreement and the transactions contemplated hereby.
47
4.30 Brokers. Except as set forth on the Parent Disclosure Schedule, no
broker, finder, investment banker or other Person is or will be, in connection
with the transactions contemplated by this Agreement, entitled to any brokerage,
finder's or other fee or compensation based on any arrangement or agreement made
by or on behalf of Parent or Merger Sub and for which Parent, Merger Sub or any
of the Prize Companies will have any obligation or liability.
4.31 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Parent Common Stock is the only vote of the holders of
any class or series of Parent capital stock or other voting securities necessary
to approve this Agreement, the Merger (including the issuance of the Parent
Common Stock) and the transactions contemplated hereby.
4.32 Gas Imbalances. Except as set forth on the Parent Disclosure Schedule,
none of the Parent Companies has received any deficiency payment under any gas
contract for which any Person has a right to take deficiency gas from any Parent
Company, nor have any of the Parent Companies received any payment for
production which is subject to refund or recoupment out of future production.
4.33 Royalties. To the knowledge of Parent as to xxxxx not operated by a
Parent Company, and without qualification as to knowledge as to all xxxxx
operated by a Parent Company, all royalties, overriding royalties, compensatory
royalties and other payments due from or in respect of production with respect
to Parent's Oil and Gas Interests, have been or will be, prior to the Effective
Time, properly and correctly paid or provided for in all material respects,
except for those for which a Parent Company has a valid right to suspend.
4.34 Prepayments. Except as set forth on the Parent Disclosure Schedule, no
prepayment for Hydrocarbon sales has been received by any of the Parent
Companies for Hydrocarbons which have not been delivered.
4.35 Rights Agreement. Parent has taken all necessary action (including, if
required, amending the Parent Rights Agreement) so that the entering into of
this Agreement, the acquisition of shares of Parent Common Stock pursuant to the
consummation of the Merger and the other transactions contemplated hereby do not
and will not enable or require the Parent Rights to be exercised or distributed.
4.36 Reserve Report. The Parent Reserve Report was generally prepared in
accordance with all applicable guidelines of the Society of Petroleum Engineers
and on a basis consistent with the reserve report referred to in Parent's Annual
Report on Form 10-K for the year ended December 31, 2000.
4.37 State Takeover Laws. Parent has taken all necessary action to exempt
the Merger from any applicable moratorium, fair price, business combination,
control share and other anti-takeover laws under the NGCL.
48
4.38 Disclosure. No representation or warranty of Parent or Merger Sub set
forth in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein not misleading.
ARTICLE 5
COVENANTS
5.1 Conduct of Business by Parent Pending Closing. Parent covenants and
agrees with Prize that, from the date of this Agreement until the Effective
Time, each of the Parent Companies will conduct its business only in the
ordinary and usual course consistent with past practices. Notwithstanding the
preceding sentence, Parent covenants and agrees with Prize that, except as
specifically contemplated in this Agreement, from the date of this Agreement
until the Effective Time, without the prior written consent of Prize, except as
set forth on the Parent Disclosure Schedule:
(a) None of the Parent Companies will (i) amend its certificate or articles
of incorporation, bylaws or other organizational documents; (ii) split, combine
or reclassify any of its outstanding capital stock; (iii) declare, set aside or
pay any dividends or other distributions (whether payable in cash, property or
securities) with respect to its capital stock; (iv) issue, sell or agree to
issue or sell any securities or other equity interests, including its capital
stock, any rights, options or warrants to acquire its capital stock, or
securities convertible into or exchangeable or exercisable for its capital stock
(other than shares of Parent Common Stock issued pursuant to the exercise of any
Parent Warrant outstanding on the date of this Agreement); (v) purchase, cancel,
retire, redeem or otherwise acquire any of its outstanding capital stock or
other securities or other equity interests; (vi) merge or consolidate with, or
transfer all or substantially all of its assets to, any other Person; (vii)
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution); or
(viii) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
(b) None of the Parent Companies will (i) acquire any corporation,
partnership or other business entity or any interest therein (other than
interests in joint ventures, joint operation or ownership arrangements or tax
partnerships acquired in the ordinary course of business) having an acquisition
price in excess of $3,000,000; (ii) sell, lease or sublease, transfer or
otherwise dispose of or mortgage, pledge or otherwise encumber any Oil and Gas
Interests of Parent that were assigned a value in the Reserve Data Value in
excess of $3,000,000, individually, or any other assets that have a value at the
time of such sale, lease, sublease, transfer or disposition in excess of
$3,000,000, individually (except that this clause shall not apply to the sale of
Hydrocarbons in the ordinary course of business or to encumbrances under the
Parent Bank Credit Agreement); (iii) farm-out any Oil and Gas Interest of Parent
having a value in excess of $3,000,000 or interest therein; (iv) sell, transfer
or otherwise dispose of or mortgage, pledge or otherwise encumber any securities
of any other Person (including any capital stock or other securities or equity
interest in any Parent Subsidiary); (v) make any material loans, advances or
capital contributions to, or investments in, any Person (other than loans or
advances in the ordinary course of business) in an aggregate amount in excess of
$3,000,000; (vi) enter into any Parent Material Agreement or any other agreement
not terminable by any of the Parent Companies upon notice of 30 days or less and
without penalty or other obligation;
49
or (vii) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
(c) None of the Parent Companies will (i) permit to be outstanding at any
time under the Parent Bank Credit Agreement indebtedness for borrowed money in
excess of $160,000,000; (ii) incur any indebtedness for borrowed money other
than under trade credit vendor lines not exceeding $15,000,000 in the aggregate
or under the Parent Bank Credit Agreement; (iii) incur any other obligation or
liability (other than liabilities incurred in the ordinary course of business);
(iv) assume, endorse (other than endorsements of negotiable instruments in the
ordinary course of business), guarantee or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the liabilities or
obligations of any other Person in an amount in excess of $500,000; or (v) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing.
(d) The Parent Companies will operate, maintain and otherwise deal with the
Oil and Gas Interests of Parent in accordance with good and prudent oil and gas
field practices and in accordance with all applicable oil and gas leases and
other contracts and agreements and all applicable laws, rules and regulations.
(e) None of the Parent Companies shall voluntarily resign, transfer or
otherwise relinquish any right it has as of the date of this Agreement, as
operator of any Oil and Gas Interest of Parent, except as required by law,
regulation or contract, except to the extent such action would not be reasonably
likely to have a Material Adverse Effect on Parent.
(f) None of the Parent Companies will (i) enter into, or otherwise become
liable or obligated under or pursuant to: (1) any employee benefit, pension or
other plan (whether or not subject to ERISA), (2) any other stock option, stock
purchase, incentive or deferred compensation plan or arrangement or other fringe
benefit plan, or (3) any consulting, employment, severance, termination or
similar agreement with any Person, or amend or extend any such plan, arrangement
or agreement; (ii) except for payments made pursuant to the Prize Extraordinary
Transaction Compensation Policy any Parent Employee Benefit Plan or any other
plan, agreement or arrangement described in the Parent Disclosure Schedule,
grant, or otherwise become liable for or obligated to pay, any severance or
termination payment, bonus or increase in compensation or benefits (other than
payments, bonuses or increases that are mandated by the terms of agreements
existing as of the date hereof or that are paid in the ordinary course of
business, consistent with past practices, and not individually or in the
aggregate material in amount) to, or forgive any indebtedness of, any employee
or consultant of any of the Parent Companies; or (iii) enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
(g) None of the Parent Companies will create, incur, assume or permit to
exist any Lien on any of its assets, except for Permitted Encumbrances.
(h) The Parent Companies will (i) keep and maintain accurate books, records
and accounts; (ii) maintain in full force and effect the policies or binders of
insurance described in Section 4.22; (iii) pay all Taxes, assessments and other
governmental charges imposed upon any of
50
their assets or with respect to their franchises, business, income or
assets before any penalty or interest accrues thereon; (iv) pay all material
claims (including claims for labor, services, materials and supplies) that have
become due and payable and which by law have or may become a Lien upon any of
their assets prior to the time when any penalty or fine shall be incurred with
respect thereto or any such Lien shall be imposed thereon; and (v) comply in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority, obtain or take all
Governmental Actions necessary in the operation of their businesses, and comply
with and enforce the provisions of all Parent Material Agreements, including
paying when due all rentals, royalties, expenses and other liabilities relating
to their businesses or assets; provided, however, Parent will not be in
violation of this Section 5.1(h) if any of the Parent Companies incurs
obligations for penalties and interest in connection with gross production tax
reporting in the ordinary course of business; and provided further, that the
Parent Companies may contest the imposition of any such Taxes, assessments and
other governmental charges, any such claim, or the requirements of any
applicable law, rule, regulation or order or any Parent Material Agreement if
done so in good faith by appropriate proceedings and if adequate reserves are
established in accordance with GAAP.
(i) The Parent Companies will at all times preserve and keep in full force
and effect their corporate existence and rights and franchises material to their
performance under this Agreement, except where the failure to do so would not
have a Material Adverse Effect on Parent.
(j) None of the Parent Companies will:
(i) engage in any practice, take any action or permit by inaction any of
the representations and warranties contained in Article 4 to become untrue,
except as specifically permitted under other provisions of this Section 5.1(j);
(ii) approve or implement budgets for general and administrative expenses
of the Parent Companies (including salary, bonuses, general operating and
overhead expenses) or budgets for Capital Expenditures of the Parent Companies,
or incur expenses or disburse funds for any of such purposes except pursuant to
the budgets which have been approved by Prize or revisions to such budgets which
are approved by Prize, such approval not to be unreasonably withheld (any
budgets which have been or are approved as required herein are referred to as
"Approved Budgets");
(iii) except to the extent already included in an Approved Budget, enter
into any agreements or other arrangements with respect to, or make any payments,
incur any expenses or disburse any funds for (1) any Capital Project, the
completion or full capitalization of which can reasonably be expected to require
the Parent Companies to expend, in the aggregate, in excess of $5,000,000, or
(2) any Capital Project for the exploration of Oil and Gas Interests with
undeveloped reserves (including the acquisition of leasehold interests and
seismic data, the drilling of xxxxx and all related costs and expenses) which
can reasonably be expected to require the Parent Companies to expend, in the
aggregate, in excess of $2,500,000; or
51
(iv) make any Capital Expenditure or general and administrative expense
payment which exceeds by more than 20 percent the amount set forth in the
appropriate line item for such expenditure in an Approved Budget.
5.2 Conduct of Business by Prize Pending Closing. Prize covenants and
agrees with Parent and Merger Sub that, from the date of this Agreement until
the Effective Time, each of the Prize Companies will conduct its business only
in the ordinary and usual course consistent with past practices. Notwithstanding
the preceding sentence, Prize covenants and agrees with Parent and Merger Sub
that, except as specifically contemplated in this Agreement, from the date of
this Agreement until the Effective Time, without the prior written consent of
Parent, except as set forth on the Prize Disclosure Schedule:
(a) None of the Prize Companies will: (i) amend its certificate of
incorporation or bylaws; (ii) split, combine or reclassify any of its
outstanding capital stock; (iii) declare, set aside or pay any dividends or
other distributions (whether payable in cash, property or securities) with
respect to its capital stock; (iv) issue, sell or agree to issue or sell any
securities or other equity interests, including its capital stock, any rights,
options or warrants to acquire its capital stock, or securities convertible into
or exchangeable or exercisable for its capital stock (other than shares of Prize
Common Stock issued pursuant to the exercise of any Prize Stock Option); (v)
purchase, cancel, retire, redeem or otherwise acquire any of its outstanding
capital stock or other securities or other equity interests, except pursuant to
Prize's current stock repurchase program; (vi) merge or consolidate with, or
transfer all or substantially all of its assets to, any other Person; (vii)
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution); or
(viii) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
(b) None of the Prize Companies will (i) acquire any corporation,
partnership or other business entity or any interest therein (other than
interests in joint ventures, joint operation or ownership arrangements or tax
partnerships acquired in the ordinary course of business) having an acquisition
price in excess of $2,000,000; (ii) sell, lease or sublease, transfer or
otherwise dispose of or mortgage, pledge or otherwise encumber any Oil and Gas
Interests of Prize that have a value in excess of $2,000,000, individually, or
any other assets that have a value at the time of such sale, lease, sublease,
transfer or disposition in excess of $2,000,000, individually (except that this
clause shall not apply to the sale of Hydrocarbons in the ordinary course of
business or encumbrances under the Prize Bank Credit Agreement); (iii) farm-out
any Oil and Gas Interest of Prize having a value in excess of $2,000,000 or
interest therein; (iv) sell, transfer or otherwise dispose of or mortgage,
pledge or otherwise encumber any securities of any other Person (including any
capital stock or other securities or equity interest in any Prize Subsidiary);
(v) make any material loans, advances or capital contributions to, or
investments in, any Person (other than loans or advances in the ordinary course
of business) in an aggregate amount in excess of $2,000,000; (vi) enter into any
Prize Material Agreement or any other agreement not terminable by any of the
Prize Companies upon notice of 30 days or less and without penalty or other
obligation; or (vii) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing.
(c) None of the Prize Companies will (i) permit to be outstanding at any
time under the Prize Bank Credit Agreement indebtedness for borrowed money in
excess of
52
$250,000,000, exclusive of any indebtedness incurred to fund costs relating
to the transactions contemplated under this Agreement (including payments under
the Prize Extraordinary Transaction Compensation Policy); (ii) incur any
indebtedness for borrowed money other than under trade credit vendor lines not
exceeding $15,000,000 in the aggregate or under the Prize Bank Credit Agreement;
(iii) incur any other obligation or liability (other than liabilities incurred
in the ordinary course of business); (iv) assume, endorse (other than
endorsements of negotiable instruments in the ordinary course of business),
guarantee or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the liabilities or obligations of any other
Person in an amount in excess of $500,000; or (v) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing.
(d) The Prize Companies will operate, maintain and otherwise deal with the
Oil and Gas Interests of Prize in accordance with good and prudent oil and gas
field practices and in accordance with all applicable oil and gas leases and
other contracts and agreements and all applicable laws, rules and regulations.
(e) None of the Prize Companies shall voluntarily resign, transfer or
otherwise relinquish any right it has as of the date of this Agreement, as
operator of any Oil and Gas Interest of Prize, except as required by law,
regulation or contract, except to the extent such action would not be reasonably
likely to have a Material Adverse Effect on Prize.
(f) None of the Prize Companies will (i) enter into, or otherwise become
liable or obligated under or pursuant to: (1) any employee benefit, pension or
other plan (whether or not subject to ERISA), (2) any other stock option, stock
purchase, incentive or deferred compensation plan or arrangement or other fringe
benefit plan, or (3) any consulting, employment, severance, termination or
similar agreement with any Person, or amend or extend any such plan, arrangement
or agreement; (ii) except for payments made pursuant to any Prize Employee
Benefit Plan or any other plan, agreement or arrangement described in the Prize
Disclosure Schedule, grant, or otherwise become liable for or obligated to pay,
any severance or termination payment, bonus or increase in compensation or
benefits (other than payments, bonuses or increases that are mandated by the
terms of agreements existing as of the date hereof or that are paid in the
ordinary course of business, consistent with past practices, and not
individually or in the aggregate material in amount) to, or forgive any
indebtedness of, any employee or consultant of any of the Prize Companies; or
(iii) enter into any contract, agreement, commitment or arrangement to do any of
the foregoing.
(g) None of the Prize Companies will create, incur, assume or permit to
exist any Lien on any of its assets, except for Permitted Encumbrances.
(h) The Prize Companies will (i) keep and maintain accurate books, records
and accounts; (ii) maintain in full force and effect the policies or binders of
insurance described in Section 3.21; (iii) pay all Taxes, assessments and other
governmental charges imposed upon any of their assets or with respect to their
franchises, business, income or assets before any penalty or interest accrues
thereon; (iv) pay all material claims (including claims for labor, services,
materials and supplies) that have become due and payable and which by law have
or may become a Lien upon any of their assets prior to the time when any penalty
or fine shall be incurred with respect thereto or
53
any such Lien shall be imposed thereon; and (v) comply in all material
respects with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority, obtain or take all Governmental Actions
necessary in the operation of their businesses, and comply with and enforce the
provisions of all Prize Material Agreements, including paying when due all
rentals, royalties, expenses and other liabilities relating to their businesses
or assets; provided, however, Prize will not be in violation of this Section
5.2(h) if any of the Prize Companies incurs obligations for penalties and
interest in connection with gross production tax reporting in the ordinary
course of business; and provided further, that the Prize Companies may contest
the imposition of any such Taxes, assessments and other governmental charges,
any such claim, or the requirements of any applicable law, rule, regulation or
order or any Prize Material Agreement if done so in good faith by appropriate
proceedings and if adequate reserves are established in accordance with GAAP.
(i) The Prize Companies will at all times preserve and keep in full force
and effect their corporate existence and rights and franchises material to their
performance under this Agreement, except where the failure to do so would not
have a Material Adverse Effect on Prize.
(j) None of the Prize Companies will:
(i) engage in any practice, take any action or permit by inaction any of
the representations and warranties contained in Article 3 to become untrue,
except as specifically permitted under other provisions of this Section 5.2(j);
(ii) approve or implement budgets for general and administrative expenses
of the Prize Companies (including salary, bonuses, general operating and
overhead expenses) or budgets for Capital Expenditures of the Prize Companies,
or incur expenses or disburse funds for any of such purposes except pursuant to
the budgets which have been approved by Parent or revisions to such budgets
which are approved by Parent, such approval not to be unreasonably withheld (any
budgets which have been or are approved as required herein are referred to as
"Approved Budgets");
(iii) except to the extent already included in an Approved Budget, enter
into any agreements or other arrangements with respect to, or make any payments,
incur any expenses or disburse any funds for (1) any Capital Project, the
completion or full capitalization of which can reasonably be expected to require
the Prize Companies to expend, in the aggregate, in excess of $3,000,000, or (2)
any Capital Project for the exploration of Oil and Gas Interests with
undeveloped reserves (including the acquisition of leasehold interests and
seismic data, the drilling of xxxxx and all related costs and expenses) which
can reasonably be expected to require the Prize Companies to expend, in the
aggregate, in excess of $1,500,000; or
(iv) make any Capital Expenditure or general and administrative expense
payment which materially exceeds by more than 10 percent the amount set forth in
the appropriate line item for such expenditure in an Approved Budget.
54
5.3 Access to Assets, Personnel and Information.
(a) From the date hereof until the Effective Time, Parent shall: (i) afford
to Prize and the Prize Representatives, at Prize's sole risk and expense,
reasonable access to any of the assets, books and records, contracts, employees,
representatives, agents and facilities of the Parent Companies; and (ii) upon
request, furnish promptly to Prize (at Prize's expense) a copy of any file,
book, record, contract, permit, correspondence, or other written information,
document or data concerning any of the Parent Companies (or any of their
respective assets) that is within the possession or control of any of the Parent
Companies.
(b) From the date hereof until the Effective Time, Prize shall: (i) afford
to Parent and the Parent Representatives, at Parent's sole risk and expense,
reasonable access to any of the assets, books and records, contracts, employees,
representatives, agents and facilities of the Prize Companies; and (ii) upon
request, furnish promptly to Parent (at Parent's expense) a copy of any file,
book, record, contract, permit, correspondence, or other written information,
document or data concerning any of the Prize Companies (or any of their
respective assets) that is within the possession or control of any of the Prize
Companies.
(c) Prize and the Prize Representatives shall, at Prize's sole risk and
expense, have the right to make an environmental and physical assessment of the
assets of the Parent Companies and, in connection therewith, shall have the
right to enter and inspect such assets and all buildings and improvements
thereon, and generally conduct such non-invasive tests, examinations,
investigations and studies as Prize deems necessary, desirable or appropriate
for the preparation of engineering or other reports relating to such assets,
their condition and the presence of Hazardous Materials and compliance with
Environmental Laws. Parent shall be provided not less than 24 hours prior notice
of such activities, and Parent Representatives shall have the right to witness
all such tests and investigations. Prize shall (and shall cause the Prize
Representatives to) keep any data or information acquired by any such
examinations and the results of any analyses of such data and information
strictly confidential and will not (and will cause the Prize Representatives not
to) disclose any of such data, information or results to any Person unless
otherwise required by law or regulation and then only after written notice to
Parent of the determination of the need for disclosure. Prize shall provide
Parent a copy of any environmental report or assessment prepared on behalf of
Prize with respect to any of the Parent Companies or any of their properties or
assets. Prize shall indemnify, defend and hold the Parent Companies and the
Parent Representatives harmless from and against any and all claims to the
extent arising out of or as a result of the activities of Prize and the Prize
Representatives on the assets of the Parent Companies in connection with
conducting such environmental and physical assessment, except to the extent of
and limited by the negligence or willful misconduct of any of the Parent
Companies or any Parent Representative.
(d) Parent and the Parent Representatives shall, at Parent's sole risk and
expense, have the right to make an environmental and physical assessment of the
assets of the Prize Companies and, in connection therewith, shall have the right
to enter and inspect such assets and all buildings and improvements thereon, and
generally conduct such non-invasive tests, examinations, investigations and
studies as Parent deems necessary, desirable or appropriate for the preparation
of engineering or other reports relating to such assets, their condition and the
presence of Hazardous
55
Materials and compliance with Environmental Laws. Prize shall be provided
not less than 24 hours prior notice of such activities, and Prize
Representatives shall have the right to witness all such tests and
investigations. Parent shall (and shall cause the Parent Representatives to)
keep any data or information acquired by any such examinations and the results
of any analyses of such data and information strictly confidential and will not
(and will cause the Parent Representatives not to) disclose any of such data,
information or results to any Person unless otherwise required by law or
regulation and then only after written notice to Prize of the determination of
the need for disclosure. Parent shall provide Prize a copy of any environmental
report or assessment prepared on behalf of Parent with respect to any of the
Prize Companies or any of their properties or assets. Parent shall indemnify,
defend and hold the Prize Companies and the Prize Representatives harmless from
and against any and all claims to the extent arising out of or as a result of
the activities of Parent and the Parent Representatives on the assets of the
Prize Companies in connection with conducting such environmental and physical
assessment, except to the extent of and limited by the negligence or willful
misconduct of any of the Prize Companies or any Prize Representative.
(e) From the date hereof until the Effective Time, Parent will fully and
accurately disclose, and will cause each Parent Subsidiary to fully and
accurately disclose, to Prize and the Prize Representatives all information that
is (i) reasonably requested by Prize or any of the Prize Representatives, (ii)
known to any of the Parent Companies, and (iii) relevant in any manner or degree
to the value, ownership, use, operation, development or transferability of the
assets of any of the Parent Companies.
(f) From the date hereof until the Effective Time, Prize will fully and
accurately disclose, and will cause each Prize Subsidiary to fully and
accurately disclose, to Parent and the Parent Representatives all information
that is (i) reasonably requested by Parent or any of the Parent Representatives,
(ii) known to any of the Prize Companies, and (iii) relevant in any manner or
degree to the value, ownership, use, operation, development or transferability
of the assets of any of the Prize Companies.
(g) From the date hereof until the Effective Time, each of Parent and Prize
shall: (i) furnish to the other, promptly upon receipt or filing (as the case
may be), a copy of each communication between such Party and the SEC after the
date hereof relating to the Merger or the Registration Statement and each
report, schedule, registration statement or other document filed by such Party
with the SEC after the date hereof relating to the Merger or the Registration
Statement; and (ii) promptly advise the other of the substance of any oral
communications between such Party and the SEC relating to the Merger or the
Registration Statement.
(h) Prize will (and will cause the Prize Subsidiaries and the Prize
Representatives to) fully cooperate in all reasonable respects with Parent and
the Parent Representatives in connection with Parent's examinations, evaluations
and investigations described in this Section 5.3. Parent will (and will cause
the Parent Subsidiaries and the Parent Representatives to) fully cooperate in
all reasonable respects with Prize and the Prize Representatives in connection
with Prize's examinations, evaluations and investigations described in this
Section 5.3.
56
(i) Prize will not (and will cause the Prize Subsidiaries and the Prize
Representatives not to), and Parent will not (and will cause the Parent
Subsidiaries and the Parent Representatives not to), use any information
obtained pursuant to this Section 5.3 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement.
(j) Notwithstanding anything in this Section 5.3 to the contrary: (i) Prize
shall not be obligated under the terms of this Section 5.3 to disclose to Parent
or the Parent Representatives, or grant Parent or the Parent Representatives
access to, information that is within the possession or control of any of the
Prize Companies but subject to a valid and binding confidentiality agreement
with a third party without first obtaining the consent of such third party, and
Prize, to the extent reasonably requested by Parent, will use its reasonable
efforts to obtain any such consent; and (ii) Parent shall not be obligated under
the terms of this Section 5.3 to disclose to Prize or the Prize Representatives,
or grant Prize or the Prize Representatives access to, information that is
within the possession or control of any of the Parent Companies but subject to a
valid and binding confidentiality agreement with a third party without first
obtaining the consent of such third party, and Parent, to the extent reasonably
requested by Prize, will use its reasonable efforts to obtain any such consent.
(k) To facilitate approvals of activities of the Parties that are
restricted under Sections 5.1 and 5.2, Parent Representatives and Prize
Representatives agree to meet on a regular basis to review matters relating to
their respective Capital Projects (including the status of expenditures under
Approved Budgets (such as outstanding authorizations for expenditures), the
success of their Capital Projects to date, proposals to initiate new Capital
Projects or substantially increase commitments to existing Capital Projects),
commodity hedging issues and any other matters restricted under Sections 5.1 and
5.2.
5.4 No Solicitation.
(a) Immediately following the execution of this Agreement, Prize will (and
will cause each of the Prize Representatives to) terminate any and all existing
activities, discussions and negotiations with third parties (other than Parent)
with respect to any possible transaction involving the acquisition of the Prize
Common Stock or the merger or other business combination of Prize with or into
any such third party.
(b) Prize will not (and will cause the Prize Representatives not to)
solicit, initiate or knowingly encourage the submission of, any offer or
proposal to acquire all or any part of the Prize Common Stock or all or any
material portion of the assets or business of the Prize Companies (other than
the transactions contemplated by this Agreement), whether by merger, purchase of
stock, purchase of assets, tender offer, exchange offer or otherwise (an
"Alternative Proposal"); provided, however, that, if Prize or any Prize
Representative shall receive an Alternative Proposal, then Prize and the Prize
Representatives may (i) enter into discussions or negotiations with respect to
such Alternative Proposal with the Person presenting such Alternative Proposal
and provide information to such Person if the board of directors of Prize
determines in good faith, based on the advice of its legal counsel, that such
action is required in order for the board of directors of Prize to act in a
manner consistent with its fiduciary duties under applicable law, and (ii) to
the extent applicable,
57
take and disclose to its stockholders a position as contemplated by Rule
14e-2 promulgated under the Exchange Act and/or make any other disclosure to its
stockholders with regard to an Alternative Proposal, if the board of directors
of Parent determines in good faith, based on the advice of its legal counsel,
that such disclosure is required in order for the board of directors of Prize to
act in a manner consistent with its fiduciary duties under applicable law.
(c) Prize will promptly communicate to Parent the terms and conditions of
any Alternative Proposal that it may receive and will keep Parent informed as to
the status of any actions, including any discussions, taken pursuant to such
Alternative Proposal.
(d) If Prize or any Prize Representative receives an Alternative Proposal
and the board of directors of Prize determines in good faith, based on the
advice of its legal counsel and financial advisor, that the Alternative Proposal
is a Superior Proposal, then the board of directors of Prize may approve and
recommend such Superior Proposal and, in connection therewith, withdraw or
modify its approval or recommendation of this Agreement and the Merger. As used
herein, the term "Superior Proposal" means an Alternative Proposal which the
board of directors of Prize determines in good faith to be more favorable to
Prize's stockholders from a financial point of view than the Merger.
(e) Nothing in this Section 5.4 shall permit Prize to terminate this
Agreement except as specifically provided in Section 7.1.
5.5 Prize Stockholders Meeting. Prize shall take all action necessary in
accordance with applicable law and its certificate of incorporation and bylaws
to convene a meeting of its stockholders as promptly as practicable after the
date hereof for the purpose of voting on the Prize Proposal. Subject to Section
5.4, the board of directors of Prize shall recommend approval of the Prize
Proposal and shall take all lawful action to solicit such approval, including
timely mailing the Proxy Statement/Prospectus to the stockholders of Prize.
Notwithstanding the above, however, the following shall be conditions to the
mailing of the Proxy Statement/Prospectus to the stockholders of Prize:
(a) Prize shall have received an opinion from a firm of investment bankers
or financial advisors selected by Prize (which opinion shall be reasonably
acceptable in form and substance to Prize) to the effect that the consideration
to be received in the Merger by the holders of shares of Prize Common Stock is
fair to such holders from a financial point of view, and such opinion shall not
have been withdrawn, revoked or modified.
(b) Prize shall have received an opinion (reasonably acceptable in form and
substance to Prize) from a law firm selected by Prize to the effect that (i) the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, (ii) each of Parent, Prize and
Merger Sub will be a party to such reorganization within the meaning of Section
368(b) of the Code, (iii) no gain or loss will be recognized by Parent, Prize or
Merger Sub as a result of the Merger, and (iv) no gain or loss, except with
respect to the amount of Cash Consideration received, cash received in lieu of
fractional shares and cash received by Dissenting Stockholders, will be
recognized by a stockholder of Prize as a result of the Merger with
58
respect to the shares of Prize Common Stock converted into shares of Parent
Common Stock by such stockholder, and such opinion shall not have been
withdrawn, revoked or modified. Such opinion may be based upon representations
of the Parties and stockholders of the Parties.
5.6 Parent Stockholders Meeting. Parent shall take all action necessary in
accordance with applicable law and its articles of incorporation and bylaws to
convene a meeting of its stockholders as promptly as practicable after the date
hereof for the purpose of voting on the Prize Proposal. The Board of Directors
of Parent shall recommend approval of the Prize Proposal and shall take all
lawful action to solicit such approval, including timely mailing the Proxy
Statement/Prospectus to the stockholders of Parent. Notwithstanding the above,
however, the following shall be conditions to the mailing of the Proxy
Statement/Prospectus to the stockholders of Parent:
(a) Parent shall have received an opinion from a firm of investment bankers
or financial advisors selected by Parent (which opinion shall be reasonably
acceptable in form and substance to Parent) to the effect that, as of the date
of such opinion and subject to the terms and conditions set forth therein, the
consideration to be received by the holders of the Prize Common Stock in the
Merger is fair to Parent from a financial point of view, and such opinion shall
not have been withdrawn, revoked or modified.
(b) Parent shall have received an opinion (reasonably acceptable in form
and substance to Parent) of the type described in Section 5.5(b), but excluding
the opinion described in clause (iv) thereof, from counsel selected by Parent
and such opinion shall not have been withdrawn, revoked or modified.
5.7 Registration Statement and Proxy Statement/Prospectus.
(a) Parent and Prize shall cooperate and promptly prepare the Registration
Statement, and, subject to Parent's receiving the required information from
Prize, Parent shall file the Registration Statement with the SEC as soon as
practicable after the date hereof and in any event not later than 30 days after
the date hereof. Parent shall use all reasonable efforts, and Prize shall
cooperate with Parent (including furnishing all information concerning Prize and
the holders of Prize Common Stock as may be reasonably requested by Parent), to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. Parent shall use all reasonable
efforts, and Prize shall cooperate with Parent, to obtain all necessary state
securities laws or "blue sky" permits, approvals and registrations in connection
with the issuance of Parent Common Stock pursuant to the Merger.
(b) Parent will cause the Registration Statement (including the Proxy
Statement/Prospectus), at the time it becomes effective under the Securities
Act, to comply as to form in all material respects with the applicable
provisions of the Securities Act, the Exchange Act and the rules and regulations
of the SEC thereunder. Prize will cause the information it provides for such
purpose to comply as to form in all material respects with such provisions.
59
(c) Prize hereby covenants and agrees with Parent that: (i) the
Registration Statement (at the time it becomes effective under the Securities
Act and at the Effective Time) will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (provided, however, that
this clause (i) shall apply only to information contained in the Registration
Statement that was supplied by Prize for inclusion therein); and (ii) the Proxy
Statement/Prospectus (at the time it is first mailed to stockholders of Prize
and Parent, at the time of the Prize Meeting and the Parent Meeting, and at the
Effective Time) will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading (provided, however, that this clause (ii) shall apply only
to information contained in the Proxy Statement/Prospectus that was supplied by
Prize for inclusion therein). If, at any time prior to the Effective Time, any
event with respect to Prize, or with respect to other information supplied by
Prize for inclusion in the Registration Statement, occurs and such event is
required to be described in an amendment to the Registration Statement, Prize
shall promptly notify Parent of such occurrence and shall cooperate with Parent
in the preparation and filing of such amendment. If, at any time prior to the
Effective Time, any event with respect to Prize, or with respect to other
information supplied by Prize for inclusion in the Proxy Statement/Prospectus,
occurs and such event is required to be described in a supplement to the Proxy
Statement/Prospectus, Prize shall promptly notify Parent of such occurrence and
shall cooperate with Parent in the preparation, filing and dissemination of such
supplement.
(d) Parent hereby covenants and agrees with Prize that: (i) the
Registration Statement (at the time it becomes effective under the Securities
Act and at the Effective Time) will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (provided, however, that
this clause (i) shall not apply to any information contained in the Registration
Statement that was supplied by Prize for inclusion therein); and (ii) the Proxy
Statement/Prospectus (at the time it is first mailed to stockholders of Prize
and Parent, at the time of the Prize Meeting and the Parent Meeting, and at the
Effective Time) will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading (provided, however, that this clause (ii) shall not apply
to any information contained in the Proxy Statement/Prospectus that was supplied
by Prize for inclusion therein). If, at any time prior to the Effective Time,
any event with respect to Parent, or with respect to other information included
in the Registration Statement, occurs and such event is required to be described
in an amendment to the Registration Statement, such event shall be so described
and such amendment shall be promptly prepared and filed. If, at any time prior
to the Effective Time, any event with respect to Parent, or with respect to
other information included in the Proxy Statement/Prospectus, occurs and such
event is required to be described in a supplement to the Proxy
Statement/Prospectus, Parent shall promptly notify Prize of such occurrence and
shall cooperate with Prize in the preparation, filing and dissemination of such
supplement.
(e) Neither the Registration Statement nor the Proxy Statement/Prospectus
nor any amendment or supplement thereto will be filed or disseminated to the
stockholders of Prize or Parent without the approval of both Parent and Prize.
Parent shall advise Prize, promptly after it receives notice thereof, of the
time when the Registration Statement has become effective under the
60
Securities Act, the issuance of any stop order with respect to the
Registration Statement, the suspension of the qualification of the Parent Common
Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any comments or requests for additional information by the SEC
with respect to the Registration Statement.
5.8 Stock Exchange Listing. Parent shall cause the shares of Parent Common
Stock to be issued in the Merger and upon exercise of the Prize Options and the
Prize Warrants to be approved for listing on a National Stock Exchange, subject
to official notice of issuance, prior to the Closing Date. Parent shall also
cause the Prize Warrants, other than the Prize Warrants held by First Union
National Bank, to be approved for listing on a National Stock Exchange prior to
the Closing Date.
5.9 Additional Arrangements. Subject to the terms and conditions herein
provided, each of Prize and Parent shall take, or cause to be taken, all action
and shall do, or cause to be done, all things necessary, appropriate or
desirable under any applicable laws and regulations (including the HSR Act) or
under applicable governing agreements to consummate and make effective the
transactions contemplated by this Agreement, including using its best efforts to
obtain all necessary waivers, consents and approvals and effecting all necessary
registrations and filings. Each of Prize and Parent shall take, or cause to be
taken, all action or shall do, or cause to be done, all things necessary,
appropriate or desirable to cause the covenants and conditions applicable to the
transactions contemplated hereby to be performed or satisfied as soon as
practicable. In addition, if any Governmental Authority shall have issued any
order, decree, ruling or injunction, or taken any other action that would have
the effect of restraining, enjoining or otherwise prohibiting or preventing the
consummation of the transactions contemplated hereby, each of Prize and Parent
shall use its reasonable efforts to have such order, decree, ruling or
injunction or other action declared ineffective as soon as practicable.
5.10 Agreements of Affiliates. At least 10 days prior to the Effective
Time, Prize shall cause to be prepared and delivered to Parent a list
identifying all Persons who, at the time of the Prize Meeting, may be deemed to
be "affiliates" of Prize as that term is used in paragraphs (c) and (d) of Rule
145 under the Securities Act. Prize shall use its best efforts to cause each
Person who is identified as an affiliate of Prize in such list to execute and
deliver to Parent, on or prior to the Closing Date, a written agreement, in the
form attached hereto as Exhibit 5.10. Parent shall be entitled to place legends
as specified in such agreements on the Parent Certificates representing any
Parent Common Stock to be issued to such Persons in the Merger, irrespective of
whether or not they sign such agreements.
5.11 Public Announcements. Prior to the Closing, Prize and Parent will
consult with each other before issuing any press release or otherwise making any
public statement with respect to the transactions contemplated by this Agreement
and shall not issue any press release or make any such public statement prior to
obtaining the approval of the other party; provided, however, that such approval
shall not be required where such release or announcement is required by
applicable law or stock exchange rule; and provided further, that either Prize
or Parent may respond to inquiries by the press or others regarding the
transactions contemplated by this Agreement, so long as such responses are
consistent with such Party's previously issued press releases.
61
5.12 Notification of Certain Matters. Prize shall give prompt notice to
Parent of any of the following: (a) any representation or warranty contained in
Article 3 being untrue or inaccurate when made, (b) the occurrence of any event
or development that would cause (or could reasonably be expected to cause) any
representation or warranty contained in Article 3 to be untrue or inaccurate on
the Closing Date, or (c) any failure of Prize to comply with or satisfy any
covenant, condition, or agreement to be complied with or satisfied by it
hereunder. Parent shall give prompt notice to Prize of any of the following: (x)
any representation or warranty contained in Article 4 being untrue or inaccurate
when made, (y) the occurrence of any event or development that would cause (or
could reasonably be expected to cause) any representation or warranty contained
in Article 4 to be untrue or inaccurate on the Closing Date, or (z) any failure
of Parent to comply with or satisfy any covenant, condition, or agreement to be
complied with or satisfied by it hereunder.
5.13 Payment of Expenses. Each Party shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, whether or not the Merger
shall be consummated, except that: (a) the fee for filing the Registration
Statement with the SEC and the costs and expenses associated with printing the
Proxy Statement/Prospectus and complying with any applicable state securities or
"blue sky" laws shall be borne by Parent; and (b) the costs and expenses
associated with mailing the Proxy Statement/Prospectus to the stockholders of
(i) Prize, and soliciting the votes of the stockholders of Prize, shall be borne
by Prize, and (ii) Parent, and soliciting the votes of the stockholders of
Parent, shall be borne by Parent.
5.14 Registration Rights. Parent and the Major Prize Stockholders shall
enter into a Registration Rights Agreement, in the form attached hereto as
Exhibit 5.14, at the Closing. The Parties shall take such action as necessary to
cause the shelf registration statement contemplated by the Registration Rights
Agreement to be declared effective as soon as practicable following the
Effective Time.
5.15 Indemnification and Insurance.
(a) Parent agrees that all rights to indemnification now existing in favor
of any officers, directors, employees, controlling stockholders or agents of any
of the Prize Companies, as provided in their respective charters or bylaws (or
similar organizational documents), and any existing indemnification agreements
or arrangements of any of the Prize Companies, shall survive the Merger and
shall continue in full force and effect for a period of not less than four years
from the Effective Time (or such longer period as may be provided in any
existing indemnification agreement between any of the Prize Companies, and any
current or former officer or director thereof); provided, that, in the event any
claim or claims are asserted or made within such four-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims.
(b) From and after the Effective Time, Parent shall, for a period of four
years after the Effective Time, indemnify, defend and hold harmless each person
who is now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, an
62
officer, director, employee, controlling stockholder or agent of any of the
Prize Companies (collectively, the "Indemnified Parties") against all losses,
expenses (including attorneys' fees), claims, damages, liabilities and amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of, or otherwise in connection
with, any threatened or actual claim, action, suit, proceeding or investigation
(a "Claim"), based in whole or in part on or arising in whole or in part out of
the fact that the Indemnified Party (or the person controlled by the Indemnified
Party) is or was a director, officer, employee, controlling stockholder or agent
(including a trustee or fiduciary of any Prize Employee Benefit Plan) and
pertaining to any matter existing or arising out of actions or omissions
occurring at or prior to the Effective Time (including any Claim arising out of
this Agreement or any of the transactions contemplated hereby), whether asserted
or claimed prior to, at or after the Effective Time, in each case to the fullest
extent permitted under Nevada law, and shall pay any expenses, as incurred, in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under Nevada law. In
determining whether an Indemnified Party is entitled to indemnification under
this Section 5.15, if requested by such Indemnified Party, such determination
shall be made by special, independent counsel selected by Parent and approved by
the Indemnified Party (which approval shall not be unreasonably withheld), and
who has not otherwise performed services for Parent or any of its Affiliates
within the last three years (other than in connection with such matters).
Without limiting the foregoing, in the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party(ies)
(whether arising before or after the Effective Time): (i) Parent shall have the
right to control the defense of such matter with Parent's regularly engaged
independent legal counsel or other counsel selected by Parent and reasonably
satisfactory to the Indemnified Party(ies), and Parent shall pay all reasonable
fees and expenses of such counsel; and (ii) the Indemnified Party(ies) will
cooperate with Parent, at Parent's expense, in the defense of any such matter.
Parent shall not be liable for any settlement effected without its prior written
consent, which consent shall not unreasonably be withheld. In the event of any
Claim, any Indemnified Party wishing to claim indemnification will promptly
notify Parent thereof (provided, that failure to so notify Parent will not
affect the obligations of Parent except to the extent that Parent shall have
been prejudiced as a result of such failure) and shall deliver to Parent the
undertaking contemplated by the applicable provisions of the NGCL, but without
any requirement for the posting of a bond. Without limiting the foregoing, in
the event any such Claim is brought against any of the Indemnified Parties, such
Indemnified Party(ies) may retain only one law firm (plus one local counsel, if
necessary) to represent them with respect to each such matter unless the use of
counsel chosen to represent the Indemnified Parties would present such counsel
with a conflict of interest, or the representation of all of the Indemnified
Parties by the same counsel would be inappropriate due to actual or potential
differing interests between them, in which case such additional counsel as may
be required (as shall be reasonably determined by the Indemnified Parties and
Parent) may be retained by the Indemnified Parties at the cost and expense of
Parent and Parent shall pay all reasonable fees and expenses of such counsel for
such Indemnified Parties. Notwithstanding the foregoing, nothing contained in
this Section 5.15 shall be deemed to grant any right to any Indemnified Party
which is not permitted to be granted to an officer, director, employee,
controlling stockholder or agent of Parent under Nevada law.
(c) From and after the Effective Time, Parent shall cause to be maintained
in effect for not less than four years from the Effective Time the current
policies of directors' and
63
officers' liability insurance maintained by Prize, including the policy
being maintained for the former directors and officers of Vista Energy
Resources, Inc.; provided, that (i) Parent may substitute therefor policies of
at least the same coverage containing terms and conditions which are no less
advantageous; (ii) such substitution shall not result in gaps or lapses in
coverage with respect to matters occurring prior to the Effective Time; and
(iii) Parent shall not be required to pay an annual premium in excess of 200% of
the last annual premium paid by Prize prior to the date hereof and if Parent is
unable to obtain the insurance required by this Section 5.15(c) it shall obtain
as much comparable insurance as possible for an annual premium equal to such
maximum amount.
(d) Following the Merger, if Parent 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 or conveys all or substantially all of its properties and
assets to any Person or Persons, then, and in each such case, proper provision
shall be made so that the successors and assigns of Parent and any of their
successors and assigns, assume the obligations of the Parties and Parent set
forth in this Section 5.15.
(e) This Section 5.15 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit Prize and the Indemnified Parties (each
of whom may enforce the provisions of this Section 5.15) and shall be binding on
the successors and assigns of Parent.
5.16 Prize Employees. After the Effective Time, it is expected that Parent
may, in its sole discretion, offer employment to, or cause the Surviving
Corporation or the Prize Companies to continue the employment of, certain
employees of the Prize Companies (the "Retained Employees"). Parent shall
provide the Retained Employees with the same benefits that accrue to similarly
situated employees of Parent and its subsidiaries. Parent shall, or shall cause
the Surviving Corporation to, fulfill all coverage continuation obligations
imposed by Section 4980B of the Code and Section 601 of ERISA for those
employees of the Prize Companies who are not Retained Employees. The provisions
of this Section 5.16 are intended to be for the benefit of, and shall be
enforceable by, the Parties and the employees of the Prize Companies covered by
the Prize Employee Benefit Plans at the Effective Time and their respective
heirs and representatives.
5.17 Severance Plan. After the Closing, Parent shall cause the Surviving
Corporation to promptly pay the amounts when due under the Prize Extraordinary
Transaction Compensation Policy, to the extent not already paid. The provisions
of this Section 5.17 are intended to be for the benefit of, and shall be
enforceable by, the Parties and each person entitled to receive payments
pursuant to the terms of the Prize Extraordinary Transaction Compensation
Policy.
5.18 Termination of Certain Agreements. At the Closing: (a) the Prize
Voting and Shareholders Agreement shall be terminated, (b) any Confidentiality
and Non-Compete Agreement entered into between Prize and any officer or employee
of Prize shall be terminated, and (c) that certain Advisory Services and
Indemnification Agreement, between Prize and Natural Gas Partners V, L.P. shall
be terminated, and no Person shall have any further rights or obligations under
any of these agreements, except for the continuation of indemnity rights as
provided in Section 5.15.
64
5.19 Parent Board of Directors. At the Effective Time, Parent shall cause
(a) two then existing members of Prize's board of directors (selected by Prize
and reasonably acceptable to Parent) to be elected to the board of directors of
Parent, and (b) two then existing members of the Parent board of directors to
resign.
5.20 Registration Statements Relating to Prize Warrants. Promptly after the
Effective Time, Parent shall file with the SEC a registration statement on Form
S-3 with respect to the shares of Parent Common Stock to be issued upon exercise
of the Prize Warrants other than the Prize Warrants held by First Union National
Bank. Parent shall use all reasonable efforts to have such registration
statement become effective and to maintain the effectiveness of such
registration statement (and maintain the current status of the related
prospectus) for so long as any Prize Warrants other than the Prize Warrants held
by First Union National Bank remain outstanding. The provisions of this Section
5.20 are intended to be for the benefit of, and shall be enforceable by, the
Parties and each holder of a Prize Warrant other than the Prize Warrants held by
First Union National Bank and their respective heirs and representatives. To the
extent required by applicable securities law and regulations, Parent shall also
file with the SEC a registration statement with respect to the Prize Warrants.
5.21 Bank Credit Agreements. Each of Parent and Prize shall use its best
efforts to obtain, on or before the Closing Date: (a) any required consents of
the lenders under the Parent Bank Credit Agreement and the Prize Bank Credit
Agreement; or (b) a new credit facility for Parent in an amount sufficient to
pay off all then-outstanding indebtedness under both the Parent Bank Credit
Agreement and the Prize Bank Credit Agreement and provide a similar amount of
borrowing capacity as the Parent Bank Credit Agreement and the Prize Bank Credit
Agreement.
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each Party to effect the Merger shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions,
any or all of which may be waived in whole or in part by both Parent and Prize:
(a) Stockholder Approval. The Prize Proposal shall have been duly and
validly approved and adopted by a vote of a majority of the shares of Prize
Common Stock, all as required by the DGCL and the certificate of incorporation
and bylaws of Prize. The Prize Proposal shall have been duly and validly
approved and adopted by the stockholders of Parent, all as required by the NGCL
and the articles of incorporation and bylaws of Parent.
(b) Other Approvals. Any applicable waiting period under the HSR Act shall
have expired or been terminated and all filings required to be made prior to the
Effective Time with, and all consents, approvals, permits and authorizations
required to be obtained prior to the Effective Time from, any Governmental
Authority or other person in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby by Prize,
65
Parent and Merger Sub shall have been made or obtained (as the case may be),
except where the failure to obtain such consents, approvals, permits and
authorizations would not be reasonably likely to result in a Material Adverse
Effect on Parent (assuming the Merger has taken place) or to materially
adversely affect the consummation of the Merger.
(c) Securities Law Matters. The Registration Statement shall have been
declared effective by the SEC under the Securities Act and shall be effective at
the Effective Time, and no stop order suspending such effectiveness shall have
been issued, no action, suit, proceeding or investigation by the SEC to suspend
such effectiveness shall have been initiated and be continuing, and all
necessary approvals under state securities laws relating to the issuance or
trading of the Parent Common Stock to be issued in the Merger shall have been
received.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that, prior to
invoking this condition, each Party shall have complied fully with its
obligations under Section 5.9 and, in addition, shall have used all reasonable
efforts to have any such decree, ruling, injunction or order vacated, except as
otherwise contemplated by this Agreement.
(e) Litigation. No litigation, proceeding or investigation has been
commenced by any Person other than any of the Prize Companies or any of the
Parent Companies that questions the validity or enforceability of this Agreement
or the transactions contemplated hereby which, in the opinion of the board of
directors of Parent or Prize, in the exercise of their business judgment, based
on the advice of counsel, would cause Parent or Prize to be subject to
substantial liability in the event of the consummation of the Merger.
(f) Stock Exchange Listing. The shares of Parent Common Stock to be issued
in the Merger and upon exercise of the Prize Options and the Prize Warrants
shall have been authorized for listing on a National Stock Exchange, subject to
official notice of issuance. The Prize Warrants, other than the Prize Warrants
held by First Union National Bank, shall have been authorized for listing on a
National Stock Exchange.
(g) Bank Matters. The Parties shall have obtained either the required
consents or the new credit facility contemplated in Section 5.21.
(h) Registration Statements. The registration statements referred to in
Section 5.20 shall have become effective, no stop order suspending such
effectiveness shall have been issued, and no action, suit, proceeding or
investigation by the SEC to suspend such effectiveness shall have been
initiated.
(i) Parent's Senior Notes. The "change of control" provisions in Parent's
10% senior notes shall not have been triggered by the Merger.
66
6.2 Conditions to Obligations of Parent and Merger Sub. The obligations of
Parent and Merger Sub 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 and Merger Sub:
(a) Representations and Warranties. The representations and warranties of
Prize set forth in Article 3 shall be true and correct in all material respects
(provided that any representation or warranty contained therein that is
qualified by a materiality standard or a Material Adverse Effect qualification
shall not be further qualified hereby) as of the date of this Agreement and
(except to the extent such representation or warranty speaks as of an earlier
date) as of the Closing Date as though made on and as of that time, and Parent
shall have received a certificate signed by a Responsible Officer of Prize to
such effect; provided, however, that the condition set forth in this Section
6.2(a) shall be deemed to be satisfied even if one or more of such
representations and warranties are not true and correct, so long as the failure
of such representations and warranties (without giving effect to the individual
materiality thresholds otherwise included as a part of such representations and
warranties) to be true and correct (in the aggregate) does not result in (i)
damages, losses or liabilities to Parent or any of the Prize Companies, (ii) a
net reduction in the aggregate value of the assets of the Prize Companies (with
respect to Ownership Interests, as determined by reference to the Reserve Data
Value), or (iii) reduction in the aggregate net value of the assets of the Prize
Companies resulting from the items and matters set forth in the Prize Disclosure
Schedule, in an aggregate amount for clauses (i), (ii) and (iii) (the "Failure
Amount") that exceeds $16,000,000.
(b) Performance of Covenants and Agreements by Prize. Prize shall have
performed in all material respects all covenants and agreements required to be
performed by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed by a Responsible Officer of Prize to
such effect.
(c) Letters from Prize Affiliates. Parent shall have received from each
Person named in the list referred to in Section 5.10 an executed copy of the
agreement described in Section 5.10.
(d) No Material Adverse Change. From the date of this Agreement through the
Closing, there shall not have occurred any change in the condition (financial or
otherwise), operations or business of any of the Prize Companies that would have
or would be reasonably likely to have a Material Adverse Effect on Prize.
(e) Fairness Opinion. The fairness opinion described in Section 5.6(a)
shall have been delivered and shall not have been withdrawn, revoked or
modified.
(f) Tax Opinion. The tax opinion described in Section 5.6(b) shall have
been delivered and shall not have been withdrawn, revoked or modified.
(g) Dissenting Stockholders. The holders of no more than five percent of
the Prize Common Stock shall have exercised their right to dissent from the
Merger under the DGCL.
67
(h) Market Price. Parent shall not have given notice of termination
pursuant to Section 7.1(g).
(i) Prize Extraordinary Transaction Compensation Policy. All payments
required to be made by Prize under the Prize Extraordinary Transaction
Compensation Policy and any other employment or severance arrangements with
Prize employees with respect to the transactions contemplated in this Agreement
shall not have exceeded $8,000,000 in the aggregate.
6.3 Conditions to Obligation of Prize. The obligation of Prize 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 Prize:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub set forth in Article 4 shall be true and correct in all
material respects (provided that any representation or warranty contained
therein that is qualified by a materiality standard or a Material Adverse Effect
qualification shall not be further qualified hereby) as of the date of this
Agreement and (except to the extent such representation or warranty speaks as of
an earlier date) as of the Closing Date as though made on and as of that time,
and Prize shall have received a certificate signed by a Responsible Officer of
Parent to such effect; provided, however, that the condition set forth in this
Section 6.3(a) shall be deemed to be satisfied even if one or more of such
representations and warranties are not true and correct, so long as the failure
of such representations and warranties (without giving effect to the individual
materiality thresholds otherwise included as a part of such representations and
warranties) to be true and correct (in the aggregate) does not result in (i)
damages, losses or liabilities to Prize or any of the Parent Companies, (ii) a
net reduction in the aggregate value of the assets of the Parent Companies (with
respect to Ownership Interests, as determined by reference to the Reserve Data
Value), or (iii) reduction in the aggregate net value of the assets of the
Parent Companies resulting from the items and matters set forth in the Parent
Disclosure Schedule, in an aggregate amount for clauses (i), (ii) and (iii) (the
"Failure Amount") that exceeds $20,000,000.
(b) Performance of Covenants and Agreements by Parent and Merger Sub.
Parent and Merger Sub shall have performed in all material respects all
covenants and agreements required to be performed by them under this Agreement
at or prior to the Closing Date, and Prize shall have received a certificate
signed by a Responsible Officer of Parent to such effect.
(c) Fairness Opinion. The fairness opinion described in Section 5.5(a)
shall have been delivered and shall not have been withdrawn, revoked or
modified.
(d) Tax Opinion. The tax opinion described in Section 5.5(b) shall have
been delivered and shall not have been withdrawn, revoked or modified.
(e) No Material Adverse Change. From the date of this Agreement through the
Closing, there shall not have occurred any change in the condition (financial or
otherwise), operations or business of Parent and its subsidiaries that would
have or would be reasonably likely to have a Material Adverse Effect on Parent.
68
(f) Rights Agreement. Neither this Agreement nor consummation of the Merger
shall have caused or shall cause any of the Parent Rights to become exercisable
or to be distributed.
(g) Market Price. Prize shall not have given notice of termination pursuant
to Section 7.1(h).
(h) Registration Rights Agreement. Parent shall have executed and delivered
the Registration Rights Agreement.
(i) Delivery of Transfer Instructions. Parent shall have delivered to its
authorized transfer agent an irrevocable letter of instruction in a form
reasonably satisfactory to Prize authorizing and directing the transfer to
holders of shares of Prize Common Stock one or more Parent Certificates
representing those shares of Parent Common Stock to be issued to such holders
upon surrender of such holders' certificates representing such shares of Prize
Common Stock.
ARTICLE 7
TERMINATION
7.1 Termination Rights. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, whether before or after
approval of the Prize Proposal by the stockholders of Prize and/or Parent,
respectively:
(a) By mutual written consent of Parent and Prize;
(b) By either Prize or Parent if (i) the Merger has not been consummated by
June 30, 2002 (provided, however, that the right to terminate this Agreement
pursuant to this clause (i) shall not be available to any Party whose breach of
any representation or warranty or failure to perform 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); (ii) any Governmental Authority shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting 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 pursuant to this
clause (ii) shall not be available to any Party until such Party has used all
reasonable efforts to remove such injunction, order or decree); or (iii) the
Prize Proposal shall not have been approved by the required vote of (A) the
Prize stockholders at the Prize Meeting or at any adjournment thereof or (B) the
Parent stockholders at the Parent Meeting or at any adjournment thereof;
(c) By Parent if (i) there has been a material breach of the
representations and warranties made by Prize in Article 3 of this Agreement such
that the condition described in Section 6.2(a) is not met (provided, however,
that Parent shall not be entitled to terminate this Agreement pursuant to this
clause (i) unless Parent has given Prize notice of such breach and Prize has
failed to cure such breach within 10 days following such notice (but in any
event not later than June 30, 2002), and the condition described in Section
6.2(a), other than the provision thereof
69
relating to the certificate signed by a Responsible Officer of Prize, would
not be satisfied if the Closing were to occur on the day on which Parent gives
Prize notice of such termination); or (ii) Prize has failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement and such failure has not been, or cannot be, cured within 10 days
after notice and demand for cure thereof (but in any event not later than June
30, 2002);
(d) By Prize if (i) there has been a material breach of the representations
and warranties made by Parent and Merger Sub in Article 4 of this Agreement such
that the condition described in Section 6.3(a) is not met (provided, however,
that Prize shall not be entitled to terminate this Agreement pursuant to this
clause (i) unless Prize has given Parent notice of such breach and Parent has
failed to cure such breach within 10 days following such notice (but in any
event not later than June 30, 2002), and the condition described in Section
6.3(a), other than the provision thereof relating to the certificate signed by a
Responsible Officer of Parent, would not be satisfied if the Closing were to
occur on the day on which Prize gives Parent notice of such termination); or
(ii) Parent or Merger Sub has failed to comply in any material respect with any
of its respective covenants or agreements contained in this Agreement, and, in
either such case, such breach or failure has not been, or cannot be, cured
within 10 days after notice and a demand for cure thereof (but in any event not
later than June 30, 2002);
(e) By Prize if (i) Prize is prepared to enter into a binding definitive
agreement to effect a Superior Proposal; and (ii) Prize has given Parent at
least three business days' prior notice of its intention to terminate this
Agreement pursuant to this Section 7.1(e) (along with a description of all
relevant terms and conditions of such Superior Proposal), during which period
Parent shall have the opportunity to propose amendments or modifications to the
terms of the Merger;
(f) By Parent if the board of directors of Prize shall have failed to
recommend adoption of the Prize Proposal at the time the Proxy
Statement/Prospectus is first mailed to stockholders of Prize or shall have
amended or withdrawn any such recommendation and such recommendation is not
reinstated in its prior form within five business days after such amendment or
withdrawal;
(g) By Parent if the Market Price is in excess of $9.50; provided, that
notice of termination under this Section 7.1(g) must be given not later than the
close of business on the third business day prior to the Closing Date; or
(h) By Prize if the Market Price is less than $7.50; provided, that notice
of termination under this Section 7.1(h) must be given not later than the close
of business on the third business day prior to the Closing Date.
7.2 Effect of Termination. If this Agreement is terminated by either Prize
or Parent pursuant to the provisions of Section 7.1, this Agreement shall
forthwith become void except for, and there shall be no further obligation on
the part of any Party or its respective Affiliates, directors, officers or
stockholders except pursuant to, the provisions of Sections 5.3(c) (but only to
the extent of the confidentiality and indemnification provisions contained
therein), 5.7(c), 5.7(d), 5.13 and 7.3, Article 8 and the Confidentiality
Agreement (which shall continue pursuant to their terms); provided,
70
however, that a termination of this Agreement shall not relieve any Party
from any liability for damages incurred as a result of a breach by such Party of
its representations, warranties, covenants, agreements or other obligations
hereunder occurring prior to such termination.
7.3 Fees and Expenses. If this Agreement is terminated pursuant to Section
7.1(e) or (f), Prize shall promptly, but in no event later than one business day
after termination of this Agreement, pay to Parent a fee equal to $15,000,000 in
same day funds and upon making such payment, Prize shall be fully released and
discharged from any liability or obligation resulting from or under this
Agreement, except as otherwise set forth in Section 7.2.
ARTICLE 8
MISCELLANEOUS
8.1 Nonsurvival of Representations and Warranties. None of the
representations or warranties contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the consummation of the
Merger.
8.2 Amendment. This Agreement may be amended by the Parties at any time
before or after approval of the Prize Proposal by the stockholders of Parent and
Prize; provided, however, that, after any such approval, no amendment shall be
made that by law requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by a written
instrument signed by an authorized representative of each of the Parties.
8.3 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally (effective upon
delivery), by facsimile transmission (effective on the next day after
transmission), by recognized overnight delivery service (effective on the next
day after delivery to the service), or by registered or certified mail, postage
prepaid and return receipt requested (effective on the third business day after
the date of mailing), at the following addresses or facsimile transmission
numbers (or at such other address(es) or facsimile transmission number(s) for a
Party as shall be specified by like notice):
To Parent and/or
Merger Sub: Magnum Hunter Resources, Inc.
000 Xxxx Xxx Xxxxxxx Xxxx., Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxx X. Xxxxx,
Chairman, President
and Chief Executive Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
71
with copies to:
Magnum Hunter Resources, Inc
000 Xxxx Xxx Xxxxxxx Xxxx., Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxxxxx, Vice President,
General Counsel and Secretary
Telephone:(000) 000-0000 Facsimile:(000) 000-0000
and
Fulbright & Xxxxxxxx L.L.P.
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
To Prize: Prize Energy Corp.
0000 Xxxxxxx X. Xxxx
Xxxxx 000
Xxxxxxxxx, Xxxxx 00000
Attn: Xxx X. Xxxx, President
Telephone (000) 000-0000
Facsimile: (000) 000-0000
with copies to: Natural Gas Partners, L.L.C.
000 Xxxx Xxxx Xxxxxxxxx Xxx., Xxxxx 000
Xxxxxx, Xxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and
Xxxxxx & Xxxxxxx, P.C.
0000 Xxxxx Xxxxx Tower
00 Xxxx 0xx Xxxxxx
Xxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more
72
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.
8.5 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreement and the documents and instruments
delivered by the Parties in connection with this Agreement): (a) constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the Parties with respect to the subject matter
hereof; and (b) except as provided in Article 2 and Sections 5.3(c), 5.3(d),
5.15, 5.16, 5.17 and 5.20, is solely for the benefit of the Parties and their
respective successors, legal representatives and assigns and does not confer on
any other Person any rights or remedies hereunder.
8.7 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Delaware regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
8.8 No Remedy in Certain Circumstances. Each Party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any Party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take any action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article 7. Except as otherwise contemplated by this Agreement, to
the extent that a Party took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent Governmental Authority, such Party shall not incur
any liability or obligation unless such Party breached its obligations under
Section 5.9 or did not in good faith seek to resist or object to the imposition
or entering of such order or judgment.
8.9 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the Parties (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 assigns.
8.10 Waivers. At any time prior to the Effective Time, the Parties may, to
the extent legally allowed: (a) extend the time for the performance of any of
the obligations or other acts of the
73
other Parties, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive performance of any of the covenants or agreements, or satisfaction of
any of the conditions, contained herein. Any agreement on the part of a Party to
any such extension or waiver shall be valid only if set forth in a written
instrument signed by an authorized representative of such Party. Except as
provided in this Agreement, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any Party, shall be deemed to
constitute a waiver by the Party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any Party of a breach of any provision hereof shall not
operate or be construed as a waiver of any prior or subsequent breach of the
same or any other provisions hereof.
8.11 Confidentiality Agreement. The Confidentiality Agreement shall remain
in full force and effect following the execution of this Agreement until
terminated as described in Section 7.2, is hereby incorporated herein by
reference, and shall constitute a part of this Agreement for all purposes;
provided, however, that any standstill provisions contained therein will,
effective as of the Closing, be deemed to have been waived to the extent
necessary for the Parties to consummate the Merger in accordance with the terms
of this Agreement. Any and all information received by Parent and Prize pursuant
to the terms and provisions of this Agreement shall be governed by the
applicable terms and provisions of the Confidentiality Agreement.
8.12 Incorporation. Exhibits and Schedules referred to herein are attached
to and by this reference incorporated herein for all purposes. Disclosure on one
schedule satisfies the other schedules as long as it is apparent on its face
from such disclosure that it applies to the other schedules.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives, on the date first written above.
"Prize" "Parent"
PRIZE ENERGY CORP. MAGNUM HUNTER RESOURCES, INC.
By: /s/Xxxxxx X. Xxxxx By: /s/Xxxx X. Xxxxx
------------------------------ -------------------------------
Name: Xxxxxx X. Xxxxx Name: Xxxx X. Xxxxx
--------------------------- ------------------------------
Title: CEO Title: Chairman, President and
CEO
-------------------------- ----------------------------
"Merger Sub"
PINTAIL ENERGY, INC.
By: /s/Xxxx X. Xxxxx
-------------------------------
Name: Xxxx X. Xxxxx
------------------------------
Title: Chairman, President and
CEO
----------------------------
74
Exhibit 5.10
FORM OF AFFILIATE LETTER
Ladies and Gentlemen:
The undersigned has been advised that, as of the date of this letter, the
undersigned may be deemed to be an "affiliate" of Prize Energy Corp., a Delaware
corporation ("Prize"), as that term is defined for purposes of Rules 145(c) and
(d) promulgated by the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"). Pursuant to the terms
of the Agreement and Plan of Merger dated as of December ___, 2001, among Prize,
Magnum Hunter Resources, Inc., a Nevada corporation ("Parent"), andPintail
Energy, Inc., a Texas corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), Prize will be merged with and into Merger Sub (such merger being
referred to herein as the "Merger" and such agreement being referred to herein
as the "Merger Agreement"). As a result of the Merger, the undersigned will
receive in part (a) shares of common stock, par value $.002 per share, of Parent
(the "Parent Common Stock") in exchange for shares of common stock, par value
$.01 per share, of Prize.
The undersigned hereby represents and warrants to, and covenants and agrees
with, Parent as follows:
1. The undersigned will not make any sale, transfer or other disposition of
any shares of Parent Common Stock received by the undersigned as a result of the
Merger in violation of the Securities Act or the rules and regulations of the
SEC promulgated thereunder.
2. The undersigned has read this letter and the Merger Agreement and has
discussed their requirements and other applicable limitations on the
undersigned's ability to sell, transfer, or otherwise dispose of the Parent
Common Stock received by the undersigned as a result of the Merger, to the
extent the undersigned believes necessary, with the undersigned's counsel or
counsel for Prize.
3. The undersigned has been advised that the issuance of Parent Common
Stock pursuant to the Merger has been registered under the Securities Act on a
Registration Statement on Form S-4. The undersigned has also been advised that,
to the extent the undersigned is considered an "affiliate" of Prize at the time
the Merger Agreement is submitted for a vote of the stockholders of Prize, any
public offering or sale by the undersigned of any shares of Parent Common Stock
that the undersigned receives pursuant to the Merger will, under current law,
require either (a) the further registration under the Securities Act of any
shares of Parent Common Stock to be sold by the undersigned, (b) compliance with
Rule 145 under the Securities Act ("Rule 145"), or (c) the availability of
another exemption from such registration under the Securities Act.
4. The undersigned understands that stop transfer instructions will be
given to Parent's transfer agent with respect to shares of Parent Common Stock
received by the undersigned pursuant
5.10-1
to the Merger and that a legend substantially as follows will be placed on
the certificates for the shares of Parent Common Stock issued to the undersigned
pursuant to the Merger:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
OTHERWISE IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED AS OF
_______________, 200___, BETWEEN THE REGISTERED HOLDER HEREOF AND
MAGNUM HUNTER RESOURCES, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICES OF MAGNUM HUNTER RESOURCES, INC.
5. It is understood and agreed that the legend set forth in Paragraph 4
above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Securities Act or this
letter. It is understood and agreed that such legend referred to above will be
removed if (a) one year shall have elapsed from the date the undersigned
acquired the shares of Parent Common Stock received in the Merger and the
provisions of Rule 145(d)(2) are then available to the undersigned, (b) two
years shall have elapsed from the date the undersigned acquired the Parent
Common Stock received in the Merger and the provisions of Rule 145(d)(3) are
then applicable to the undersigned, or (c) Parent has received either an opinion
of counsel, which opinion and counsel shall be reasonably satisfactory to
Parent, or a "no action" letter obtained from the staff of the SEC, to the
effect that the restrictions imposed by Rule 145 no longer apply to the
undersigned. Prior to any transfer of any shares of Parent Common Stock, the
undersigned will give written notice to Parent of the undersigned's intention to
effect such offer, sale or transfer, describing the proposed transaction in
sufficient detail to enable Parent and its counsel to determine that the
proposed transaction will not violate the Securities Act.
6. The undersigned has no present intention, plan or arrangement to offer,
sell or transfer, or otherwise make any disposition of, the shares of Parent
Common Stock received by the undersigned in the Merger.
Execution of this letter should not be considered an admission on the
undersigned's part that the undersigned is an "affiliate" of Prize, as described
in the first paragraph of this letter, or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
Sincerely,
______________________________
Name: ________________________
5.10-2
Accepted on the ___ day of
__________________, 200___
MAGNUM HUNTER RESOURCES, INC.
By:
-----------------------------------------
Name:
----------------------------------
Title:
---------------------------------
5.10-3
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment")
executed as of the 17th day of December, 2001, by and among Magnum Hunter
Resources, Inc., a Nevada corporation ("Magnum Hunter"), Pintail Energy, Inc., a
Texas corporation ("Pintail-Texas"), Prize Energy Corp., a Delaware corporation
("Prize"), and Pintail Energy, Inc., a Delaware corporation
("Pintail-Delaware");
W I T N E S S E T H:
WHEREAS, Magnum Hunter organized Pintail-Texas as a Texas corporation to
serve as the acquisition subsidiary in connection with the forward merger of
Prize into a Magnum Hunter subsidiary (the "Merger") pursuant to the Agreement
and Plan of Merger dated December 17, 2001 (the "Agreement") among Magnum
Hunter, Pintail-Texas and Prize;
WHEREAS, Magnum Hunter has determined that it would be preferable to use a
Delaware corporation in the Merger and has organized Pintail-Delaware for such
purpose; and
WHEREAS, Magnum Hunter, Pintail-Texas, Prize and Pintail-Delaware desire to
amend the Agreement to reflect the substitution of Pintail-Delaware for
Pintail-Texas as a party thereto;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Magnum Hunter, Pintail-Texas, Prize and Pintail-Delaware do hereby
agree as follows:
1. The Agreement is hereby amended as follows:
(a) The first paragraph of the Agreement is amended to substitute "Pintail
Energy, Inc., a Delaware corporation" for Pintail Energy, Inc., a Texas
corporation."
(b) Section 1.1 of the Agreement is amended to delete the definitions of
"Articles of Merger" and "TBCA" and to change the definition of "Merger Sub" to
refer to "Pintail Energy, Inc., a Delaware corporation" rather than to "Pintail
Energy, Inc., a Texas corporation."
(c) Section 2.2 of the Agreement is amended to read in its entirety as
follows:
"2.2 Effect of the Merger. Upon the effectiveness of the Merger, the
separate existence of Prize shall cease and Merger Sub, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under the laws of the State of Delaware. The Merger shall
have the effects specified in this Agreement and the DGCL."
(d) Section 2.3(a) of the Agreement is amended to read in its entirety as
follows:
1
"(a) The certificate of incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in accordance with
its terms and applicable law."
(e) Section 2.7 of the Agreement is amended to read in its entirety as
follows:
"2.7 Effective Time of the Merger. The Merger shall become effective
immediately when the Certificate of Merger is accepted for filing by the
Secretary of State of Delaware, or at such time thereafter as is provided in the
Certificate of Merger (the "Effective Time"). As soon as practicable after the
Closing, the Certificate of Merger shall be filed, and the Effective Time shall
occur, on the Closing Date; provided, however, that the Certificate of Merger
may be filed prior to the Closing Date or prior to the Closing so long as it
provides for an effective time that occurs on the Closing Date immediately after
the Closing."
(f) The first sentence of Section 2.8 of the Agreement is amended to delete
"and the TBCA."
(g) Clause (b) of Section 3.5 of the Agreement is amended to read in its
entirety as follows:
"the filing of the Certificate of Merger with the Secretary of State of
Delaware pursuant to applicable provisions of the DGCL;"
(h) Clause (b) of Section 4.5 of the Agreement is amended to read in its
entirety as follows:
"the filing of the Certificate of Merger with the Secretary of State of
Delaware pursuant to applicable provisions of the DGCL;"
(i) Exhibit 5.10, the Form of Affiliate Letter, is amended to substitute
"Pintail Energy, Inc., a Delaware corporation" for "Pintail Energy, Inc., a
Texas corporation" in the first paragraph thereof.
(j) Exhibit 5.14, the Form of Registration Rights Agreement, is amended to
substitute "Pintail Energy, Inc., a Delaware corporation" for "Pintail Energy,
Inc., a Texas corporation" in the first paragraph thereof.
2. Upon the execution of this Amendment, Pintail-Delaware will have all the
obligations, and will enjoy all the rights, of Pintail-Texas under the
Agreement, and Pintail-Texas will no longer be a party thereto or have any
rights or obligations thereunder.
3. This Amendment shall be effective as of December 17, 2001.
2
IN WITNESS WHEREOF, Magnum Hunter, Pintail-Texas, Prize and
Pintail-Delaware have executed this Amendment as of the date first above
written.
MAGNUM HUNTER RESOURCES, INC.,
a Nevada corporation
By: /s/Xxxxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxxxx
---------------------------------
Title: Vice President, General Counsel
and Secretary
--------------------------------
PINTAIL ENERGY, INC.,
a Texas corporation
By: /s/Xxxxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxxxx
---------------------------------
Title: Vice President
--------------------------------
PRIZE ENERGY, INC.,
a Delaware corporation
By: /s/Xxxxxx X. Xxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxx
---------------------------------
Title: Chairman and CEO
--------------------------------
PINTAIL ENERGY, INC.,
a Delaware corporation
By: /s/Xxxxxx X. Xxxxxxxx
-----------------------------------
Name: Xxxxxx X. Xxxxxxxx
---------------------------------
Title: Vice President
--------------------------------