MSR EXPLORATION LTD.
MERCURY EXPLORATION COMPANY
AND
MERCURY MONTANA, INC.
AGREEMENT AND PLAN OF MERGER
MARCH 26, 1997
Agreement and Plan of Merger............................................. 1
Mercury Exploration Disclosure Letter.................................... 2
MSR Exploration Disclosure Letter........................................ 3
Mercury Supplemental Disclosure Letter................................... 4
MSR Exploration Oil & Gas Properties..................................... 5
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
MSR EXPLORATION LTD.
MERCURY EXPLORATION COMPANY
AND
MERCURY MONTANA, INC.
MARCH 26, 1997
TABLE OF CONTENTS
PAGE
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ARTICLE I
THE MERGER......................... 2
1.1 THE MERGER...................................................... 2
1.2 CLOSING DATE.................................................... 2
1.3 CONSUMMATION OF THE MERGER...................................... 2
1.4 EFFECTS OF THE MERGER........................................... 3
1.5 ARTICLES OF INCORPORATION; BYLAWS............................... 3
1.6 DIRECTORS AND OFFICERS.......................................... 3
1.7 CONVERSION OF SECURITIES........................................ 3
1.8 DISSENTING SHARES............................................... 4
1.9 PAYMENT OF MERGER CONSIDERATION TO HOLDERS OF MSR COMMON STOCK.. 4
1.10 PAYMENT OF MERGER CONSIDERATION TO MERCURY AND MINORITY
STOCKHOLDERS.................................................... 6
1.11 WITHHOLDING TAXES................................................ 6
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION....................... 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES............... 7
2.1 REPRESENTATIONS AND WARRANTIES OF MSR........................... 7
2.2 REPRESENTATIONS AND WARRANTIES OF MERCURY AND MERCURY SUB....... 22
ARTICLE III
COVENANTS OF MERCURY AND MERCURY SUB
PRIOR TO THE EFFECTIVE TIME................. 36
3.1 CONDUCT OF BUSINESS BY MERCURY SUB PENDING THE MERGER........... 36
3.2 PROXY STATEMENT................................................. 38
3.3 ACQUISITION PROPOSALS........................................... 39
ARTICLE IV
COVENANTS OF MSR PRIOR TO THE EFFECTIVE TIME.......... 39
4.1 CONDUCT OF BUSINESS BY MSR PENDING THE MERGER................... 39
4.2 PROXY STATEMENT................................................. 41
4.3 MEETING OF STOCKHOLDERS OF MSR.................................. 42
4.4 REGISTRATION STATEMENT.......................................... 42
4.5 STOCK EXCHANGE LISTING.......................................... 42
4.6 FINANCING....................................................... 42
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ARTICLE V
ADDITIONAL AGREEMENTS.......................... 43
5.1 ACCOUNTANTS LETTER.............................................. 43
5.2 FILINGS; CONSENTS; REASONABLE EFFORTS........................... 43
5.3 NOTIFICATION OF CERTAIN MATTERS................................. 43
5.4 AGREEMENT TO DEFEND............................................. 43
5.5 EXPENSES........................................................ 43
5.6 SURVIVING CORPORATION AND SUBSIDIARIES BOARDS OF DIRECTORS,
EXECUTIVE COMMITTEES AND OFFICERS............................. 44
5.7 INDEMNIFICATION................................................. 44
5.8 CERTAIN TAX AND ACCOUNTING MATTERS.............................. 46
5.9 AGREEMENT REGARDING CERTAIN REVENUES AND EXPENSES............... 48
5.10 ARTICLES OF INCORPORATION AND BYLAWS............................ 48
5.11 ALTERNATIVE TRANSACTION......................................... 48
5.12 CONTINGENT WARRANT.............................................. 49
5.13 MANAGEMENT AGREEMENT............................................ 49
ARTICLE VI
CONDITIONS................................. 49
6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER..... 49
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF MSR..................... 51
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF MERCURY AND
MERCURY SUB.................................................... 51
ARTICLE VII
MISCELLANEOUS................................. 52
7.1 TERMINATION..................................................... 52
7.2 EFFECT OF TERMINATION........................................... 53
7.3 WAIVER AND AMENDMENT............................................ 53
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.......... 53
7.5 CERTAIN DEFINITIONS............................................. 53
7.6 PUBLIC STATEMENTS............................................... 54
7.7 REMEDIES NOT EXCLUSIVE.......................................... 54
7.8 ASSIGNMENT...................................................... 54
7.9 NOTICES......................................................... 54
7.10 GOVERNING LAW................................................... 55
7.11 SEVERABILITY.................................................... 55
7.12 COUNTERPARTS.................................................... 55
7.13 HEADINGS........................................................ 55
7.14 CONFIDENTIALITY AGREEMENT....................................... 55
7.15 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES; COMMUNITY PROPERTY
INTERESTS....................................................... 56
7.16 DISCLOSURE LETTERS.............................................. 57
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of the 26th day of March, 1997
(this "AGREEMENT"), is among MSR Exploration Ltd., an Alberta, Canada
corporation which has agreed to redomesticate to the State of Delaware subject
to the terms hereof ("MSR"), Mercury Exploration Company, a Texas corporation
("MERCURY"), and Mercury Montana, Inc., a Delaware corporation ("MERCURY SUB").
WHEREAS, subject to and in accordance with the terms and conditions of this
Agreement, the respective Boards of Directors of MSR, Mercury and Mercury Sub,
and Mercury and the "MINORITY STOCKHOLDERS" (as such term is defined below), as
the owners and holders of all of the capital stock of Mercury Sub, have approved
the merger of MSR with and into Mercury Sub (the "MERGER"); and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to and in accordance with the terms and conditions
of this Agreement and in accordance with the General Corporation Law of Delaware
(the "DGCL"), at the Effective Time (as defined in Section 1.3) MSR shall be
merged with and into Mercury Sub. As a result of the Merger, the separate
corporate existence of MSR shall cease and Mercury Sub shall continue as the
surviving corporation (sometimes referred to herein as the "SURVIVING
CORPORATION"), and all the properties, rights, privileges, powers and franchises
of Mercury Sub and MSR shall vest in the Surviving Corporation, without any
transfer or assignment having occurred, and all debts, liabilities and duties of
Mercury Sub and MSR shall attach to the Surviving Corporation, all in accordance
with the DGCL.
1.2 CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
P.C., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, as soon as practicable after
the satisfaction or waiver of the conditions set forth in Article VI, or at such
other time or place or on such other date as MSR and Mercury shall agree,
provided that the closing conditions set forth in Article VI shall have been
satisfied or waived at or prior to such time. The date on which the Closing
occurs is herein referred to as the "CLOSING DATE".
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1.3 CONSUMMATION OF THE MERGER. As soon as practicable on the Closing
Date, the parties hereto will cause the Merger to be consummated by filing with
the Secretary of State of Delaware a certificate of merger in such form as
required by, and executed in accordance with, the relevant provisions of the
DGCL. The "EFFECTIVE TIME" of the Merger as that term is used in this Agreement
shall mean such time as the certificate of merger is duly filed with the
Secretary of State of Delaware or at such later time (not to exceed 90 days from
the date the certificate is filed) as is specified in the certificate of merger
pursuant to the mutual agreement of MSR and Mercury.
1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
the applicable provisions of the DGCL.
1.5 ARTICLES OF INCORPORATION; BYLAWS. The Articles of Incorporation of
Mercury Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation and thereafter shall
continue to be its Articles of Incorporation until amended as provided therein
and under the DGCL; provided, however, that the name of the Surviving
Corporation after the Effective Time shall be MSR Exploration Ltd., and the
Articles of Incorporation of the Surviving Corporation shall be amended to
reflect such name change. The bylaws of Mercury Sub, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving Corporation
and thereafter shall continue to be its bylaws until amended as provided therein
and under the DGCL.
1.6 DIRECTORS AND OFFICERS. At and after the Effective Time (a) the
respective boards of directors of the Surviving Corporation and its subsidiaries
shall be comprised of (i) three persons designated by MSR immediately prior to
the Effective Time (which such designees shall be ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇) and (ii) three persons designated by Mercury immediately
prior to the Effective Time, each to hold office in accordance with the Articles
of Incorporation and bylaws of the Surviving Corporation and its subsidiaries,
and (b) the officers of the MSR and its subsidiaries shall be as follows:
Chairman of the Board and Chief Executive Officer - ▇▇▇▇ ▇. ▇▇▇▇, President and
Chief Operating Officer - ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President - ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
and such other officers as shall be elected by the respective boards of
directors of the Surviving Corporation and its subsidiaries, in each case until
their respective successors are duly elected or appointed and qualified.
1.7 CONVERSION OF SECURITIES. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of MSR, Mercury, Mercury Sub or their stockholders:
(a) Each share of common stock, no par value per share, of MSR issued
and outstanding immediately prior to the Effective Time ("MSR COMMON
STOCK"), shall be converted into the right to receive one share of common
stock, par value $.01 per share, of the Surviving Corporation ("SURVIVING
CORPORATION COMMON STOCK"), and each warrant to purchase shares of MSR
Common Stock issued and outstanding immediately prior to the Effective Time
shall be converted into a warrant to purchase the same number of shares of
Surviving Corporation Common Stock.
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(b) Each share of common stock, par value $.01 per share, of Mercury
Sub issued and outstanding immediately prior to the Effective Time
("MERCURY SUB COMMON STOCK"), shall be converted into one share of
Surviving Corporation Common Stock, and each warrant and option to purchase
shares of Mercury Sub Common Stock issued and outstanding immediately prior
to the Effective Time shall be converted into a warrant or option to
purchase the same number of shares of Surviving Corporation Common Stock.
The foregoing rights to receive shares of Surviving Corporation Common Stock or
warrants or options to purchase shares of Surviving Corporation Common Stock are
herein collectively referred to as the "MERGER CONSIDERATION".
1.8 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of MSR Common Stock outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger and
who has demanded appraisal of such shares in accordance with the DGCL, if the
DGCl provides for appraisal rights for such shares in the Merger ("DISSENTING
SHARES"), shall not be converted into a right to receive the applicable Merger
Consideration, but, instead, such holder shall be entitled to appraisal rights
for his Dissenting Shares in accordance with the provisions of the DGCL;
provided, however, that if such holder fails to perfect or effectively withdraws
or loses his right to appraisal of his Dissenting Shares under the DGCL, such
Dissenting Shares shall be treated as if they had been converted as of the
Effective Time into a right to receive the applicable Merger Consideration. MSR
shall give Mercury prompt notice of any demands received by MSR for appraisal of
shares of MSR Common Stock, and, prior to the Effective Time, Mercury shall have
the right to participate in all negotiations and proceedings with respect to
such demands. Prior to the Effective Time, MSR shall not, except with the prior
written consent of Mercury, make any payment with respect to, or settle or offer
to settle, any such demands.
1.9 PAYMENT OF MERGER CONSIDERATION TO HOLDERS OF MSR COMMON STOCK.
(a) Pursuant to an agreement to be entered into on or before the Closing
Date among MSR, Mercury, and such designee, MSR shall designate a bank or trust
company reasonably acceptable to Mercury to act as exchange agent in the Merger
(the "EXCHANGE AGENT") for purposes of effecting the exchange for the Merger
Consideration of certificates that, immediately prior to the Effective Time,
representing shares of MSR Common Stock, or warrants to purchase MSR Common
Stock, entitled to receive the Merger Consideration pursuant to Section 1.7
("CERTIFICATES"). Upon the surrender to the Exchange Agent of each Certificate,
the Exchange Agent shall pay the holder of such Certificate the applicable
Merger Consideration multiplied by the number of shares of MSR Common Stock
formerly represented by such Certificate in exchange therefor (or, in the case
of a warrant to purchase shares of MSR Common Stock, a warrant to purchase a
like amount of shares of Surviving Corporation Common Stock in exchange
therefor), and such Certificate shall forthwith be cancelled. Until so
surrendered and exchanged, each such Certificate shall represent solely the
right to receive the applicable Merger Consideration. No interest shall be paid
or accrue on the Merger Consideration. If the Merger Consideration (or any
portion thereof) is to be
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delivered to any person other than the person in whose name the Certificate
surrendered in exchange therefor is registered, it shall be a condition to
such exchange that (i) the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and (ii) the person
requesting such exchange shall pay to the Exchange Agent any transfer or
other Taxes (as defined below) required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of the Exchange
Agent that such Tax has been paid or is not applicable. MSR may impose such
other reasonable conditions upon the exchange of Certificates as it may deem
necessary or desirable and as are consistent with the provisions of this
Agreement. Surviving Corporation Common Stock into which MSR Common Stock
shall be converted pursuant to the Merger shall be deemed to have been issued
at the Effective Time; provided, however, that, subject to Applicable Laws
(as defined below), no holder of an unsurrendered Certificate shall be
entitled, until the surrender of such Certificate, to vote the shares of
Surviving Corporation Common Stock into which his MSR Common Stock shall have
been converted.
(b) At or immediately prior to the Closing, MSR shall deposit, or cause to
be deposited, in trust with the Exchange Agent stock certificates representing
the aggregate stock Merger Consideration to which holders of shares of MSR
Common Stock shall be entitled at the Effective Time pursuant to Section 1.7
(the "PAYMENT FUND"). The Exchange Agent shall, pursuant to irrevocable
instructions, make the exchanges referred to in Section 1.9(a) out of the
Payment Fund. The Payment Fund shall not be used for any other purpose except as
expressly provided in this Agreement.
(c) Unless and until a Certificate is surrendered to the Exchange Agent,
dividends/distributions payable to the holders of record of Surviving
Corporation Common Stock shall not be paid to the holder of such Certificate in
respect of the Surviving Corporation Common Stock represented thereby, but,
subject to applicable abandoned property, escheat, and similar laws, there shall
be paid to the holder thereof (i) upon surrender of such Certificate, the amount
of any dividends/distributions, the record date for the determination of the
holders entitled to which shall be after the Effective Time, which theretofore
shall have become payable with respect to the shares of Surviving Corporation
Common Stock represented by such Certificate and issued in exchange upon its
surrender, but without interest on such dividends/distributions, and (ii) after
surrender of such Certificate, the amount of any dividends/distributions with
respect to such shares of Surviving Corporation Common Stock, the record date
for the determination of the holders entitled to which shall be after the
Effective Time but prior to the surrender of such Certificate, and the payment
date of which shall be subsequent to such surrender, such amount to be paid on
such payment date.
(d) Promptly following the date which is one year after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation all
certificates other documents and instruments in its possession relating to the
transactions described in this Agreement, and the Exchange Agent's duties shall
terminate. Thereafter, each holder of a Certificate may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat, and similar laws) receive in exchange therefor the applicable
Merger Consideration and any amounts to which such holder is entitled pursuant
to Sections 1.9(c),
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but such holder shall have no greater rights against the Surviving
Corporation than may be accorded to general creditors of the Surviving
Corporation under Applicable Law. Notwithstanding anything in this Agreement
to the contrary, neither the Exchange Agent nor any party hereto shall be
liable to a holder of shares of MSR Common Stock for any cash or other
property delivered to a public official pursuant to applicable abandoned
property, escheat, or similar laws.
(e) Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder of a Certificate a form of letter of transmittal (which shall
specify that delivery of a Certificate shall be effected, and risk of loss and
title to a Certificate shall pass, only upon proper delivery of the Certificate
to the Exchange Agent and shall be in such form and contain such other
provisions, as MSR shall specify) and instructions for use in surrendering such
Certificate and receiving the applicable Merger Consideration in exchange
therefor.
(f) At the Effective Time, the stock transfer books of MSR shall be closed
and no transfers of MSR Common Stock shall thereafter be made. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent, they shall be cancelled and exchanged for the applicable Merger
Consideration as provided in Section 1.7, subject to Applicable Law in the case
of Dissenting Shares.
(g) In the event any Certificate shall have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen, or destroyed, the Surviving Corporation
shall issue or cause to be issued in exchange for such lost, stolen, or
destroyed Certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with Section 1.7. When authorizing such issue of the
Merger Consideration in exchange therefor, the Board of Directors of the
Surviving Corporation may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen, or destroyed
Certificate to give the Surviving Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Surviving
Corporation with respect to the Certificate alleged to have been lost, stolen,
or destroyed.
1.10 PAYMENT OF MERGER CONSIDERATION TO MERCURY AND MINORITY STOCKHOLDERS.
On the Closing Date, immediately following the Effective Time, Mercury and the
Minority Stockholders, as the owners and holders of the certificate or
certificates that prior thereto represented all of the Mercury Sub Common Stock
and warrants and options to purchase Mercury Common Stock, shall surrender such
certificates to the Surviving Corporation or its transfer agent. Upon the
surrender by Mercury and the Minority Stockholders to the Surviving Corporation
or its transfer agent of all of such certificates, the Surviving Corporation
shall pay and deliver to Mercury and the Minority Stockholders the aggregate
amount of the applicable Merger Consideration to which Mercury and the Minority
Stockholders are entitled in accordance with Section 1.7 above, and such
certificates shall forthwith be cancelled.
1.11 WITHHOLDING TAXES. The distribution of the Merger Consideration will
be subject to all applicable withholding requirements under federal and foreign
tax laws.
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1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. The parties hereto
shall take all such reasonable and lawful action as may be necessary or
appropriate in order to effectuate the Merger as promptly as possible. If, at
any time after the Effective Time, any such 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 Mercury Sub or MSR,
such corporations shall direct their respective officers and directors to
take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF MSR. MSR hereby represents and
warrants to Mercury, Mercury Sub and the Minority Stockholders that:
(a) ORGANIZATION AND COMPLIANCE WITH LAW. Each of MSR and its
consolidated subsidiaries (the "MSR SUBSIDIARIES") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is chartered or organized and has all requisite
corporate power and corporate authority and all necessary governmental
authorizations to own, lease and operate all of its properties and assets
and to carry on its business as now being conducted, and the name of each
MSR Subsidiary, and the jurisdiction in which each is chartered or
organized are set forth in Section 2.1(a) of the disclosure letter
delivered by MSR to Mercury as of March 10, 1997 (the "MSR DISCLOSURE
LETTER"). Except as set forth in Section 2.1(a) of the MSR Disclosure
Letter, each of MSR and the MSR Subsidiaries is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary.
(b) CAPITALIZATION.
(i) The authorized capital stock of MSR consists of 20,000,000
shares of MSR Common Stock, no par value shares. As of March 10, 1997,
there were issued and outstanding 13,777,014 shares of MSR Common
Stock, and no shares of MSR Common Stock were held as treasury shares.
As of March 10, 1997, a total of 280,000 shares of MSR Common Stock
were reserved for issuance pursuant to the stock options and rights to
purchase referred to in Section 2.1(b)(ii). All issued shares of MSR
Common Stock are validly issued, fully paid and nonassessable, and no
holder thereof is entitled to preemptive rights. All shares of MSR
Common Stock to be issued pursuant to the Merger, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable and will not violate the preemptive rights of any
person. Except as set forth in Section 2.1(b) of the MSR Disclosure
Letter, MSR is not a party to, and is not aware of, any voting
agreement, voting trust or similar agreement or arrangement relating
to any class or series of its capital stock or
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any agreement or arrangement providing for registration rights with
respect to any capital stock or other securities of MSR.
(ii) As of the date hereof, there are outstanding options or
other rights (the "MSR OPTIONS") to purchase an aggregate of 280,000
shares of MSR Common Stock under that certain warrant in favor of Bank
Paribas dated as of January 13, 1995. Other than as set forth in this
Section 2.1(b) and except for issuances contemplated by this Agreement
in connection with the Merger, there are not now, and at the Effective
Time there will not be, any (A) shares of capital stock or other
equity securities of MSR outstanding (other than MSR Common Stock
issued pursuant to the exercise of MSR Options) or (B) outstanding
options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of any class of
capital stock of MSR, or contracts, understandings or arrangements to
which MSR is a party, or by which it is or may be bound, to issue
additional shares of its capital stock or options, warrants, scrip or
rights to subscribe for, or securities or rights convertible into or
exchangeable for, any additional shares of its capital stock.
(iii) Except as set forth in Section 2.1(b) of the MSR Disclosure
Letter, all outstanding shares of capital stock of the MSR
Subsidiaries are owned by MSR or a wholly-owned subsidiary of MSR,
free and clear of all liens, charges, encumbrances, adverse claims and
options of any nature.
(c) AUTHORIZATION AND VALIDITY OF AGREEMENT. MSR has all requisite
corporate power and authority to enter into this Agreement and to perform
its obligations hereunder. The execution and delivery by MSR of this
Agreement and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action (subject
only, with respect to the Merger and the approval of this Agreement as
provided for in Section 4.3). On or prior to the date hereof, the Board of
Directors of MSR has determined to recommend the approval of this Agreement
to the stockholders of MSR, and such determination is in effect as of the
date hereof. This Agreement has been duly executed and delivered by MSR is
the valid and binding obligation of MSR, enforceable against MSR in
accordance with its terms.
(d) NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS TO
WHICH MSR OR ANY OF THE MSR SUBSIDIARIES IS A PARTY. Neither the execution
and delivery of this Agreement by MSR, nor the performance by MSR of its
obligations hereunder, nor the consummation of the transactions
contemplated hereby by MSR, will (i) conflict with the MSR Certificate or
the bylaws of MSR or the charter or bylaws of any of the MSR Subsidiaries;
(ii) assuming satisfaction of the requirements set forth in clause (iii)
below, violate any provision of law applicable to MSR or any of the MSR
Subsidiaries; (iii) except for (A) requirements of foreign, Federal or
state securities laws, (B) requirements of notice filings in such foreign
jurisdictions as may be applicable, (C) the filing of (1) articles of
continuance with the Corporate Registry of
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Alberta and (2) a certificate of incorporation and certificate of
domestication pursuant to the DGCL, and (D) the filing of a certificate
of merger by MSR in accordance with the DGCL, require any consent or
approval of, or filing with or notice to, any public body or authority,
domestic or foreign, under any provision of law applicable to MSR or any
of the MSR Subsidiaries; or (iv) require any consent, approval or notice
under, or violate, breach, be in conflict with or constitute a default
(or an event that, with notice or lapse of time or both, would constitute
a default) under, or permit the termination of any provision of, or
result in the creation or imposition of any lien upon any properties,
assets or business of MSR or any of the MSR Subsidiaries under, any
note, bond, indenture, mortgage, deed of trust, lease, franchise,
permit, authorization, license, contract, instrument or other agreement or
commitment or any order, judgment or decree to which MSR or any of the MSR
Subsidiaries is a party or by which MSR or any of the MSR Subsidiaries or
any of its or their assets or properties is bound or encumbered, except (A)
those that have already been given, obtained or filed, (B) those that are
required pursuant to bank loan agreements, as set forth in Section 2.1(d)
of the MSR Disclosure Letter, (C) those that are customarily obtained from
governmental or tribal authorities after Closing.
(e) COMMISSION FILINGS; FINANCIAL STATEMENTS. MSR and each of the MSR
Subsidiaries have filed all reports, registration statements and other
filings, together with any amendments required to be made with respect
thereto, that they have been required to file with the Securities and
Exchange Commission (the "COMMISSION") under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), and the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). All reports, registration statements and
other filings (including all notes, exhibits and schedules thereto and
documents incorporated by reference therein) filed by MSR with the
Commission since January 1, 1996, through the date of this Agreement,
together with any amendments thereto, are sometimes collectively referred
to as the "MSR COMMISSION FILINGS". MSR has heretofore delivered to Mercury
copies of the MSR Commission Filings. As of the respective dates of their
filing with the Commission, the MSR Commission Filings complied in all
material respects with the Securities Act, the Exchange Act and the rules
and regulations of the Commission thereunder, and did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
Each of the consolidated financial statements (including any related
notes or schedules) included in the MSR Commission Filings was prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be noted therein or in the notes or
schedules thereto) and complied with all applicable rules and regulations
of the Commission. Such consolidated financial statements fairly present
the consolidated financial position of MSR and the MSR Subsidiaries as of
the dates thereof and the results of operations, cash flows and changes in
shareholders' equity for the periods then ended (subject, in the case of
the unaudited interim financial statements, to normal year-end audit
adjustments on a basis comparable with past periods). As of the date
hereof, neither MSR nor any MSR Subsidiaries have any
8
liabilities, absolute or contingent, that may reasonably be expected to
have a material adverse effect on MSR and the MSR Subsidiaries taken as a
whole that are not reflected in the MSR Commission Filings, except those
set forth in Section 2.1(e) of the MSR Disclosure Letter.
(f) CONDUCT OF BUSINESS IN THE ORDINARY COURSE; ABSENCE OF CERTAIN
CHANGES AND EVENTS. Since January 1, 1997, except as contemplated by this
Agreement or as disclosed in the MSR Commission Filings filed with the
Commission prior to the date hereof or as set forth in Section 2.1(f) of the
MSR Disclosure Letter, MSR and the MSR Subsidiaries have conducted their
business only in the ordinary and usual course, and there has not been (i)
any material adverse change in the financial condition, results of
operations or business of MSR and the MSR Subsidiaries, taken as a whole,
or any condition, event or development that reasonably may be expected to
result in any such material adverse change; (ii) any material change by MSR
in its accounting methods, principles or practices; (iii) any revaluation
by MSR or any of the MSR Subsidiaries of any of its or their assets,
including, without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary course
of business; (iv) any entry by MSR or any of the MSR Subsidiaries into any
commitment or transaction material to MSR and the MSR Subsidiaries, taken
as a whole; (v) any declaration, setting aside or payment of any dividends
or distributions in respect of the MSR Common Stock, or any redemption,
purchase or other acquisition of any of its securities or any securities of
any of the MSR Subsidiaries; (vi) any damage, destruction or loss (whether
or not covered by insurance) materially adversely affecting the properties
or business of MSR and the MSR Subsidiaries, taken as a whole; (vii) any
increase in indebtedness for borrowed money; (viii) any granting of a
security interest or lien on any material property or assets of MSR and the
MSR Subsidiaries, taken as a whole, other than (A) liens for taxes not due
and payable or which are being contested in good faith; (B) liens and
security interests created under joint operating agreements or similar
agreements, to the extent relating to amounts not yet due and payable; (C)
mechanics', warehousemen's and other statutory liens incurred in the
ordinary course of business, to the extent relating to amounts not yet due
and payable; and (D) defects and irregularities in title and encumbrances
which are not substantial in character or amount and do not materially
impair the use of the property or asset in question (collectively,
"PERMITTED LIENS"); or (ix) any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan or any other
increase in the compensation payable or to become payable to any officers
or key employees of MSR or any of the MSR Subsidiaries.
(g) LITIGATION. Except as set forth in Section 2.1(g) of the MSR
Disclosure Letter, there are no claims, actions, suits, investigations,
inquiries or proceedings pending or, to the knowledge of MSR, overtly
threatened against or affecting MSR or any MSR Subsidiaries or any of their
respective properties at law or in equity, or before or by any federal,
state, municipal or other governmental agency or authority,
9
or before any arbitration board or panel, wherever located, that
individually or in the aggregate if adversely determined would have
material adverse effect on MSR and the MSR Subsidiaries, taken as a
whole, or that involve the risk of criminal liability.
(h) COMPLIANCE WITH LAWS. Except as set forth in Section 2.1(h) of
the MSR Disclosure Letter, MSR and the MSR Subsidiaries have complied with
all applicable Federal, foreign, state and local laws, statutes,
ordinances, rules, regulations and orders ("APPLICABLE LAWS") (including
without limitation Applicable Laws relating to securities, properties,
manufacturing processes, sales practices, employment practices, terms and
conditions of employment, wages and hours, safety, occupational safety,
health, environmental protection, product safety, and civil rights), the
non-compliance with which would have a material adverse effect on MSR and
the MSR Subsidiaries, taken as a whole. Neither MSR nor any MSR Subsidiary
has received any written notice, which has not been dismissed or otherwise
disposed of, that any such party has not so complied. Neither MSR nor any
MSR Subsidiary is charged or, to the best knowledge of MSR, threatened
with, or, to the best knowledge of MSR, under investigation with respect
to, any violation of any Applicable Law relating to any aspect of the
business of MSR or any MSR Subsidiaries.
(i) EMPLOYEE BENEFIT PLANS.
(i) Section 2.1(i) of the MSR Disclosure Letter provides a
description of each Plan or Benefit Program or Agreement which is
sponsored, maintained or contributed to by MSR or any corporation,
trade, business or entity under common control with MSR Sub within the
meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue
Code of 1986, as amended (the "CODE") or Section 4001 of ERISA (a "MSR
ERISA AFFILIATE") for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date. True and complete copies of each of the Plans, Benefit
Programs or Agreements, related trusts, if applicable, and all
amendments thereto, have been furnished to Mercury.
(ii) Except as otherwise set forth in Section 2.1(i) of the MSR
Disclosure Letter:
(A) Neither MSR nor any MSR ERISA Affiliate contributes to
or has an obligation to contribute to, or has at any time
contributed to or had an obligation to contribute to, a plan
subject to Title IV of ERISA, including, without limitation, a
multiemployer plan within the meaning of Section 3(37) of ERISA:
(B) Each Plan and each Benefit Program or Agreement has
been administered, maintained and operated in all material
respects in accordance with the terms thereof and in compliance
with its governing documents and applicable law (including, where
applicable, ERISA and the Code);
10
(C) There is no matter pending with respect to any of the
Plans before any governmental agency, and there are no actions,
suits or claims pending (other than routine claims for benefits)
or, to the knowledge of MSR, threatened against, or with respect
to, any of the Plans or Benefit Programs or Agreements or their
assets;
(D) No act, omission or transaction has occurred which
would result in imposition on MSR or any MSR ERISA Affiliate of
breach of fiduciary duty liability damages under Section 409 of
ERISA, a civil penalty assessed pursuant to subsections (c), (i)
or (1) of Section 502 of ERISA or a tax imposed pursuant to
Chapter 43 of Subtitle D of the Code; and
(E) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not
require MSR or any MSR ERISA Affiliate to make a larger
contribution to, or pay greater benefits under, any Plan, Benefit
Program or Agreement than it otherwise would or create or give
rise to any additional vested rights or service credits under any
Plan or Benefit Program or Agreement.
(iii) Termination of employment of any employee of MSR or any MSR
ERISA Affiliate immediately after consummation of the transactions
contemplated by this Agreement would not result in payments under the
Plans, Benefit Programs or Agreements which, in the aggregate, would
result in imposition of the sanctions imposed under Sections 280G and
4999 of the Code.
(iv) Each Plan which is an "employee welfare benefit plan," as
such term is defined in Section 3(1) of ERISA, may be unilaterally
amended or terminated in its entirety without liability except as to
benefits accrued thereunder prior to such amendment or termination.
(j) TAXES. Except as set forth in Section 2.1(j) of the MSR
Disclosure Letter:
(i) All tax returns of or relating to any income taxes or similar
assessments or any sales, excise, occupation, use, ad valorem,
property, production, severance, transportation, employment, payroll,
franchise, or other tax imposed by any United States federal, state,
or local (or any foreign or provincial) taxing authority, including
any interest, penalties, or additions attributable thereto (any "Tax")
that are required to be filed on or before the Closing Date by or with
respect to MSR or any MSR Subsidiaries, or any other corporation that
is or was a member of an affiliated group (within the meaning of
Section 1504(a) of the Code) of corporations of which MSR was a
member for any period ending on or prior to the Closing Date, have
been or will be duly and timely filed, and all Taxes, including
interest and penalties, due and
11
payable pursuant to such Tax Returns have been paid or adequately
provided for in reserves established by MSR in the consolidated
financial statements included in the MSR Commission Filings.
(ii) All U.S. Federal income Tax Returns of or with respect to
MSR or any of the MSR Subsidiaries have been audited by the applicable
governmental authority, or the applicable statute of limitations has
expired, for all periods up to and including the taxable year ended
December 31, 1992.
(iii) There is no material claim against MSR or any of the MSR
Subsidiaries with respect to any Taxes, and no material assessment,
deficiency or adjustment has been asserted or proposed with respect to
any Tax Return of or with respect to MSR or any of the MSR
Subsidiaries that has not been adequately provided for in reserves
established by MSR in the consolidated financial statements included
in the MSR Commission Filings.
(iv) The total amounts set up as liabilities for current and
deferred Taxes in the consolidated financial statements included in
the MSR Commission Filings have been prepared in accordance with
generally accepted accounting principles and are sufficient to cover
the payment of all material Taxes, including any penalties or interest
thereon and whether or not assessed or disputed, that are, or are
hereafter found to be, or to have been, due with respect to the
operations of MSR and the MSR Subsidiaries through the periods covered
thereby.
(v) MSR and each of the MSR Subsidiaries have (and as of the
Closing Date will have) made all deposits (including estimated tax
payments for taxable years for which the consolidated federal income
tax return is not yet due) required with respect to Taxes.
(vi) No waiver or extension of any statute of limitations as to
any federal, local or foreign Tax matter has been given by or
requested from MSR or any of the MSR Subsidiaries.
(vii) Except for statutory liens for current Taxes not yet due,
no liens for Taxes exist upon the assets of either MSR or the MSR
Subsidiaries.
(viii) Neither MSR nor any of the MSR Subsidiaries has filed
consolidated income Tax Returns with any corporation, other than
consolidated federal and state income Tax Returns by MSR, for any
taxable period which is not now closed by the applicable statute of
limitations.
(ix) Neither MSR nor the MSR Subsidiaries has any deferred
intercompany gain as defined in Treasury Regulation Section 1.1502-13.
12
(x) MSR has not made any election to be treated as a U.S. domestic
corporation for federal Tax purposes pursuant to Section 897(i) of the
Code.
(k) ENVIRONMENTAL MATTERS. Except for matters disclosed in Section
2.1(k) of the MSR Disclosure Letter:
(i) to the best knowledge of MSR all of the properties,
operations and activities of MSR and the MSR Subsidiaries comply with
all applicable Environmental Laws;
(ii) None of MSR, the MSR Subsidiaries or their properties and
operations are subject to any existing, pending or, to the knowledge
of MSR, threatened action, suit, investigation, inquiry or proceeding
by or before any Governmental Authority or third party under any
Environmental Law;
(iii) to the best knowledge of MSR all notices, permits, licenses
or similar authorizations, if any, required to be obtained or filed by
MSR or any MSR Subsidiaries under any Environmental Law in connection
with any aspect of the business of MSR or the MSR Subsidiaries,
including without limitation those relating to the treatment, storage,
disposal or release of a hazardous substance or solid waste, have been
duly obtained or filed and will remain valid and in effect after the
Merger, and MSR and the MSR Subsidiaries are in compliance with the
terms and conditions of all such notices, permits, licenses and
similar authorizations;
(iv) to the best knowledge of MSR, MSR and the MSR Subsidiaries
have satisfied and are currently in compliance with all financial
responsibility requirements applicable to its operations and imposed
by any Governmental Authority under any Environmental Law, and neither
MSR nor any MSR Subsidiary has received any notice of noncompliance
with any such financial responsibility requirements;
(v) to the best knowledge of MSR, there are no physical or
environmental conditions existing on any property of MSR or any MSR
Subsidiary or resulting from MSR or any MSR Subsidiary's operations or
activities with respect to any MSR Properties, past or present, at any
location, that would give rise to any on-site or off-site
investigative, remedial, response, contribution or similar obligations
under any Environmental Laws;
(vi) to the best knowledge of MSR, since the effective date of
the relevant requirements of applicable Environmental Laws, all
hazardous substances or solid wastes generated by MSR or any MSR
Subsidiary or used in connection with any of their properties or
operations have to the extent required by Environmental Laws been
transported only by carriers authorized under Environmental Laws to
transport such substances and wastes, and disposed of only at
treatment, storage and disposal facilities authorized under
13
Environmental Laws to treat, store or dispose of such substances and
wastes, and, to the best knowledge of MSR and with respect to such
substances and wastes, such carriers and facilities have been and are
operating in compliance with such authorizations, are not subject to
any material unperformed investigative, remedial, response,
contribution or similar obligations under, and are not the subject of
any existing, pending or overtly threatened action, investigation or
inquiry by any Governmental Authority or third party in connection
with, any Environmental Laws;
(vii) there has been no exposure of any person or property to
hazardous substances, solid waste or any pollutant or contaminant, nor
has there been any release of hazardous substances, solid waste or any
pollutant or contaminant into the environment by MSR or any MSR
Subsidiary in connection with their properties or operations that
could reasonably be expected to give rise to any claim for damages or
compensation; and
(viii) MSR shall make available to Mercury all internal and
external environmental audits and studies and all correspondence on
substantial environmental matters in the possession of MSR relating to
any of the current or former properties or operations of MSR or any
MSR Subsidiary.
(l) PROPERTIES.
(i) The oil, gas and/or mineral leases, interests in which
comprise part of the "MSR PROPERTIES" (as defined below), and all
other material contracts, agreements, licenses, permits and easements,
rights-of-way and other rights-of-surface use comprising any part of
or otherwise relating to the MSR Properties (such leases and such
material contracts, agreements, licenses, permits, easements,
rights-of-way and other rights-of-surface use being herein called the
"MSR BASIC DOCUMENTS"), are in full force and effect and constitute
valid and binding obligations of the parties thereto; all contracts and
agreements which are MSR Basic Documents are disclosed in Section
2.1(l)(i) of the MSR Disclosure Letter. Neither MSR nor any MSR
Subsidiary is in breach or default (and no situation exists which with
the passing of time or giving of notice would create such a breach or
default) of its obligations under the MSR Basic Documents, and no
breach or default by any third party (or situation which with the
passage of time or giving of notice would create such a breach or
default) exists, to the extent such breach or default (whether by MSR,
any MSR Subsidiary or such a third party) could materially adversely
affect (after the date hereof) the ownership, operation, value or use
of any MSR Properties. All payments (including, without limitation,
all delay rentals, royalties, shut-in royalties and valid calls for
payment or prepayment under operating agreements) owing under MSR
Basic Documents have been and are being made (timely and properly, and
before the same became delinquent) by MSR or a MSR Subsidiary in all
material respects and, where the non-payment of same by a third party
could materially adversely affect the ownership, operation,
14
value or use of a MSR Property after the date hereof, have been and
are being made, by such third party in all material respects.
(ii) Except as set forth in Section 2.1(l)(ii) of the MSR
Disclosure Letter, neither MSR nor any MSR Subsidiary has incurred any
expenses, or made commitments to make expenditures, in connection with
(and no other obligations or liabilities have been incurred) which
would materially adversely affect the ownership or operation of the
MSR Properties after the date hereof, other than routine expenses
incurred in the normal operation of existing ▇▇▇▇▇ on the MSR
Properties. Except as set forth in Section 2.1(o)(ii) of the MSR
Disclosure Letter, no proposals are currently outstanding (whether
made by MSR, any MSR Subsidiary or by any other party) to drill
additional ▇▇▇▇▇, or to deepen, plug back, abandon, or rework existing
▇▇▇▇▇, or to conduct other operations for which consent is required
under the applicable operating agreement, or to conduct any other
material operations, other than normal operation of existing ▇▇▇▇▇ on
the MSR Properties.
(iii) There exist no agreements or arrangements for the sale,
gathering, transportation, compression, treating, processing or other
marketing of a material volume of production from the MSR Properties
(including without limitation, calls on, or other rights to purchase,
production, whether or not the same are currently being exercised)
other than (A) the agreements set forth in Section 2.1(l)(iii) of the
MSR Disclosure Letter, (B) agreements or arrangements which are
cancelable on 120 days notice or less without penalty or detriment and
(C) calls on, or other rights to purchase, production, subject to
which MSR or any MSR Subsidiary acquired one or more MSR Properties
and which individually, or in the aggregate, do not affect a material
volume of the production of oil or gas from the MSR Properties. Any
contracts or other arrangements under which MSR or any MSR Subsidiary
is processing, gathering, transporting or otherwise marketing any
material volume of oil, gas or other minerals (whether or not
attributable to the MSR Properties) for the account of a third party
include terms that represent an arm's length, commercially reasonable
trade for MSR or any MSR Subsidiary.
(iv) Except as set forth in Section 2.1(l)(iv) of the MSR
Disclosure Letter, neither MSR nor any MSR Subsidiary has received
prepayments (including, but not limited to, payments for oil and gas
not taken pursuant to "take-or-pay" arrangements) for any oil or gas
produced from the MSR Properties as a result of which the obligation
does (or may) exist to deliver oil or gas produced from the MSR
Properties after the date hereof without then receiving payment (or
without then receiving full payment) therefor or to make repayments in
cash. For each MSR Property listed in Section 2.1(l)(iv) of the MSR
Disclosure Letter, such section reflects (A) the total amount of
prepayment received as of the date hereof, (and the amount of any
recoupment thereof heretofore made), and (B) whether or not a cash
payment can be required in the event recoupment out of production
proves to be inadequate.
15
Except as set forth in Section 2.1(l)(iv) of the MSR Disclosure
Letter, there is no MSR Property with respect to which MSR, any MSR
Subsidiary, and/or their respective predecessors in title, have
collectively taken more (referred to herein as "OVER-PRODUCED") or
materially less (referred to herein as "UNDERPRODUCED") production
from such MSR Property (or on the units in which such MSR Property
participates), or any product thereof, than the ownership of MSR
or any MSR Subsidiary and such predecessors in such MSR Property
would entitle MSR or any MSR Subsidiary and such predecessors (absent
any balancing agreement or arrangement) to receive, to the extent such
overproduced or underproduced position has not, as of the date hereof,
been fully made up or otherwise extinguished. For each MSR Property
listed in Section 2.1(l)(iv) of the MSR Disclosure Letter, such
section reflects, on a well-by-well or any other basis as may be
dictated by any applicable balancing agreement, (A) whether MSR or any
MSR Subsidiary is in an over-produced or under-produced position, (B)
the amount of such over-production or under-production, (C) a
description of the written balancing agreement (if any) pertaining to
such MSR Property (or a statement that no such agreement exists) and
(D) a statement as to whether royalties, overriding royalties or other
burdens against MSR's or any MSR Subsidiaries's net revenue interest
in the affected MSR Properties were, during the period the subject
imbalance accrued, paid based upon receipts or entitlements. Except as
set forth in Section 2.1(l)(iv) of the MSR Disclosure Letter, there
are no pipeline imbalances that have arisen due to the failure of
nominations made by MSR or any MSR Subsidiary to match actual
deliveries of production from any one or more MSR Properties.
(v) MSR and each MSR Subsidiary has all governmental licenses
and permits necessary to own and operate the MSR Properties as
presently being owned and operated, and such licenses, permits and
filings are in full force and effect, and neither MSR nor any MSR
Subsidiary has received written notice of any material violations in
respect of any such licenses or permits.
(vi) Except as set forth in Section 2.1(l)(vi) of the MSR
Disclosure Letter, neither MSR nor any MSR Subsidiary is subject to
(A) any area of mutual interest agreements or non-compete agreements,
(B) any farm-out or farm-in agreement under which any party thereto is
entitled to receive assignments not yet made, or could earn additional
assignments after the date hereof or (C) any tax partnership, to the
extent being so subject could have a material adverse effect on MSR or
any MSR Subsidiary or on any MSR Property.
(vii) All severance, production, ad valorem, windfall profit and
other similar taxes relating to the ownership or operation of the MSR
Properties have been, and are being, paid (timely, and before the
same become delinquent) by MSR and each MSR Subsidiary in all respects.
16
(viii) The ownership and operation of the MSR Properties has, to
the extent that non-conformance could materially adversely affect the
ownership, operation, value or use thereof after the date hereof, been
in conformity with all applicable laws, and all applicable rules,
regulations and orders of all governmental agencies having
jurisdiction.
(ix) Except as set forth in Section 2.1(l)(ix) of the MSR
Disclosure Letter, there are no Preferential Rights or Consents, other
than Routine "GOVERNMENTAL APPROVALS" (as defined below), that affect
any material MSR Property or Properties and that will be triggered by
the Merger.
(x) Except as set forth in Section 2.1(l)(x) of the MSR
Disclosure Letter, there exist no agreements or other arrangements
whereunder MSR or any MSR Subsidiary undertakes to perform gathering,
transportation, processing or other marketing services for any third
party, including without limitation the owner of a royalty or
overriding royalty interest burdening a lease included in the MSR
Properties, for a fee or other consideration that is now, or may
hereafter be, unrepresentative of commercial rates being received by
third parties in comparable, arm's length transactions.
(xi) MSR and/or the MSR Subsidiaries have good and defensible
title to the MSR Property, free and clear of all liens, security
interests, and encumbrances except for (a) the contracts, agreements,
burdens, encumbrances and other matters set forth in the descriptions
of certain of the MSR Properties in Section 2.1(l) of the MSR
Disclosure Letter, (b) statutory liens for taxes which are not yet
delinquent, (c) liens under operating agreements, pooling orders and
unitization agreements, and mechanics' materialmen's liens, with
respect to obligations which are not yet due, and (d) minor defects
and irregularities in title to any MSR Property, so long as such
defects and irregularities do not materially impair the value of such
MSR Property or the use thereof for the purposes for which such MSR
Property is held. With respect to each MSR Property described in
Section 2.1(l) of the MSR Disclosure Letter, the ownership of MSR
and/or the MSR Subsidiaries in such MSR Property does and will, (A)
with respect to each tract of land described in Section 2.1(l) of the
MSR Disclosure Letter (whether described directly in such section or
described by reference to another instrument) in connection with such
MSR Property, (1) entitle MSR and/or a MSR Subsidiary to receive a
decimal or percentage share of the oil, gas and other hydrocarbons
produced from, or allocated to, such tract equal to not less than the
decimal or percentage share set forth in Section 2.1(l) of the MSR
Disclosure Letter in connection with such tract opposite the words
"Net Revenue Interest" (or words of similar import), (2) cause MSR or
any MSR Subsidiary to be obligated to bear a decimal or percentage
share of the cost of exploration, development and operation of such
tract of land not greater than the decimal or percentage share set
forth in Section 2.1(l) of the MSR Disclosure Letter in connection
with such tract opposite the words "Working Interest" (or words of
similar import) and
17
(B) if such MSR Property is shown in Section 2.1(l) of the MSR
Disclosure Letter to be subject to a unit or units, with respect to
each such unit, (1) entitle MSR and/or the MSR Subsidiaries to
receive a decimal or percentage share of all substances covered by
such unit which are produced from, or allocated to, such unit equal
to not less than the decimal or percentage share set forth in
Section 2.1(l) of the MSR Disclosure Letter in connection with such
MSR Property opposite the words "Unit Net Revenue Interest" or words
of similar import (and if such MSR Property is subject to more than
one unit, words identifying such interest with such unit), and
(2) obligate MSR and/or the MSR Subsidiaries to bear a decimal or
percentage share set forth in Section 2.1(l) of the MSR Disclosure
Letter in connection with such MSR Property opposite the words "Unit
Working Interest" or words of similar import (and if such MSR Property
is subject to more than one unit, words identifying such interest with
such unit). With respect to each MSR Property described in Section
2.1(l) of the MSR Disclosure Letter which is subject to a voluntary or
involuntary pooling, unitization or communication agreement and/or
order, the term "tract of land" as used in this subsection (xi) shall
mean the pooled, unitized or communitized area as an entirety and
shall not be deemed to refer to any individual tract committed to said
pooled, unitized or communitized area. Without limitation of the
foregoing, the ownership by MSR and/or the MSR Subsidiaries of the MSR
Properties does and will, with respect to each well or unit identified
in Section 2.1(l) of the MSR Disclosure Letter, entitle MSR and/or the
MSR Subsidiaries to receive a decimal or percentage share of the oil,
gas and other hydrocarbons produced from, or allocated to, such well
or unit equal to not less than the decimal or percentage share set
forth, for such well or unit, in the column headed "Net Revenue
Interest" in Section 2.1(l) of the MSR Disclosure Letter, and cause
MSR and/or MSR Subsidiaries to be obligated to bear a decimal or
percentage share of the cost of operation of such well or unit equal
to not more than the decimal or percentage share set forth, for such
well or unit, in the column headed "Working Interest" in such section.
The above-described shares of production which MSR and/or the MSR
Subsidiaries are entitled to receive and shares of expenses which MSR
and/or MSR Subsidiaries are obligated to bear are not and will not be
subject to change other than such changes which arise pursuant to
non-consent provisions of operating agreements described in Section
2.1(l) of the MSR Disclosure Letter in connection with operations
hereafter proposed, or such changes are reflected in Section 2.1(l)
of the MSR Disclosure Letter.
(m) AGREEMENTS. All agreements, arrangements, and understandings of
any nature (written or oral, formal or informal) (collectively, for
purposes of this Section, "agreements") to which MSR or any MSR Subsidiary
is a party or by which it or any of its properties is otherwise bound,
regardless of amount or subject matter, that are material to the business,
assets, results of operations, condition (financial or otherwise), or
prospects of MSR or any MSR Subsidiary are listed in Section 2.1(m) of the
MSR Disclosure Letter. MSR has delivered to Mercury, accurate and complete
copies of such agreements. Each of such agreements is a valid and binding
agreement of the
18
parties thereto enforceable against them in accordance
with its terms. No breach or default exists with respect to any of such
agreements, and no event has occurred which, after the giving of notice or
the passage of time or otherwise, will result in any such breach or
default.
(n) EMPLOYEES; LABOR RELATIONS.
(i) Set forth in Section 2.1(n)(i) of the MSR Disclosure Letter
is a list of (i) all directors and officers of MSR and the MSR
Subsidiaries, and (ii) the name of each employee, agent, and
consultant of MSR and the MSR Subsidiaries as of the date hereof,
together with the total amounts of salary, bonuses, and other
compensation paid or payable by MSR and the MSR Subsidiaries to each
such person for the current fiscal year and the immediately preceding
fiscal year.
(ii) Except as set forth in Section 2.1(n)(ii) of the MSR
Disclosure Letter, (a) there are no collective bargaining agreements
or other similar agreements, arrangements, or understandings, written
or oral, with employees as a group to or by which MSR or any MSR
Subsidiary is a party or is bound; (b) no employees of MSR or any MSR
Subsidiary are represented by any labor organization, collective
bargaining representative, or group of employees; (c) no labor
organization, collective bargaining representative, or group of
employees claims to represent a majority of the employees of MSR or
any MSR Subsidiary in an appropriate unit of MSR or MSR Subsidiary;
(d) neither MSR nor any MSR Subsidiary has been involved with any
representational campaign by any union or other organization or group
seeking to become the collective bargaining representative of any of
their employees or been subject to or, to the best knowledge of MSR,
threatened with any strike or other concerted labor activity or
dispute; and (e) neither MSR nor any MSR Subsidiary is obligated to
bargain collectively with respect to wages, hours, and other terms and
conditions of employment with any recognized or certified labor
organization, collective bargaining representative, or group of
employees, with respect to any of their employees.
(o) INSIDER INTERESTS. Except as disclosed in Section 2.1(o) of the
MSR Disclosure Letter, no shareholder, director, officer, or employee of
MSR or any MSR Subsidiary or any associate of any such shareholder,
director, officer, or employee is presently, directly or indirectly, a
party to any transaction with MSR or any MSR Subsidiary, including, without
limitation, any agreement, arrangement, or understanding, written or oral,
providing for the employment of, furnishing of services by, rental of real
or personal property from, or otherwise requiring payments to any such
shareholder, director, officer, employee, or associate. To the best
knowledge of MSR, no shareholder, director, officer, or employee of MSR or
any MSR Subsidiary or any associate of any such shareholder, director,
officer, or employee owns, directly or indirectly, any material interest
in, or serves as a director, officer, or employee of, any customer,
supplier, or competitor of MSR or any MSR Subsidiary. For purposes
19
of this Section only, an "associate" of any shareholder, director, officer,
or employee means any member of the immediate family of such shareholder,
director, officer, or employee or any corporation, partnership, trust, or
other entity in which such shareholder, director, officer, or employee has
a substantial ownership or beneficial interest (other than an interest in a
public corporation which does not exceed three percent of its outstanding
securities) or is a director, officer, partner, or trustee or person
holding a similar position.
(p) FINANCIAL REQUIREMENTS. Set forth in Section 2.1(p) of the MSR
Disclosure Letter is a list of all bonds, deposits, financial assurance
requirements, and insurance coverage required to be submitted to any
Federal, foreign, state or local governmental agencies or authorities for
the continued ownership and operation of the business and assets of MSR or
any MSR Subsidiaries.
(q) VOTING REQUIREMENTS. The affirmative vote of the holders of a
two-thirds of the outstanding shares of MSR Common Stock is the only vote
of the holders of any class or series of the capital stock of MSR necessary
to approve the "Redomestication of MSR" (as defined in Section 4.3 below);
and the affirmative vote of the holders of a majority of the shares of MSR
Common Stock present at the MSR special stockholders' meeting convened in
accordance with Section 4.3 and entitled to vote thereon is the only vote
of the holders of any class or series of the capital stock of MSR necessary
to approve this Agreement.
(r) BROKERAGE FEES. Except for the engagement by MSR of an investment
banker for the purposes of rendering an opinion as contemplate by Section
6.1 below, neither MSR nor any of its affiliates has retained any financial
advisor, broker, agent, or finder or paid or agreed to pay any financial
advisor, broker, agent, or finder on account of this Agreement or any
transaction contemplated hereby. MSR shall indemnify and hold harmless
Mercury from and against any and all losses, claims, damages, and
liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with
respect to any finder's fee, brokerage commission, or similar payment in
connection with any transaction contemplated hereby asserted by any person
on the basis of any act or statement made or alleged to have been made by
MSR or any of its affiliates.
(s) DISCLOSURE. No representation or warranty made by MSR in this
Agreement, and no statement of MSR contained in any document, certificate,
or other writing furnished or to be furnished by MSR to Mercury or Mercury
Sub pursuant hereto or in connection herewith, contains or will contain, at
the time of delivery, any untrue statement of a material fact or omits or
will omit, at the time of delivery, to state any material fact necessary in
order to make the statements contained therein, in light of the
circumstances under which they are made, not misleading. MSR knows of no
matter (other than matters of a general economic character not relating
solely to MSR in any specific manner) which has not been disclosed to
Mercury and Mercury Sub pursuant to this Agreement or the MSR Disclosure
Letter which materially and adversely affects, or, so far as MSR can now
reasonably foresee, will materially and
20
adversely affect, the business, assets, results of operations, condition
(financial or otherwise), or prospects of MSR or the ability of MSR to
consummate the transactions contemplated hereby.
2.2 REPRESENTATIONS AND WARRANTIES OF MERCURY AND MERCURY SUB. Mercury and
Mercury Sub hereby jointly and severally represent and warrant to MSR that:
(a) ORGANIZATION AND COMPLIANCE WITH LAW. Each of Mercury and Mercury
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is chartered or organized
and has all requisite corporate power and corporate authority and all
necessary governmental authorizations to own, lease and operate all of its
properties and assets and to carry on its business as now being conducted.
The jurisdiction in which Mercury and Mercury Sub are chartered or
organized is set forth in Section 2.2(a) of the disclosure letter delivered
by Mercury to MSR on March 17, 1997 (the "MERCURY DISCLOSURE LETTER").
Except as set forth in Section 2.2(a) of the Mercury Disclosure Letter,
each of Mercury and Mercury Sub is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary.
(b) ORGANIZATION AND COMPLIANCE WITH LAW. Mercury has delivered to
MSR accurate and complete copies of (i) the Articles of Incorporation (the
"MERCURY SUB ARTICLES") and bylaws of Mercury Sub as currently in effect,
(ii) the stock records of Mercury Sub, and (iii) the minutes of all
meetings of Mercury Sub's Board of Directors, any committees of such Board,
and Mercury Sub's shareholders (and all consents in lieu of such meetings).
Such records, minutes, and consents accurately reflect the stock ownership
of Mercury Sub and all actions taken by Mercury Sub's Board, any committees
of such Board, and Mercury Sub's shareholders. Mercury Sub is not in
violation of any provision of its Articles of Incorporation or Bylaws.
(c) CAPITALIZATION.
(i) The authorized capital stock of Mercury Sub consists solely
of 50,000,000 shares of Mercury Sub Common Stock, $.01 par value. As
of the date hereof, there were issued and outstanding 12,000,000
shares of Mercury Sub Common Stock, and no shares of Mercury Sub
Common Stock are held as treasury shares. All issued shares of Mercury
Sub Common Stock are validly issued, fully paid and nonassessable, and
no holder thereof is entitled to preemptive rights. Except as
contemplated by this Agreement, neither Mercury nor Mercury Sub are a
party to, and or aware of, any voting agreement, voting trust or
similar agreement or arrangement relating to any class or series of
any capital stock or other securities of Mercury Sub.
(ii) Except for warrants to purchase 11,000,000 shares of Mercury
Sub Common Stock and options to purchase 228,570 shares of Mercury Sub
Common Stock, all as described in Section 2.2 of the Mercury
Disclosure
21
Letter, there are not now, and at the Effective Time there
will not be, any outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable
for, shares of any class of capital stock of Mercury Sub, or
contracts, understandings or arrangements to which Mercury or Mercury
Sub is a party, or by which either is or may be bound, to issue or
sell additional shares of Mercury Sub capital stock or options,
warrants, scrip or rights to subscribe for, or securities or rights
convertible into or exchangeable for, any additional shares of Mercury
Sub capital stock.
(iii) All outstanding shares of capital stock of the Mercury Sub
are owned by Mercury and persons designated as "MINORITY STOCKHOLDERS"
in Section 2.2(c) of the Mercury Disclosure Letter, and the number of
shares of capital stock of Mercury Sub owned by each such party is as
designated for such party in such section. All such shares of capital
stock are owned by the designated party free and clear of all liens,
charges, encumbrances, adverse claims and options of any nature.
(d) NO SUBSIDIARIES. Mercury Sub has no subsidiaries. In addition,
except as set forth in Section 2.2(d) of the Mercury Disclosure Letter,
Mercury Sub does not own, directly or indirectly, any capital stock or
other equity securities of any corporation or have any direct or indirect
equity or ownership interest in any other person.
(e) AUTHORIZATION AND VALIDITY OF AGREEMENT. Mercury and Mercury Sub
have all requisite corporate power and authority to enter into this
Agreement and to perform their obligations hereunder. The execution and
delivery by Mercury and Mercury Sub of this Agreement and the consummation
by them of the transactions contemplated hereby have been duly authorized
by all necessary corporate action. On or prior to the date hereof, the
Boards of Directors of Mercury and Mercury Sub have determined to recommend
approval of the Merger to the stockholders of Mercury Sub, and the
stockholders of Mercury Sub have approved the Merger, and such
determinations and approvals are in effect as of the date hereof. This
Agreement has been duly executed and delivered by Mercury and Mercury Sub,
and is the valid and binding obligation of Mercury and Mercury Sub,
enforceable against Mercury and Mercury Sub in accordance with its terms.
(f) NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS TO
WHICH MERCURY OR MERCURY SUB IS A PARTY. Except as set forth in Section
2.2(f) of the Mercury Disclosure Letter, neither the execution and delivery
of this Agreement by Mercury or Mercury Sub, nor the performance by Mercury
or Mercury Sub of their obligations hereunder, nor the consummation of the
transactions contemplated hereby by Mercury or Mercury Sub, will (i)
conflict with the Articles of Incorporation or bylaws of Mercury or Mercury
Sub; (ii) assuming satisfaction of the requirements set forth in clause
(iii) below, violate any provision of law applicable to Mercury or
22
Mercury Sub; (iii) except for (A) requirements of Federal or state
securities laws, and (B) the filing of a certificate of merger by Mercury
Sub in accordance with the DGCL, require any consent or approval of, or
filing with or notice to, any public body or authority, domestic or foreign,
under any provision of law applicable to Mercury or Mercury Sub; or (iv)
require any consent, approval or notice under, or violate, breach, be in
conflict with or constitute a default (or an event that, with notice or
lapse of time or both, would constitute a default) under, or permit the
termination of any provision of, or result in the creation or imposition of
any lien upon any properties, assets or business of Mercury or Mercury Sub
under, any note, bond, indenture, mortgage, deed of trust, lease, franchise,
permit, authorization, license, contract, instrument or other agreement or
commitment or any order, judgment or decree to which Mercury or Mercury Sub
is a party or by which Mercury or Mercury Sub or any of their assets or
properties is bound or encumbered, except (A) those that have already been
given, obtained or filed and (B) those that are customarily obtained from
governmental or tribal authorities after Closing.
(g) FINANCIAL STATEMENTS. Mercury has delivered to MSR accurate and
complete copies of Mercury Sub's unaudited balance sheet as of March 7,
1997 BALANCE SHEET"). The Balance Sheet (i) represents actual bona fide
transactions, (ii) has been prepared from the books and records of Mercury
Sub in conformity with generally accepted accounting principles applied on
a basis consistent with preceding years throughout the periods involved,
except that it is not accompanied by notes or other textual disclosure
required by generally accepted accounting principles, and (iii) accurately,
completely, and fairly presents Mercury Sub's financial position as of the
date thereof and its results of operations for the period then ended.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. Mercury Sub has no
liabilities or obligations (whether accrued, absolute, contingent,
unliquidated, or otherwise, whether or not known to Mercury or Mercury Sub,
and whether due or to become due), except (i) liabilities reflected on the
Balance Sheet, (ii) liabilities which have arisen since the date of the
Balance Sheet in the ordinary course of business (none of which is a
material liability for breach of contract, breach of warranty, tort, or
infringement), (iii) liabilities arising under executory contracts entered
into in the ordinary course of business (none of which is a material
liability for breach of contract), and (iv) liabilities specifically set
forth in Section 2.2(h) of the Mercury Disclosure Letter.
(i) CONDUCT OF BUSINESS IN THE ORDINARY COURSE; ABSENCE OF CERTAIN
CHANGES AND EVENTS. Since January 1, 1997, except as contemplated by this
Agreement or as set forth in Section 2.2(i) of the Mercury Disclosure
Letter, Mercury Sub has conducted its business and the Mercury Properties
have been operated only in the ordinary and usual course, and there has not
been (i) any material adverse change in the financial condition, results of
operations or business of Mercury Sub or the Mercury Properties, or any
condition, event or development that reasonably may be expected to result
in any such material adverse change; (ii) any material change by Mercury
Sub in its accounting methods, principles or practices; (iii) any
revaluation of any of the Mercury Properties, including, without
limitation, writing down the value of
23
inventory or writing off notes or accounts receivable other than in the
ordinary course of business; (iv) any entry by Mercury or Mercury Sub
into any commitment or transaction material to Mercury Sub; (v) any
declaration, setting aside or payment of any dividends or distributions
in respect of the Mercury Sub Common Stock or any redemption, purchase
or other acquisition of any of securities of Mercury Sub; (vi) any
damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of Mercury
Sub; (vii) any increase in indebtedness for borrowed money; (viii) any
granting of a security interest or lien on any material property or
assets of Mercury Sub, other than Permitted Liens; or (ix) any increase
in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards),
stock purchase or other employee benefit plan or any other increase in
the compensation payable or to become payable to any officers or
employees of Mercury Sub.
(j) LITIGATION. Except as set forth in Section 2.2(j) of the Mercury
Disclosure Letter, there are no claims, actions, suits, investigations,
inquiries or proceedings pending or, to the knowledge of Mercury or Mercury
Sub, overtly threatened against or affecting Mercury Sub or any of its
properties, including without limitation the Mercury Properties, at law or
in equity, or before or by any federal, state, municipal or other
governmental agency or authority, or before any arbitration board or panel,
wherever located.
(k) COMPLIANCE WITH LAWS. Except as set forth in Section 2.2(k) of
the Mercury Disclosure Letter, Mercury Sub has complied with all Applicable
Laws (including without limitation Applicable Laws relating to securities,
properties, manufacturing processes, sales practices, employment practices,
terms and conditions of employment, wages and hours, safety, occupational
safety, health, environmental protection, product safety, and civil
rights). Neither Mercury nor Mercury Sub has received any written notice,
which has not been dismissed or otherwise disposed of, that Mercury Sub has
not so complied. Mercury Sub is not charged or, to the best knowledge of
Mercury and Mercury Sub, threatened with, or, to the best knowledge of
Mercury Sub and Mercury, under investigation with respect to, any violation
of any Applicable Law relating to any aspect of the business of Mercury
Sub.
(l) EMPLOYEE BENEFIT PLANS.
(i) Section 2.2(l) of the Mercury Disclosure Letter provides a
description of each Plan or Benefit Program or Agreement which is
sponsored, maintained or contributed to by Mercury Sub or any
corporation, trade, business or entity under common control with
Mercury Sub within the meaning of Section 414(b), (c), (m) or (o) of
the Code or Section 4001 of ERISA (a "MERCURY ERISA AFFILIATE") for
the benefit of its employees, or has been so sponsored, maintained or
contributed to within six years prior to the Closing Date. True and
complete copies of each of the Plans, Benefit Programs or
24
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to MSR.
(ii) Except as otherwise set forth in Section 2.2(l) of the
Mercury Disclosure Letter:
(A) None of Mercury Sub or any Mercury ERISA Affiliate
contributes to or has an obligation to contribute to, or has at
any time contributed to or had an obligation to contribute to, a
plan subject to Title IV of ERISA, including, without limitation,
a multiemployer plan within the meaning of Section 3(37) of
ERISA:
(B) Each Plan and each Benefit Program or Agreement has
been administered, maintained and operated in all material
respects in accordance with the terms thereof and in compliance
with its governing documents and applicable law (including, where
applicable, ERISA and the Code);
(C) There is no matter pending with respect to any of the
Plans before any governmental agency, and there are no actions,
suits or claims pending (other than routine claims for benefits)
or, to the knowledge of Mercury, threatened against, or with
respect to, any of the Plans or Benefit Programs or Agreements or
their assets;
(D) No act, omission or transaction has occurred which
would result in imposition on Mercury Sub or any Mercury ERISA
Affiliate of breach of fiduciary duty liability damages under
Section 409 of ERISA, a civil penalty assessed pursuant to
subsections (c), (i) or (1) of Section 502 of ERISA or a tax
imposed pursuant to Chapter 43 of Subtitle D of the Code; and
(E) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not
require Mercury Sub or any Mercury ERISA Affiliate to make a
larger contribution to, or pay greater benefits under, any Plan,
Benefit Program or Agreement than it otherwise would or create or
give rise to any additional vested rights or service credits
under any Plan or Benefit Program or Agreement.
(iii) Termination of employment of any employee of Mercury Sub
or any Mercury ERISA Affiliate immediately after consummation of the
transactions contemplated by this Agreement would not result in
payments under the Plans, Benefit Programs or Agreements which, in the
aggregate, would result in imposition of the sanctions imposed under
Sections 280G and 4999 of the Code.
25
(iv) Each Plan which is an "employee welfare benefit plan," as
such term is defined in Section 3(1) of ERISA, may be unilaterally
amended or terminated in its entirety without liability except as to
benefits accrued thereunder prior to such amendment or termination.
(m) TAXES. Except as set forth in Section 2.2(m) of the Mercury
Disclosure Letter:
(i) All tax returns of or relating to any Tax that are required
to be filed on or before the Closing Date by or with respect to
Mercury Sub have been or will be duly and timely filed, and all Taxes,
including interest and penalties, due and payable by Mercury Sub
pursuant to such Tax Returns have been paid or adequately provided for
in reserves established by Mercury Sub in the Balance Sheet. Mercury
Sub is not now and has never been a member of an affiliated group
(within the meaning of Section 1504 (a) of the Code) of corporations.
(ii) None of the U.S. Federal income Tax Returns of or with
respect to Mercury Sub have been audited by the applicable
governmental authority, or the applicable statute of limitations has
expired.
(iii) There is no material claim against Mercury Sub with respect
to any Taxes, and no material assessment, deficiency or adjustment has
been asserted or proposed with respect to any Tax Return of or with
respect to Mercury Sub that has not been adequately provided for in
reserves established by Mercury Sub in the Balance Sheet.
(iv) The total amounts set up as liabilities for current and
deferred Taxes in the Balance Sheet have been prepared in accordance
with generally accepted accounting principles and are sufficient to
cover the payment of all material Taxes, including any penalties or
interest thereon and whether or not assessed or disputed, that are, or
are hereafter found to be, or to have been, due with respect to the
operations of Mercury Sub through the periods covered thereby.
(v) Mercury Sub has (and as of the Closing Date will have) made
all deposits (including estimated tax payments for taxable years for
which the consolidated federal income tax return is not yet due)
required with respect to Taxes.
(vi) No waiver or extension of any statute of limitations as to
any federal, local or foreign Tax matter has been given by or
requested from Mercury Sub.
(vii) Except for statutory liens for current Taxes not yet due,
no liens for Taxes exist upon the assets of Mercury Sub.
26
(viii) Mercury Sub does not have any deferred intercompany gain
as defined in Treasury Regulation Section 1.1502-13.
(n) ENVIRONMENTAL MATTERS. Except for matters disclosed in Section
2.2(n) of the Mercury Disclosure Letter:
(i) to the best knowledge of Mercury and Mercury Sub all of the
properties, operations and activities of Mercury Sub comply with all
applicable Environmental Laws;
(ii) Mercury Sub and the properties and operations of Mercury Sub
are not subject to any existing, pending or, to the knowledge of
Mercury or Mercury Sub, threatened action, suit, investigation,
inquiry or proceeding by or before any Governmental Authority or third
party under any Environmental Law;
(iii) to the best knowledge of Mercury and Mercury Sub all
notices, permits, licenses or similar authorizations, if any, required
to be obtained or filed by Mercury or Mercury Sub under any
Environmental Law in connection with any aspect of the business of
Mercury Sub, including without limitation those relating to the
treatment, storage, disposal or release of a hazardous substance or
solid waste, have been duly obtained or filed and will remain valid
and in effect after the Merger, and Mercury and Mercury Sub are in
compliance with the terms and conditions of all such notices, permits,
licenses and similar authorizations;
(iv) to the best knowledge of Mercury and Mercury Sub, Mercury
Sub has satisfied and is currently in compliance with all financial
responsibility requirements applicable to its operations and imposed
by any Governmental Authority under any Environmental Law, and Mercury
and Mercury Sub have not received any notice of noncompliance with any
such financial responsibility requirements;
(v) to the best knowledge of Mercury and Mercury Sub, there are
no physical or environmental conditions existing on any property of
Mercury Sub or resulting from Mercury's or Mercury Sub's operations or
activities with respect to any Mercury Properties, past or present, at
any location, that would give rise to any on-site or off-site
investigative, remedial, response, contribution or similar obligations
under any Environmental Laws;
(vi) to the best knowledge of Mercury and Mercury Sub, since the
effective date of the relevant requirements of applicable
Environmental Laws, all hazardous substances or solid wastes generated
by Mercury or Mercury Sub or used in connection with Mercury Sub's
properties or operations have to the extent required by Environmental
Laws been transported only by carriers authorized under Environmental
Laws to transport such substances and wastes,
27
and disposed of only at treatment, storage and disposal facilities
authorized under Environmental Laws to treat, store or dispose of
such substances and wastes, and, to the best knowledge of Mercury or
Mercury Sub and with respect to such substances and wastes, such
carriers and facilities have been and are operating in compliance
with such authorizations, are not subject to any material unperformed
investigative, remedial, response, contribution or similar obligations
under, and are not the subject of any existing, pending or overtly
threatened action, investigation or inquiry by any Governmental
Authority or third party in connection with, any Environmental Laws;
(vii) there has been no exposure of any person or property to
hazardous substances, solid waste or any pollutant or contaminant, nor
has there been any release of hazardous substances, solid waste or any
pollutant or contaminant into the environment by Mercury Sub or
Mercury in connection with the properties or operations of Mercury Sub
that could reasonably be expected to give rise to any claim for
damages or compensation; and
(viii) Mercury and Mercury Sub shall make available to MSR all
internal and external environmental audits and studies and all
correspondence on substantial environmental matters in the possession
of Mercury or Mercury Sub relating to any of the current or former
properties or operations of Mercury Sub.
(o) PROPERTIES.
(i) The oil, gas and/or mineral leases, interests in which
comprise part of the Mercury Properties (as defined in Section 7.5),
and all other material contracts, agreements, licenses, permits and
easements, rights-of-way and other rights-of-surface use comprising
any part of or otherwise relating to the Mercury Properties (such
leases and such material contracts, agreements, licenses, permits,
easements, rights-of-way and other rights-of-surface use being herein
called the "MERCURY BASIC DOCUMENTS"), are in full force and effect
and constitute valid and binding obligations of the parties thereto;
all contracts and agreements which are Mercury Basic Documents are
disclosed in Section 2.2(o)(i) of the Mercury Disclosure Letter.
Neither Mercury nor any Mercury Subsidiary is in breach or default
(and no situation exists which with the passing of time or giving of
notice would create such a breach or default) of its obligations under
the Mercury Basic Documents, and no breach or default by any third
party (or situation which with the passage of time or giving of notice
would create such a breach or default) exists, to the extent such
breach or default (whether by Mercury, any Mercury Subsidiary or such
a third party) could materially adversely affect (after the date
hereof) the ownership, operation, value or use of any Mercury
Properties or Mercury Sub. All payments (including, without
limitation, all delay rentals, royalties, shut-in royalties and valid
calls for payment or prepayment under operating agreements) owing
under Mercury Basic Documents have been and are being
28
made (timely and properly, and before the same became delinquent) by
Mercury or a Mercury Subsidiary in all material respects and, where
the nonpayment of same by a third party could materially adversely
affect the ownership, operation, value or use of a Mercury Property
after the date hereof, have been and are being made, by such third
party in all material respects.
(ii) Except as set forth in Section 2.2(o)(ii) of the Mercury
Disclosure Letter, neither Mercury nor any Mercury Subsidiary has
incurred any expenses, or made commitments to make expenditures, in
connection with (and no other obligations or liabilities have been
incurred) which would materially adversely affect the ownership or
operation of the Mercury Properties after the date hereof, other than
routine expenses incurred in the normal operation of existing ▇▇▇▇▇ on
the Mercury Properties. Except as set forth in Section 2.1(o)(ii) of
the Mercury Disclosure Letter, no proposals are currently outstanding
(whether made by Mercury, any Mercury Subsidiary or by any other
party) to drill additional ▇▇▇▇▇, or to deepen, plug back, abandon, or
rework existing ▇▇▇▇▇, or to conduct other operations for which
consent is required under the applicable operating agreement, or to
conduct any other material operations, other than normal operation of
existing ▇▇▇▇▇ on the Mercury Properties.
(iii) There exist no agreements or arrangements for the sale,
gathering, transportation, compression, treating, processing or other
marketing of a material volume of production from the Mercury
Properties (including without limitation, calls on, or other rights to
purchase, production, whether or not the same are currently being
exercised) other than (A) the agreements set forth in Section
2.2(o)(iii) of the Mercury Disclosure Letter, (B) agreements or
arrangements which are cancelable on 120 days notice or less without
penalty or detriment and (C) calls on, or other rights to purchase,
production, subject to which Mercury or any Mercury Subsidiary
acquired one or more Mercury Properties and which individually, or in
the aggregate, do not affect a material volume of the production of
oil or gas from the Mercury Properties. Any contracts or other
arrangements under which Mercury or any Mercury Subsidiary is
processing, gathering, transporting or otherwise marketing any
material volume of oil, gas or other minerals (whether or not
attributable to the Mercury Properties) for the account of a third
party include terms that represent an arm's length, commercially
reasonable trade for Mercury or any Mercury Subsidiary.
(iv) Except as set forth in Section 2.2(o)(iv) of the Mercury
Disclosure Letter, neither Mercury nor any Mercury Subsidiary has
received prepayments (including, but not limited to, payments for oil
and gas not taken pursuant to "take-or-pay" arrangements) for any oil
or gas produced from the Mercury Properties as a result of which the
obligation does (or may) exist to deliver oil or gas produced from the
Mercury Properties after the date hereof without then receiving
payment (or without then receiving full payment) therefor or to make
repayments in cash. For each Mercury Property listed in Section
2.2(o)(iv) of
29
the Mercury Disclosure Letter, such section reflects (A) the total
amount of prepayment received as of the date hereof (and the amount
of any recoupment thereof heretofore made), and (B) whether or not a
cash payment can be required in the event recoupment out of
production proves to be inadequate. Except as set forth in Section
2.2(o)(iv) of the Mercury Disclosure Letter, there is no Mercury
Property with respect to which Mercury, any Mercury Subsidiary,
and/or their respective predecessors in title, have collectively
taken more (referred to herein as "OVER-PRODUCED") or materially
less (referred to herein as "UNDERPRODUCED") production from such
Mercury Property (or on the units in which such Mercury Property
participates), or any product thereof, than the ownership of Mercury
or any Mercury Subsidiary and such predecessors in such Mercury
Property would entitle Mercury or any Mercury Subsidiary and such
predecessors (absent any balancing agreement or arrangement) to
receive, to the extent such overproduced or underproduced position
has not, as of the date hereof, been fully made up or otherwise
extinguished. For each Mercury Property listed in Section 2.2(o)
(iv) of the Mercury Disclosure Letter, such section reflects, on a
well-by-well or any other basis as may be dictated by any applicable
balancing agreement, (A) whether Mercury or any Mercury Subsidiary
is in an over-produced or under-produced position, (B) the amount of
such over-production or under-production, (C) a description of the
written balancing agreement (if any) pertaining to such Mercury
Property (or a statement that no such agreement exists) and (D) a
statement as to whether royalties, overriding royalties or other
burdens against Mercury's or any Mercury Subsidiaries's net revenue
interest in the affected Mercury Properties were, during the period
the subject imbalance accrued, paid based upon receipts or
entitlements. Except as set forth in Section 2.2(o)(iv) of the
Mercury Disclosure Letter, there are no pipeline imbalances that
have arisen due to the failure of nominations made by Mercury or any
Mercury Subsidiary to match actual deliveries of production from any
one or more Mercury Properties.
(v) Mercury and each Mercury Subsidiary has all governmental
licenses and permits necessary to own and operate the Mercury
Properties as presently being owned and operated, and such licenses,
permits and filings are in full force and effect, and neither Mercury
nor any Mercury Subsidiary has received written notice of any material
violations in respect of any such licenses or permits.
(vi) Except as set forth in Section 2.2(o)(vi) of the Mercury
Disclosure Letter, neither Mercury nor any Mercury Subsidiary is
subject to (A) any area of mutual interest agreements or non-compete
agreements, (B) any farm-out or farm-in agreement under which any
party thereto is entitled to receive assignments not yet made, or
could earn additional assignments after the date hereof or (C) any tax
partnership, to the extent being so subject could have a material
adverse effect on Mercury or any Mercury Subsidiary or on any Mercury
Property.
30
(vii) All severance, production, ad valorem, windfall profit and
other similar taxes relating to the ownership or operation of the
Mercury Properties have been, and are being, paid (timely, and before
the same become delinquent) by Mercury and each Mercury Subsidiary in
all respects.
(viii) The ownership and operation of the Mercury Properties has,
to the extent that non-conformance could materially adversely affect
the ownership, operation, value or use thereof after the date hereof,
been in conformity with all applicable laws, and all applicable rules,
regulations and orders of all governmental agencies having
jurisdiction.
(ix) Except as set forth in Section 2.2(o)(iv) of the Mercury
Disclosure Letter, there are no Preferential Rights or Consents, other
than Routine Governmental Approvals (each as defined in Section 7.5),
that affect any material Mercury Property or Properties and that will
be triggered by the Merger.
(x) Except as set forth in Section 2.2(o)(x) of the Mercury
Disclosure Letter, there exist no agreements or other arrangements
whereunder Mercury or any Mercury Subsidiary undertakes to perform
gathering, transportation, processing or other marketing services for
any third party, including without limitation the owner of a royalty
or overriding royalty interest burdening a lease included in the
Mercury Properties, for a fee or other consideration that is now, or
may hereafter be, unrepresentative of commercial rates being received
by third parties in comparable, arm's length transactions.
(xi) Mercury Sub has good and defensible title to the Mercury
Property, free and clear of all liens, security interests, and
encumbrances except for (a) the contracts, agreements, burdens,
encumbrances and other matters set forth in the descriptions of
certain of the Mercury Properties in Section 2.2(o) of the Mercury
Disclosure Letter, (b) statutory liens for taxes which are not yet
delinquent, (c) liens under operating agreements, pooling orders and
unitization agreements, and mechanics' materialmen's liens, with
respect to obligations which are not yet due, and (d) minor defects
and irregularities in title to any Mercury Property, so long as such
defects and irregularities do not materially impair the value of such
Mercury Property or the use thereof for the purposes for which such
Mercury Property is held. With respect to each Mercury Property
described in Section 2.2(o) of the Mercury Disclosure Letter, the
ownership of Mercury Sub in such Mercury Property does and will, (A)
with respect to each tract of land described in Section 2.2(o) of the
Mercury Disclosure Letter (whether described directly in such section
or described by reference to another instrument) in connection with
such Mercury Property, (1) entitle Mercury Sub to receive a decimal or
percentage share of the oil, gas and other hydrocarbons produced from,
or allocated to, such tract equal to not less than the decimal or
percentage share set forth in Section 2.2(o) of the Mercury Disclosure
Letter in connection with such tract opposite the words "Net
31
Revenue Interest" (or words of similar import), (2) cause Mercury
Sub to be obligated to bear a decimal or percentage share of the
cost of exploration, development and operation of such tract of land
not greater than the decimal or percentage share set forth in
Section 2.2(o) of the Mercury Disclosure Letter in connection with
such tract opposite the words "Working Interest" (or words of
similar import) and (B) if such Mercury Property is shown in Section
2.2(o) of the Mercury Disclosure Letter to be subject to a unit or
units, with respect to each such unit, (1) entitle Mercury Sub to
receive a decimal or percentage share of all substances covered by
such unit which are produced from, or allocated to, such unit equal
to not less than the decimal or percentage share set forth in
Section 2.2(o) of the Mercury Disclosure Letter in connection with
such Mercury Property opposite the words "Unit Net Revenue Interest"
or words of similar import (and if such Mercury Property is subject
to more than one unit, words identifying such interest with such
unit), and (2) obligate Mercury Sub to bear a decimal or percentage
share set forth in Section 2.2(o) of the Mercury Disclosure Letter
in connection with such Mercury Property opposite the words "Unit
Working Interest" or words of similar import (and if such Mercury
Property is subject to more than one unit, words identifying such
interest with such unit). With respect to each Mercury Property
described in Section 2.2(o) of the Mercury Disclosure Letter which
is subject to a voluntary or involuntary pooling, unitization or
communication agreement and/or order, the term "tract of land" as
used in this subsection (xi) shall mean the pooled, unitized or
communitized area as an entirety and shall not be deemed to refer to
any individual tract committed to said pooled, unitized or
communitized area. Without limitation of the foregoing, the
ownership by Mercury Sub of the Mercury Properties does and will,
with respect to each well or unit identified in Section 2.2(o) of
the Mercury Disclosure Letter entitle Mercury Sub to receive a
decimal or percentage share of the oil, gas and other hydrocarbons
produced from, or allocated to, such well or unit equal to not less
than the decimal or percentage share set forth, for such well or
unit, in the column headed "Net Revenue Interest" in Section 2.2(o)
of the Mercury Disclosure Letter, and cause Mercury Sub to be
obligated to bear a decimal or percentage share of the cost of
operation of such well or unit equal to not more than the decimal or
percentage share set forth, for such well or unit, in the column
headed "Working Interest" in Section 2.2(o) of the Mercury
Disclosure Letter. The above-described shares of production which
Mercury Sub is entitled to receive and shares of expenses which
Mercury Sub is obligated to bear are not and will not be subject to
change other than such changes which arise pursuant to non-consent
provisions of operating agreements described in Section 2.2(o) of
the Mercury Disclosure Letter in connection with operations
hereafter proposed, or such changes are reflected in Section 2.2(o)
of the Mercury Disclosure Letter.
(xii) Set forth in Section 2.2(o) of the Mercury Disclosure
Letter is a list of the current reserve reports covering the Mercury
Properties, true and complete copies of which have been delivered to
MSR by Mercury.
32
(p) AGREEMENTS. All agreements, arrangements, and understandings of
any nature (written or oral, formal or informal) (collectively, for
purposes of this Section, "agreements") to which Mercury Sub is a party or
by which it or any of its properties is otherwise bound, regardless of
amount or subject matter, that are material to the business, assets,
results of operations, condition (financial or otherwise), or prospects of
Mercury Sub are listed in Sections 2.2(o) or 2.2(p) of the Mercury
Disclosure Letter. Mercury has delivered to MSR, accurate and complete
copies of such agreements. Each of such agreements is a valid and binding
agreement of the parties thereto enforceable against them in accordance
with its terms. No breach or default exists with respect to any of such
agreements, and no event has occurred which, after the giving of notice or
the passage of time or otherwise, will result in any such breach or
default.
(q) EMPLOYEES; LABOR RELATIONS.
(i) Set forth in Section 2.2(q)(i) is a list of (i) all
directors and officers of Mercury Sub, and (ii) the name of each
employee, agent, and consultant of Mercury Sub as of the date hereof,
together with the total amounts of salary, bonuses, and other
compensation paid or payable by Mercury Sub and Mercury to each such
person for the current fiscal year and the immediately preceding
fiscal year.
(ii) Except as set forth in Section 2.2(q)(ii) of the Mercury
Disclosure Letter, (a) there are no collective bargaining agreements
or other similar agreements, arrangements, or understandings, written
or oral, with employees as a group to or by which Mercury Sub is a
party or is bound; (b) no employees of Mercury Sub are represented by
any labor organization, collective bargaining representative, or group
of employees; (c) no labor organization, collective bargaining
representative, or group of employees claims to represent a majority
of the employees of Mercury Sub in an appropriate unit of Mercury or
Mercury Sub; (d) neither Mercury nor Mercury Sub has been involved
with any representational campaign by any union or other organization
or group seeking to become the collective bargaining representative of
any of Mercury Sub's employees or been subject to or, to the best
knowledge of Mercury and Mercury Sub, threatened with any strike or
other concerted labor activity or dispute; and (e) neither Mercury nor
Mercury Sub is obligated to bargain collectively with respect to
wages, hours, and other terms and conditions of employment with any
recognized or certified labor organization, collective bargaining
representative, or group of employees, with respect to any employees
of Mercury Sub.
(r) INSIDER INTERESTS. Except as disclosed in Section 2.2(r) of the
Mercury Disclosure Letter, no shareholder, director, officer, or employee
of Mercury or any Mercury Subs or any associate of any such shareholder,
director, officer, or employee is presently, directly or indirectly, a
party to any transaction with Mercury Sub, including, without limitation,
any agreement, arrangement, or understanding, written or
33
oral, providing for the employment of, furnishing of services by, rental
of real or personal property from, or otherwise requiring payments to any
such shareholder, director, officer, employee, or associate. To the best
knowledge of Mercury and Mercury Sub, no shareholder, director, officer,
or employee of Mercury or Mercury Sub or any associate of any such
shareholder, director, officer, or employee owns, directly or indirectly,
any material interest in, or serves as a director, officer, or employee
of, any customer, supplier, or competitor of Mercury Sub. For purposes of
this Section only, an "associate" of any shareholder, director, officer,
or employee means any member of the immediate family of such shareholder,
director, officer, or employee or any corporation, partnership, trust, or
other entity in which such shareholder, director, officer, or employee
has a substantial ownership or beneficial interest (other than an
interest in a public corporation which does not exceed three percent of
its outstanding securities) or is a director, officer, partner, or
trustee or person holding a similar position.
(s) FINANCIAL REQUIREMENTS. Set forth in Section 2.2(s) of the
Mercury Disclosure Letter is a list of all bonds, deposits, financial
assurance requirements, and insurance coverage required to be submitted to
any Federal, foreign, state or local governmental agencies or authorities
for the continued ownership and operation of the business and assets of
Mercury Sub.
(t) BANK ACCOUNTS AND POWERS OF ATTORNEY. Set forth in Section 2.2(t)
are (i) the name and address of each bank or other financial institution in
which Mercury Sub has an account or a safe deposit box, the account and
safe deposit box numbers thereof, and the names of all persons authorized
to draw thereon or to have access thereto, (ii) the names of all persons
authorized to borrow funds on behalf of Mercury Sub and the names of all
entities from which they are authorized to borrow funds, and (iii) the
names of all persons, if any, holding powers of attorney from Mercury Sub.
(u) VOTING REQUIREMENTS. The affirmative votes of a majority of the
shares of Mercury Sub Common Stock held by Mercury and the Minority
Shareholders, as the owners and holders of all of the outstanding shares of
Mercury Sub Common Stock, is the only vote of the holders of any class or
series of the capital stock of Mercury Sub necessary to approve this
Agreement and the Merger.
(v) BROKERAGE FEES. Neither Mercury nor any of its affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed
to pay any financial advisor, broker, agent, or finder on account of this
Agreement or any transaction contemplated hereby. Mercury shall indemnify
and hold harmless MSR from and against any and all losses, claims, damages,
and liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with
respect to any finder's fee, brokerage commission, or similar payment in
connection with any transaction contemplated hereby asserted by any person
on the basis of any act or statement made or alleged to have been made by
Mercury or any of its affiliates.
34
(w) DISCLOSURE. No representation or warranty made by Mercury or
Mercury Sub in this Agreement, and no statement of Mercury or Mercury Sub
contained in any document, certificate, or other writing furnished or to be
furnished by Mercury or Mercury Sub to MSR or MSR Sub pursuant hereto or in
connection herewith, contains or will contain, at the time of delivery, any
untrue statement of a material fact or omits or will omit, at the time of
delivery, to state any material fact necessary in order to make the
statements contained therein, in light of the circumstances under which
they are made, not misleading. Mercury and Mercury Sub know of no matter
(other than matters of a general economic character not relating solely
to Mercury and Mercury Sub in any specific manner) which has not been
disclosed to MSR and MSR Sub pursuant to this Agreement which materially
and adversely affects, or, so far as Mercury and Mercury Sub can now
reasonably foresee, will materially and adversely affect, the business,
assets, results of operations, condition (financial or otherwise), or
prospects of Mercury Sub or the ability of Mercury and Mercury Sub to
consummate the transactions contemplated hereby.
ARTICLE III
COVENANTS OF MERCURY AND MERCURY SUB
PRIOR TO THE EFFECTIVE TIME
3.1 CONDUCT OF BUSINESS BY MERCURY SUB PENDING THE MERGER. Mercury and
Mercury Sub covenant and agree that, from the date of this Agreement until
the Effective Time, unless MSR shall otherwise agree in writing or as
otherwise expressly contemplated by this Agreement:
(a) The business of Mercury Sub shall be conducted only in, and
Mercury Sub shall not take any action except in, the ordinary course of
business and consistent with past practice;
(b) Mercury and Mercury Sub shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber (A) any
capital stock of Mercury Sub (except for capital stock issuable upon the
exercise of any warrants or options issued by Mercury Sub described in the
Mercury Disclosure Letter) or other than in the ordinary course of business
and consistent with past practice and not relating to the borrowing of
money, any assets of Mercury Sub; (ii) amend or propose to amend the
charter or bylaws of Mercury Sub; (iii) split, combine or reclassify any
outstanding capital stock, or declare, set aside or pay any dividend
payable in cash, stock, property or otherwise with respect to any Mercury
Sub capital stock; (iv) redeem, purchase or acquire or offer to acquire any
Mercury Sub capital stock; (v) enter into, adopt or (except as may be
required by law) amend or terminate any bonus, profit sharing, performance
unit, stock equivalent, stock purchase, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement,
trust, plan, fund or other arrangement for the benefit or welfare of any
director, officer or employee of Mercury Sub; (vi) increase in any manner
the compensation or fringe benefits of any director, officer or employee of
Mercury Sub; (vii) pay to any director,
35
officer or employee of Mercury Sub any benefit not required by any
employee benefit agreement, trust, plan, fund or other arrangement as in
effect on the date hereof, or (viii) enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 3.1(b).
(c) Mercury and Mercury Sub shall use their reasonable efforts (i) to
preserve intact the business organization of Mercury Sub, (ii) to maintain
in effect any authorizations or similar rights of Mercury Sub, (iii) to
keep available the services of Mercury Sub's current officers and key
employees, (iv) to preserve the goodwill of those having business
relationships with Mercury Sub, (v) to maintain and keep its properties
and the properties of Mercury Sub in as good a repair and condition as
presently exists, except for deterioration due to ordinary wear and tear
and damage due to casualty, and (vi) to maintain in full force and effect
insurance comparable in amount and scope of coverage to that currently
maintained by Mercury Sub or maintained by Mercury for the benefit of
Mercury Sub;
(d) Mercury Sub shall not agree to or enter into any commitments to
make, and Mercury shall not permit Mercury Sub to agree or enter into any
commitments to make, new capital expenditures that in the aggregate exceed
$10,000;
(e) Mercury Sub shall perform its respective obligations under any
contracts and agreements to which it is a party or to which any of its
assets is subject, except for such obligations as Mercury Sub in good faith
may dispute;
(f) Mercury and Mercury Sub will give MSR and its attorneys and other
representatives access at all reasonable times to the Mercury Properties
and to the Mercury's and Mercury Sub's records (including, without
limitation, title files, division order files, well files, production
records, equipment inventories, windfall profit tax records and production,
severance and ad valorem tax records) pertaining to the ownership and/or
operation of the Mercury Properties;
(g) Mercury and Mercury Sub will or, to the extent third parties
operate the Mercury Properties, will take such steps as would a prudent
non-operator to cause the operator to (i) continue the routine operation of
the Mercury Properties in the ordinary course of business and as would a
prudent operator, (ii) operate the Mercury Properties in conformity (in all
material respects) with all Mercury Basic Documents, and all applicable
rules, regulations and orders of all Governmental Authorities having
jurisdiction, and (iii) maintain the machinery, improvements, equipment and
other personal property and fixtures forming a part of the Mercury
Properties in at least as good of a condition as they are on the date of
this Agreement; where Mercury or Mercury Sub is the operator of a Mercury
Property, Mercury and Mercury Sub will (unless removed without its consent)
remain the operator of such Mercury Property;
(h) Neither Mercury nor Mercury Sub will sell, transfer or abandon
any portion of the Mercury Properties other than (i) items of materials,
supplies, machinery, equipment, improvements or other personal property or
fixtures forming a
36
part of the Mercury Properties (and then only if the same is replaced with
an item of equal suitability and value free of liens and security interests,
which replacement item will then, for the purposes of this Agreement,
become part of the Mercury Properties) or (ii) production of oil, gas and/
or other minerals, or the products therefrom, in the ordinary course of
business under arrangements that do not cause the representations and
warranties set forth elsewhere herein to be untrue; neither Mercury nor
Mercury Sub will, without MSR's consent, release, permit to terminate,
modify or reduce its rights under any oil, gas and/or mineral lease
forming a material part of the Mercury Properties, or any other material
Mercury Basic Document, or enter into any new agreements which would be
Mercury Basic Documents;
(i) Mercury and Mercury Sub will cause all material expenses
(including, without limitation, all bills for labor, materials and supplies
used or furnished for use in connection with the Mercury Properties and all
ad valorem, severance, production, windfall profit and similar taxes) and
liabilities relating to the ownership or operation of the Mercury
Properties to be promptly paid and discharged;
(j) Mercury and Mercury Sub will request, from the appropriate
parties (and in accordance with the documents creating such rights and/or
requirements), all Consents relating to any Mercury Property and waivers of
any Preferential Rights relating to any material Mercury Property;
(k) Mercury and Mercury Sub will not take materially more of the oil
or gas produced from the ▇▇▇▇▇ located on any Mercury Property (or on units
in which such properties participate) than Mercury Sub's ownership of such
Mercury Property would entitle Mercury Sub (absent any oil or gas balancing
agreement or arrangement) to take; and
(l) Mercury shall not, and shall not permit Mercury Sub to, take any
action that would, or that reasonably could be expected to, result in any
of the representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Merger set forth in Article VI not
being satisfied. Mercury promptly shall advise MSR orally and in writing of
any change or event having, or which, insofar as reasonably can be
foreseen, would have, a material adverse effect on Mercury, Mercury Sub or
the Mercury Properties.
3.2 PROXY STATEMENT. Promptly after the date of this Agreement, Mercury
and Mercury Sub shall cooperate with MSR in preparing the Proxy Statement (as
defined in Section 4.2) and the Registration Statement (as defined in Section
4.4). Mercury and Mercury Sub agree all information concerning Mercury and
Mercury Sub furnished by or on their behalf specifically for use in the Proxy
Statement and the Registration Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
adopted thereunder, and will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. Mercury and Mercury Sub will advise
MSR promptly in writing if prior to the Effective Time it shall obtain knowledge
of any facts that would make
37
it necessary to amend or supplement the Proxy Statement or the Registration
Statement in order to make the statements therein not misleading or to comply
with applicable law.
3.3 ACQUISITION PROPOSALS. From and after the date of this Agreement,
neither Mercury nor Mercury Sub shall, directly or indirectly, through any
officer, director, employee, representative or agent of Mercury or Mercury
Sub, (i) solicit or initiate discussions or negotiations with any person
(other than MSR), or participate in any discussions or negotiations with any
person (other than MSR) regarding, any merger, consolidation, sale of assets,
tender offer, sale of shares of capital stock or similar transaction
involving Mercury Sub (an "Acquisition Proposal"), (ii) disclose to any
person preparing to make or considering an Acquisition Proposal any
confidential information regarding Mercury Sub or (iii) enter into any
agreement, arrangement, understanding or commitment regarding any Acquisition
Proposal. Mercury and Mercury Sub shall notify MSR promptly of the receipt of
any Acquisition Proposal after the date of this Agreement.
ARTICLE IV
COVENANTS OF MSR PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS BY MSR PENDING THE MERGER. MSR covenants and
agrees that, from the date of this Agreement until the Effective Time, unless
Mercury shall otherwise agree in writing or as otherwise expressly
contemplated by this Agreement or set forth in Section 4.1 of the MSR
Disclosure Letter:
(a) The business of MSR and the MSR Subsidiaries shall be conducted
only in, and MSR and the MSR Subsidiaries shall not take any action except
in, the ordinary course of business and consistent with past practice;
(b) Except as set forth in Section 4.1(b) of the MSR Disclosure
Letter, MSR shall not directly or indirectly do any of the following: (i)
issue, sell, pledge, dispose of or encumber, or permit any MSR Subsidiary
to issue, sell, pledge, dispose of or encumber, (A) any capital stock of
MSR or any MSR Subsidiary except upon the exercise of MSR Options or (B)
other than in the ordinary course of business and consistent with past
practice and not relating to the borrowing of money, any assets of MSR or
any MSR Subsidiary; (ii) amend or propose to amend the respective charters
or bylaws of MSR or any MSR Subsidiary; (iii) split, combine or reclassify
any outstanding capital stock, or declare, set aside or pay any dividend
payable in cash, stock, property or otherwise with respect to its capital
stock whether now or hereafter outstanding; (iv) redeem, purchase or
acquire or offer to acquire, or permit any of the MSR Subsidiaries to
redeem, purchase or acquire or offer to acquire, any of its or their
capital stock; or (v) except in the ordinary course of business and
consistent with past practice and except as contemplated by Section 5.12,
enter into any contract, agreement, commitment or arrangement with respect
to any of the matters set forth in this Section 4.1(b);
38
(c) Except as set forth in Section 4.1(c) of the MSR Disclosure
Letter, MSR shall use its reasonable efforts (i) to preserve intact the
business organization of MSR and each of the MSR Subsidiaries, (ii) to
maintain in effect any authorizations or similar rights of MSR and each of
the MSR Subsidiaries, (iii) to keep available the services of its and their
current officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it and the MSR Subsidiaries, (v) to
maintain and keep its properties and the properties of the MSR Subsidiaries
in as good a repair and condition as presently exists, except for
deterioration due to ordinary wear and tear and damage due to casualty,
and (vi) to maintain in full force and effect insurance comparable in
amount and scope of coverage to that currently maintained by it and the
MSR Subsidiaries;
(d) MSR shall not make or agree to make, or permit any of the MSR
Subsidiaries to make or agree to make, any capital expenditure in the
aggregate in excess of $100,000;
(e) MSR shall, and shall cause the MSR Subsidiaries to, perform their
respective obligations under any contracts and agreements to which any of
them is a party or to which any of their assets is subject, except to the
extent such failure to perform would not have a material adverse effect on
MSR and the MSR Subsidiaries, taken as a whole, and except for such
obligations as MSR or the MSR Subsidiaries in good faith may dispute;
(f) MSR will, to the extent legally and contractually authorized to
do so, give Mercury and its attorneys and other representatives access at
all reasonable times to the MSR Properties and to the MSR and any MSR
Subsidiaries' records (including, without limitation, title files, division
order files, well files, production records, equipment inventories,
windfall profit tax records and production, severance and ad valorem tax
records) pertaining to the ownership and/or operation of the MSR
Properties;
(h) MSR and the MSR Subsidiaries will or, to the extent third parties
operate the MSR Properties, will take such steps as would a prudent
non-operator to cause the operator to (i) continue the routine operation
of the MSR Properties in the ordinary course of business and as would a
prudent operator, (ii) operate the MSR Properties in conformity (in all
material respects) with all MSR Basic Documents and all applicable rules,
regulations and orders of all Governmental Authorities having jurisdiction,
and (iii) maintain the machinery, improvements, equipment and other
personal property and fixtures forming a part of the MSR Properties in at
least as good of a condition as they are on the date of this Agreement;
where MSR or any MSR Subsidiary is the operator of a MSR Property, they
will (unless removed without its consent) remain the operator of such MSR
Property;
(i) Except as set forth in Section 4.1(i) of the MSR Disclosure
Letter, neither MSR nor any MSR Subsidiaries will sell, transfer or abandon
any portion of the MSR Properties other than (i) items of materials,
supplies, machinery, equipment,
39
improvements or other personal property or fixtures forming a part of
the MSR Properties (and then only if the same is replaced with an item
of equal suitability and value free of liens and security interests,
which replacement item will then, for the purposes of this Agreement,
become part of the MSR Properties) or (ii) production of oil, gas and/
or other minerals, or the products therefrom, in the ordinary course of
business under arrangements that do not cause the representations and
warranties set forth elsewhere herein to be untrue; Neither MSR nor any
MSR Subsidiary will, without Mercury's consent, release, permit to
terminate, modify or reduce its rights under any oil, gas and/or mineral
lease forming a material part of the MSR Properties, or any other material
MSR Basic Document, or enter into any new agreements which would be MSR
Basic Documents;
(j) MSR and the MSR Subsidiaries will cause all material expenses
(including, without limitation, all bills for labor, materials and supplies
used or furnished for use in connection with the MSR Properties and all ad
valorem, severance, production, windfall profit and similar taxes) and
liabilities relating to the ownership or operation of the MSR Properties
to be promptly paid and discharged;
(k) Neither MSR nor any MSR Subsidiary will take materially more of
the oil or gas produced from the ▇▇▇▇▇ located on any MSR Property (or on
units in which such properties participate) than their ownership of such
MSR Property would entitle them (absent any oil or gas balancing agreement
or arrangement) to take; and
(l) MSR shall not, and shall not permit any of the MSR Subsidiaries
to, take any action that would, or that reasonably could be expected to,
result in any of the representations and warranties set forth in this
Agreement becoming untrue or any of the conditions to the Merger set forth
in Article VI not being satisfied. MSR promptly shall advise Mercury orally
and in writing of any change or event having, or which, insofar as
reasonably can be foreseen, would have, a material adverse effect on MSR
and the MSR Subsidiaries, taken as a whole.
4.2 PROXY STATEMENT. Promptly after the date of this Agreement, MSR
shall prepare and file with the Commission under the Exchange Act, and shall
use its reasonable efforts to have cleared by the Commission, the Proxy
Statement (the "Proxy Statement") with respect to the meeting of the
stockholders of MSR referred to in Section 4.3. MSR agrees that the Proxy
Statement (except with respect to information concerning Mercury and the
Mercury Subsidiaries furnished by or on behalf of Mercury specifically for
use therein, for which information Mercury shall be responsible) will comply
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations adopted thereunder, and the Proxy Statement
(except with respect to information concerning Mercury and the Mercury
Subsidiaries furnished by or on behalf of Mercury specifically for use
therein, for which information Mercury shall be responsible) will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. Subject to the provisions of Section 5.11, the Proxy Statement
shall contain the recommendation of the Board of Directors of MSR that the
stockholders of MSR vote to approve this Agreement.
40
4.3 MEETING OF STOCKHOLDERS OF MSR. Subject to the provisions of Section
5.11, MSR shall promptly take all action reasonably necessary in accordance
with Canadian law, the DGCL and the MSR Certificate and bylaws to convene a
meeting of its stockholders to consider and vote upon (a) approval of this
Agreement and (b) approval of the redomestication of MSR in Delaware (the
"Redomestication of MSR"). Subject to the provisions of Section 5.11, the
Board of Directors of MSR (i) shall recommend at such meeting that the
stockholders of MSR vote to adopt and approve the matters referenced in the
preceding sentence; (ii) shall use its reasonable efforts to solicit from
stockholders of MSR proxies in favor of such adoption and approval; and (iii)
shall take all other action reasonably necessary to secure a vote of its
stockholders in favor of such adoption and approval.
4.4 REGISTRATION STATEMENT. Promptly after the date of this Agreement,
MSR shall file an appropriate registration statement with the Commission
under the Securities Act with respect to the Redomestication of MSR, and
Mercury Sub shall file an appropriate registration statement with the
Commission with respect to offering, sale and delivery of the shares of
Surviving Corporation Common Stock to be issued pursuant to the Merger (such
registration statements, collectively, the "Registration Statement"); and
each party shall cooperate with each other in connection with the preparation
of the Registration Statement and will use its reasonable efforts to cause
such Registration Statement to become effective as soon as practicable after
filing. Each party agrees that the Registration Statement to be prepared by
it (except with respect to information concerning the other party or the
other party's affiliates furnished by or on behalf of the other party
specifically for use therein, for which information the other party shall be
responsible) will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the respective
rules and regulations adopted thereunder, and will not contain any untrue
statement of any material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading.
Each party will advise the other in writing if prior to the Effective Time it
shall obtain knowledge of any fact that would, in its opinion, make it
necessary to amend or supplement the Registration Statement in order to make
the statements therein not misleading or to comply with applicable law.
4.5 STOCK EXCHANGE LISTING. MSR shall use all reasonable efforts to
cause the shares of the Surviving Corporation Common Stock to be issued in
the Merger to be approved for listing on the American Stock Exchange, subject
to official notice of issuance, prior to the Closing Date.
4.6 FINANCING. MSR shall use its reasonable best efforts to obtain the
financing required to effect the transactions contemplated by this Agreement
and to pay all related fees and expenses (the "Financing"). In the event that
any portion of the Financing becomes unavailable, regardless of the reason
therefor, MSR shall, upon learning thereof, promptly so advise Mercury and
use its reasonable best efforts to obtain alternative financing from other
sources, on and subject to substantially the same terms and conditions as the
portion of the Financing that has become unavailable. The definitive
agreements to provide the Financing will contain conditions, including the
accuracy of the representations and warranties therein concerning the
business of Mercury Sub and the Mercury Properties as shall be agreed to by
the parties to such agreements. The parties hereto shall each use its
reasonable best efforts to
41
satisfy on or before the Closing all requirements of the definitive
agreements to provide the Financing relating to such party which are
conditions to closing all transactions contemplated by this Agreement;
provided, however, Mercury shall not be required to undertake any financial
obligations in connection with the Financing. The obligations contained in
this Section are not intended, nor shall they be construed, to benefit or
confer any rights upon any person other than the parties hereto.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 ACCOUNTANTS LETTER. Mercury shall use its reasonable efforts to cause
▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ LLP to deliver a letter dated as of the date of the Proxy
Statement and a letter dated as of the Closing Date, and addressed to itself and
MSR, in form and substance reasonably satisfactory to MSR and customary in scope
and substance for agreed upon procedures letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Registration Statement and Proxy Statement.
5.2 FILINGS; CONSENTS; REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, Mercury and MSR shall (i) make all necessary
filings with respect to the Merger and this Agreement under the Securities Act,
the Exchange Act and applicable blue sky or similar securities laws and shall
use all reasonable efforts to obtain required approvals and clearances with
respect thereto; (ii) obtain all consents, waivers, approvals, authorizations
and orders required in connection with the authorization, execution and delivery
of this Agreement and the consummation of the Merger; and (iii) take, or cause
to be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.
5.3 NOTIFICATION QF CERTAIN MATTERS. Mercury shall give prompt notice to
MSR, and MSR shall give prompt notice to Mercury, orally and in writing, of (i)
the occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate at any time from the date hereof to the
Effective Time, and (ii) any material failure of Mercury or MSR, as the case may
be, or any officer, director, employee or agent thereof, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder.
5.4 AGREEMENT TO DEFEND. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.
5.5 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense, except
that expenses incurred in connection with
42
printing and mailing the Registration Statement and the Proxy Statement shall
be borne by MSR; provided, however, that if this Agreement shall have been
terminated pursuant to Section 7.1 as a result of the willful breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement, such breaching party shall pay the costs and
expenses of the other parties in connection with the transactions
contemplated by this Agreement.
5.6 SURVIVING CORPORATION AND SUBSIDIARIES BOARDS OF DIRECTORS, EXECUTIVE
COMMITTEES AND OFFICERS.
(a) MSR BOARD OF DIRECTORS. At the Effective Time, the respective
Boards of Directors of the Surviving Corporation and each Surviving
Corporation subsidiary shall be comprised of (i) ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇
and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and (ii) three additional members designated in
writing by the Board of Directors of Mercury prior to the date of mailing
of the Proxy Statement to the Mercury stockholders; provided that the
persons designated by the Board of Directors of Mercury must be persons
possessing suitable business and educational qualifications and personal
characteristics and must be approved by the Board of Directors of MSR in
its reasonable discretion. If, prior to the Effective Time, (i) ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall decline or be unable to serve, the
Board of Directors of MSR shall designate another person to serve in such
person's stead, and (ii) any such designees of Mercury shall decline or be
unable to serve, the Board of Directors of Mercury shall designate another
person to serve in such person's stead in accordance with the provisions of
the proviso contained in the immediately preceding sentence.
(b) SURVIVING CORPORATION AND SUBSIDIARIES EXECUTIVE COMMITTEES. At
the Effective Time, the respective three person executive committees of the
Boards of Directors of the Surviving Corporation and each Surviving
Corporation subsidiary have shall be comprised of (i) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, or
if he shall decline or be unable to serve, the Board of Directors of MSR
shall designate another person to serve in his place and (ii) two of the
persons selected by the Board of Directors of Mercury to be members of the
Board of Directors of the Surviving Corporation after the Effective Time.
(c) SURVIVING CORPORATION AND SUBSIDIARY EXECUTIVE OFFICERS. At the
Effective Time, the respective principal executive officers of the
Surviving Corporation and each Surviving Corporation subsidiary have shall
be as follows: Chairman of the Board and chief executive officer - ▇▇▇▇ ▇.
▇▇▇▇, President and chief operating officer - ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and Vice
President - ▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
5.7 INDEMNIFICATION.
(a) INDEMNIFICATION BY MERCURY. Subject to the terms and conditions
of this Section 5.7, Mercury shall indemnify, defend, and hold harmless the
Surviving Corporation, the Surviving Corporation subsidiaries, MSR, the MSR
Subsidiaries, each director and officer thereof, and each affiliate
thereof, and their respective heirs, legal
43
representatives, successors, and assigns (collectively, the "MSR GROUP"),
from and against any and all claims, actions, causes of action, demands,
assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses), of any nature whatsoever, whether actual or consequential
(collectively, "DAMAGES"), asserted against, resulting to, imposed upon,
or incurred by any member of the MSR Group, directly or indirectly, by
reason of or resulting from any breach by Mercury or Mercury Sub of any
of their respective representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto.
(b) INDEMNIFICATION BY MSR. Subject to the terms and conditions of
this Section 5.7, MSR shall indemnify, defend, and hold harmless Mercury,
the subsidiaries and parent corporations of Mercury, each director and
officer of Mercury or any of its subsidiaries or parent corporations, and
each affiliate thereof, and their respective heirs, legal representatives,
successors, and assigns (collectively, the "MERCURY GROUP"), from and
against any and all Damages asserted against, resulting to, imposed upon,
or incurred by any member of the Mercury Group, directly or indirectly, by
reason of or resulting from any breach by MSR or MSR Sub of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto.
(c) PROCEDURE FOR INDEMNIFICATION. Promptly after receipt by an
indemnified party under Section 5.7(a) or 5.7(b) of notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party under such
Section, give written notice to the indemnifying party of the commencement
thereof, but the failure so to notify the indemnifying party shall not
relieve it of any liability that it may have to any indemnified party
except to the extent the indemnifying party demonstrates that the defense
of such action is prejudiced thereby. In case any such action shall be
brought against an indemnified party and it shall give written notice to
the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party. If the indemnifying party elects to assume the
defense of such action, the indemnified party shall have the right to
employ separate counsel at its own expense and to participate in the
defense thereof. If the indemnifying party elects not to assume (or fails to
assume) the defense of such action, the indemnified party shall be entitled
to assume the defense of such action with counsel of its own choice, at the
expense of the indemnifying party. If the action is asserted against both
the indemnifying party and the indemnified party and there is a conflict of
interests which renders it inappropriate for the same counsel to represent
both the indemnifying party and the indemnified party, the indemnifying
party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one
indemnified party, the indemnifying party shall not be responsible for
paying for more than one separate firm of attorneys to represent the
indemnified parties, regardless of the number of indemnified parties. If
the indemnifying party elects to assume the defense of such action, (a) no
compromise or settlement thereof may be
44
effected by the indemnifying party without the indemnified party's written
consent (which shall not be unreasonably withheld) unless the sole relief
provided is monetary damages that are paid in full by the indemnifying
party and (b) the indemnifying party shall have no liability with respect
to any compromise or settlement thereof effected without its written
consent (which shall not be unreasonably withheld).
(d) LIMITATIONS. The indemnification obligations of the parties
hereto pursuant to this Section 5.7 shall be subject to the following
limitations:
(i) No indemnification shall be required to be made by Mercury
pursuant to Section 5.7(a) with respect to any claims made by any
member of the MSR Group except to the extent that the aggregate amount
of Damages incurred by members of the MSR Group with respect to all
claims under Section 5.7(a) (whether asserted, resulting, imposed, or
incurred before, on, or after the Closing Date) exceeds $200,000.
(ii) No indemnification shall be required to be made by MSR
pursuant to Section 5.7(b) with respect to any claims made by any
member of the Mercury Group except to the extent that the aggregate
amount of Damages incurred by members of the Mercury Group with
respect to all claims under Section 5.7(b) (whether asserted,
resulting, imposed, or incurred before, on, or after the Closing Date)
exceeds $200,000.
(iii) Notwithstanding anything to the contrary provided in this
Section 5.7 or otherwise in this Agreement, except for the obligations
of the Surviving Corporation, if any, under the "CONTINGENT WARRANT"
(as such term is defined below), neither MSR nor the Surviving
Corporation shall have any liability or obligation to any member of
the Mercury Group for, or make any representation or warranty with
respect to, any liability of MSR, the Surviving Corporation, or any
member of the Mercury Group for or with respect to, any Taxes arising
out of or related to the Redomestication of MSR or the Merger. In
connection with the foregoing, Mercury acknowledges and agrees that
the representations and warranties set forth in Section 2.1 above
shall not cover any such Taxes notwithstanding any provisions of such
representations and warranties to the contrary.
5.8 CERTAIN TAX AND ACCOUNTING MATTERS.
(a) TAXABLE PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Mercury
shall be solely liable for all Taxes of Mercury Sub due for all taxable
years and periods ending on or before the Closing Date. Mercury shall cause
to be prepared and duly filed all federal income tax returns and all other
tax returns required to be filed by or with respect to the Mercury Sub for
all taxable years and periods ending on or before the Closing Date. Mercury
shall pay all Taxes shown to be due on such tax returns for all periods
covered by such returns. Mercury warrants that Mercury Sub has not and will
not file, and is not eligible for filing a consolidated federal income tax
return with
45
Mercury or any affiliated group of which Mercury is a member for any
taxable years and periods ending on or before the Closing Date. MSR
will prepare and file all federal income tax returns and all other returns
required to be filed by or with respect to MSR and the MSR Subsidiaries for
all taxable years ending on or before the Closing Date. MSR's taxable year
will end for federal income tax purposes on the date of its redomestication
in Delaware. MSR shall be liable for all Taxes shown to be due on such
returns for the periods covered thereby, except to the extent previously
paid or shown as a reserve on its Financial Statements.
(b) TAXABLE PERIODS COMMENCING AFTER THE CLOSING DATE. The Surviving
Corporation shall be solely liable for all Taxes of the Surviving
Corporation for all taxable years and periods commencing after the Closing
Date. The Surviving Corporation shall cause to be prepared and duly filed
all tax returns of the Surviving Corporation for taxable periods commencing
after the Closing Date. Surviving Corporation shall pay all Taxes shown to
be due on such returns for all periods covered by such returns.
(c) TAXABLE PERIODS COMMENCING BEFORE AND ENDING AFTER THE CLOSING
DATE. Surviving Corporation shall pay or cause to be paid all Taxes due for
any taxable year or period commencing before and ending after the Closing
Date (the "Straddle Period").
(d) REFUNDS OR CREDITS. Any refunds or credits with respect to Taxes
paid by Mercury Sub or the Surviving Corporation attributable to taxable
periods ending on or before the Closing Date shall belong to Mercury. Any
refunds or credits with respect to Taxes paid by the Surviving Corporation
or Mercury Sub or MSR shall belong to the Surviving Corporation. Any
refunds or credits with respect to Taxes paid by Mercury Sub or the
Surviving Corporation or MSR attributable to the Straddle Period shall
belong to the Surviving Corporation, provided however, such refunds and
credits shall be taken into account in determining the net Taxes that would
have been due by MSR and the MSR subsidiaries if the Straddle Period had
ended on the Closing Date, pursuant to Section 5.8(c). The Surviving
Corporation shall reimburse Mercury for any refunds and credits belonging
to Mercury within two days from receipt thereof by the Surviving
Corporation. To the extent that any such refund or credit is properly
includable in the taxable income of the Surviving Corporation, the amount
forwarded or reimbursed to Mercury shall be reduced by a percentage of the
amount of such refund or credit equal to the highest marginal federal
Income Tax rate for the tax period in which the refund or credit is
received.
(e) TAX AND ACCOUNTING TREATMENT. Each of the parties hereto
undertakes and agrees to use its reasonable efforts to cause the Merger,
and to take no action which would cause the Merger not, to qualify for
treatment as a "reorganization" within the meaning of Section 368(a) of the
Code for federal income tax purposes.
5.9 AGREEMENT REGARDING CERTAIN REVENUES AND EXPENSES. The parties agree
that all revenue and income (minus the costs and expenses of production incurred
by Mercury)
46
attributable to the Mercury Properties (other than the "Properties Subject to
Production Payment" (as defined below)) during the period commencing January 1,
1997 and ending on the Closing Date, shall be deemed to have been earned
by Surviving Corporation, and within five (5) days after the Closing Date,
Mercury shall pay to the Surviving Corporation any such revenue and income
(minus the costs and expenses of production incurred by Mercury) received by
it. With respect to the Mercury Properties referred to in Section 2.2(o) of
the Mercury Disclosure Letter as being subject to a production payment (the
"PROPERTIES SUBJECT TO PRODUCTION PAYMENT"), the parties agree that (a) all
revenue and income attributable to the Properties Subject to Production
Payment until the production payment concerning such properties described in
Section 2.2(o) of the Mercury Disclosure Letter (the "PRODUCTION PAYMENT")
has been fully paid shall be deemed to be earned by and the property of
Mercury, and within five (5) days after receipt of any such revenue by the
Surviving Corporation, all such revenue and income received by the Surviving
Corporation, if any, shall be paid to Mercury, and (b) Mercury shall
reimburse the Surviving Corporation for all costs and expenses of production
incurred by them during the period commencing January 1, 1997 and ending when
the Production Payment has been fully paid; provided, however, in the event
Production Payment has not been fully paid on or before December 31, 1997,
then Mercury shall pay to the Surviving Corporation an amount equal to all
revenue and income attributable to such properties for the period commencing
January 1, 1998, and ending when the Production Payment is fully paid, as if
the Production Payment had been fully paid on or before December 31, 1997.
Notwithstanding the provisions of Section 5.8 above to the contrary, each
party shall pay and be responsible for, and indemnify and hold the other
responsible for all Taxes due with respect to the revenue and income to be
paid to (or to be deemed earned by) it in accordance with the provisions of
this Section 5.9.
5.10 ARTICLES OF INCORPORATION AND BYLAWS. Prior to the Closing Date, MSR
and Mercury shall agree as to the form of the articles of incorporation and
bylaws of Mercury Sub to be in effect as the new articles of incorporation and
bylaws of Mercury Sub effective immediately prior to the Effective Time.
5.11 ALTERNATIVE TRANSACTION. Nothing in this Agreement shall prevent the
members of the Board of Directors of MSR, in the exercise of their fiduciary
duties and after consulting with counsel, from considering, negotiating and
approving an unsolicited bona fide proposal that the Board of Directors of MSR
determines in good faith, after consultation with its financial advisors, may
result in a transaction more favorable to MSR's stockholders than the
transactions contemplated by this Agreement (an "ALTERNATIVE TRANSACTION"). If
the Board of Directors of MSR receives a request for confidential information by
a potential bidder for MSR and the Board of Directors determines, after
consultation with counsel, that the Board of Directors has a fiduciary
obligation to provide such information to a potential bidder, then MSR may,
subject to a confidentiality agreement substantially similar to that previously
executed by Mercury, provide such potential bidder with access to information
regarding MSR. MSR shall promptly notify Mercury, orally and in writing, if any
such proposal described in the first sentence of this Section 5.11 is made and
shall, in any such notice, indicate the identity and terms and conditions of
such proposal. MSR shall keep Mercury advised of the progress and status of any
such proposals. The obligation of the Board of Directors of MSR to convene a
meeting of the stockholders of MSR and to recommend the
47
approval of this Agreement to the MSR stockholders pursuant to Sections 4.2
and 4.3 shall be subject to flee fiduciary duties of the directors, as
determined by the directors after consultation with counsel, and nothing
contained in this Agreement shall prevent the Board of Directors of MSR from
approving or recommending to the stockholders of MSR any unsolicited proposal
by a third party with respect to an Alternative Transaction if required in
the exercise of its fiduciary duties, as determined by the directors after
consultation with counsel; provided, however, in the event the Board of
Directors of MSR recommends an Alternative Transaction to the stockholders of
MSR and such Alternative Transaction is approved by the stockholders of MSR,
MSR shall pay to Mercury a fee of $500,000 to compensate Mercury for its
costs and expenses and loss of opportunity cost in connection with the
transaction contemplated by this Agreement.
5.12 CONTINGENT WARRANT. At or immediately prior to the Closing the
Surviving Corporation shall have issued a contingent warrant agreement to
Mercury in substantially the form set forth as Exhibit A hereto (the "CONTINGENT
WARRANT").
5.13 MANAGEMENT AGREEMENT. Prior to the Closing Date, MSR and Mercury shall
agree as to the form of a management agreement between the Surviving Corporation
and Mercury (the "MANAGEMENT AGREEMENT") with respect to certain management
services to be provided by Mercury to the Surviving Corporation after the
Closing.
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the Redomestication of MSR shall have been
approved and adopted by the requisite vote of the stockholders of MSR, as
may be required by law, and by the rules of the American Stock Exchange,
and the Redomestication of MSR shall have been effected;
(b) No order shall have been entered and remain in effect in any
action or proceeding before any foreign, federal or state court or
governmental agency or other foreign, federal or state regulatory or
administrative agency or commission that would prevent or make illegal the
consummation of the Merger or the other transactions contemplated hereby;
(c) The Registration Statement shall be effective on the Closing
Date, and all post-effective amendments filed shall have been declared
effective or shall have been withdrawn; and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the parties,
threatened by the Commission;
48
(d) There shall have been obtained any and all material permits,
approvals and consents of securities or blue sky commissions of any
jurisdiction, and of any other governmental body or agency, that reasonably
may be deemed necessary so that the consummation of the Merger and the
other transactions contemplated hereby will be in compliance with
applicable laws, the failure to comply with which would have a material
adverse effect on the business, financial condition or results of
operations of MSR, the Surviving Corporation and their subsidiaries, taken
as a whole after consummation of the Merger;
(e) The shares of Surviving Corporation Common Stock issuable upon
consummation of the Merger shall have been approved for listing on the
American Stock Exchange, subject to official notice of issuance; and
(f) All approvals of private persons or corporations, (i) the
granting of which is necessary for the consummation of the Merger or the
transactions contemplated in connection therewith and (ii) the non-receipt
of which would have a material adverse effect on the business, financial
condition or results of operations of MSR, the Surviving Corporation and
their subsidiaries, taken as a whole after consummation of the Merger,
shall have been obtained.
(g) Mercury and the Board of Directors of MSR shall have received a
written opinion, in form and substance reasonably satisfactory to Mercury
and the Board of MSR, of a mutually acceptable investment banking firm, to
the effect that the net fair market value of the assets and properties of
MSR is less than $14,156,000, and such opinion shall not have been amended
or withdrawn.
(h) The parties shall have agreed on the forms of the articles of
incorporation and bylaws of Mercury Sub to be in effect immediately prior
to the Effective Time, and such new articles and bylaws shall be effective
as the articles and bylaws of Mercury Sub.
(i) The parties shall have agreed on the form of the Management
Agreement, and the Management Agreement shall have been duly executed and
delivered by Mercury and the Surviving Corporation at the Closing.
(j) Effective as of the Closing, the Surviving Corporation shall have
(i) assumed the obligations of Mercury Sub under that certain limited
guaranty executed by Mercury Sub dated as of March 7, 1997, in favor of
NationsBank of Texas, N.A. and certain other financial institutions named
therein (the "GUARANTY"), which guarantees the payment of bank debt of
Mercury in the principal amount of $4,000,000 (the "BANK DEBT"), or (ii)
repaid in full the Bank Debt guaranteed by the Guaranty, and the Guaranty
and the lien on the Mercury Properties securing the Bank Debt shall have
been released, and in the case of either clause (i) or (ii) above, any
obligation of Mercury to repay such Bank Debt shall have been released.
49
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF MSR. The obligation of MSR to
effect the Merger is, at the option of MSR, also subject to the fulfillment at
or prior to the Closing Date of the following conditions:
(a) The representations and warranties of Mercury and Mercury Sub
contained in Section 2.2 shall be accurate in all material respects as of
the date of this Agreement and (except to the extent such representations
and warranties speak specifically as of an earlier date) as of the Closing
Date as though such representations and warranties had been made at and as
of that time; all the agreements, terms, covenants and conditions of this
Agreement to be complied with and performed by Mercury, Mercury Sub and the
Minority Stockholders on or before the Closing Date shall have been duly
complied with and performed in all material respects; and a certificate to
the foregoing effect dated the Closing Date and signed by the chief
executive officer of Mercury shall have been delivered to MSR;
(b) Since the date of this Agreement, no material adverse change in
the financial condition, results of operations or business of Mercury Sub
shall have occurred, and Mercury Sub shall not have suffered any damage,
destruction or loss materially adversely affecting the properties or
business of Mercury Sub, and MSR shall have received a certificate signed
by the chief executive officer of Mercury dated the Closing Date to such
effect;
(d) The proceeds of the Financing necessary to consummate the
transactions contemplated hereby shall have been received by MSR;
(e) MSR shall have received from ▇▇▇▇▇▇ & Hanger LLP, counsel to
Mercury, an opinion dated the Closing Date in form and substance as shall
be reasonably satisfactory to MSR; and
(f) MSR shall have received such other certificates, instruments, and
documents as may be reasonably requested by it to carry out the intent and
purposes of this Agreement.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF MERCURY AND MERCURY SUB. The
obligations of Mercury and Mercury Sub to effect the Merger are, at the option
of Mercury and Mercury Sub, also subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) The representations and warranties of MSR contained in Section
2.1 shall be accurate in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties
speak specifically as of an earlier date) as of the Closing Date as though
such representations and warranties had been made at and as of that time;
all the agreements, terms, covenants and conditions of this Agreement to be
complied with and performed by MSR on or before the Closing Date shall have
been duly complied with and performed in all material respects; and a
certificate to the
50
foregoing effect dated the Closing Date and signed by the chief executive
officer of MSR shall have been delivered to Mercury;
(b) Since the date of this Agreement, no material adverse change in
the financial condition, results of operations or business of MSR and the
MSR Subsidiaries, taken as a whole, shall have occurred, and MSR and the
MSR Subsidiaries shall not have suffered any damage, destruction or loss
materially adversely affecting the properties or business of MSR and the
MSR Subsidiaries, taken as a whole, and Mercury shall have received a
certificate signed by the chief executive officer of MSR dated the Closing
Date to such effect;
(c) The Board of Directors of MSR shall have taken such action as
necessary (and the shareholders shall have voted on or approved such
actions, required by law) to reconstitute the respective Boards of
Directors, executive committees and principal executive officers of MSR and
the MSR Subsidiaries effective as of the Effective Time in accordance with
Section 5.6;
(d) The proceeds of the Financing necessary to consummate the
transactions contemplated hereby shall have been received by MSR;
(e) Mercury shall have received from ▇▇▇▇▇▇▇▇ & Knight, P.C., counsel
to MSR, an opinion dated the Closing Date in form and substance as shall be
reasonably satisfactory to Mercury; and
(f) Mercury shall have received such other certificates, instruments,
and documents as may be reasonably requested by it to carry out the intent
and purposes of this Agreement.
ARTICLE VII
MISCELLANEOUS
7.1 TERMINATION. This Agreement may be terminated and the Merger and the
other transactions contemplated herein may be abandoned at any time prior to the
Effective Time, whether prior to or after approval by the stockholders of MSR:
(a) by mutual consent of MSR and Mercury;
(b) by either MSR or Mercury if the Merger has not been effected on
or before December 31, 1997;
(c) by MSR if the conditions set forth in Sections 6.1 or 6.2 are
not satisfied;
(d) by Mercury if the conditions set forth in Section 6.1 or 6.3 are
not satisfied;
51
(e) by MSR if (i) since the date of this Agreement there has been a
material adverse change in the results of operations, financial condition
or business of Mercury Sub, or (ii) there has been a material breach of any
representation, warranty or covenant set forth in this Agreement by Mercury
which breach has not been cured within five business days following receipt
by Mercury of notice of such breach;
(f) by Mercury if (i) since the date of this Agreement there has been
a material adverse change in the results of operations, financial condition
or business of MSR and the MSR Subsidiaries, taken as a whole, or (ii)
there has been a material breach of any representation, warranty or
covenant set forth in this Agreement by MSR which breach has not been cured
within five business days following receipt by MSR of notice of such
breach; or
(g) by MSR if the Board of Directors of MSR shall have recommended to
the stockholders of MSR an Alternative Transaction, and the stockholders of
MSR have approved such Alternative Transaction, or by Mercury at any time
following a public announcement by MSR of such recommendation and approval.
7.2 EFFECT OF TERMINATION. In the event of any termination of this
Agreement pursuant to Section 7.1, (i) the provisions of the Confidentiality
Agreement (as defined in Section 7.13) and the provisions of Section 5.7 shall
survive any such termination, and (ii) such termination shall not relieve any
party from liability for any breach of this Agreement.
7.3 WAIVER AND AMENDMENT. Any provision of this Agreement may be waived at
any time by the party that is, or whose stockholders are, entitled to the
benefits thereof This Agreement may not be amended or supplemented at any time,
except by an instrument in writing signed on behalf of each party hereto,
provided that after this Agreement has been approved and adopted by the
stockholders of MSR, this Agreement may be amended only as may be permitted by
applicable provisions of the DGCL. The waiver by any party hereto of any
condition or of a breach of another provision of this Agreement shall not
operate or be construed as a waiver of any other condition or subsequent breach.
The waiver by any party hereto of any of the conditions precedent to its
obligations under this Agreement shall not preclude it from seeking redress for
breach of this Agreement other than with respect to the condition so waived.
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties agreements of the parties hereto contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto shall survive the Closing without contractual limitation, regardless of
any investigation made by or on behalf of any party.
7.5 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "CONSENT" means any consent to assign or transfer or any other
limitation on transferability.
52
(b) "MERCURY PROPERTIES" means the properties, rights and interests
listed in Exhibit B hereto.
(c) "MSR PROPERTIES" means the properties, rights and interests
listed in Exhibit C hereto.
(d) "PREFERENTIAL RIGHT" means any preferential right or option to
purchase or otherwise to acquire a thing.
(e) "ROUTINE GOVERNMENTAL APPROVALS" mean approvals required to be
obtained from any governmental or tribal authority that are customarily
obtained after consummation of a transaction.
7.6 PUBLIC STATEMENTS. Mercury and MSR agree to consult with each other
prior to issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law or applicable stock exchange policy.
7.7 REMEDIES NOT EXCLUSIVE. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law. The
rights and remedies of any party based upon, arising out of, or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant, or agreement contained in this Agreement shall in no way be limited by
the fact that the act, omission, occurrence, or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be the subject
matter of any other representation, warranty, covenant, or agreement contained
in this Agreement (or in any other agreement between the parties) as to which
there is no inaccuracy or breach.
7.8 ASSIGNMENT. This Agreement shall inure to the benefit of and will be
binding upon the parties hereto and their respective legal representatives,
successors and permitted assigns. Except as set forth in this Agreement, this
Agreement shall not be assignable by the parties hereto.
7.9 NOTICES. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i) delivered
in person or by courier, (ii) sent by telecopy or facsimile transmission, answer
back requested, or (iii) mailed, certified first class mail, postage prepaid,
return receipt requested, to the parties hereto at the following addresses:
if to Mercury or Mercury Exploration Company
Mercury Sub: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
53
with a copy to: ▇▇▇▇▇▇ & Hanger, L.L.P.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
if to MSR or MSR Exploration Ltd.
MSR Sub: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 7.9. Such notices shall be
effective, (i) if delivered in person or by courier upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when the
answer back is received, or (iii) if mailed, upon the earlier of five days after
deposit in the mail and the date of delivery as shown by the return receipt
therefor.
7.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive law of the State of Texas without giving effect
to the principles of conflicts of law thereof.
7.11 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated.
7.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same agreement.
7.13 HEADINGS. The Section headings herein are for convenience only and
shall not affect the construction hereof.
7.14 CONFIDENTIALITY AGREEMENT.
(a) Each party hereto agrees that all Confidential Information (as
defined below) received by such party (the "RECEIVING PARTY") from the any
other party hereto (the "DISCLOSING PARTY") shall be kept confidential by
the receiving party and shall not be disclosed by the receiving party in
any manner whatsoever; provided, however, that (i) any of such Confidential
Information may be disclosed to such directors, officers, employees, and
authorized representatives (including without limitation attorneys,
accountants, consultants, bankers, and financial advisors) of the receiving
party (collectively, the "RECEIVING PARTY'S REPRESENTATIVES") as need to
know such information
54
for the purpose of evaluating the Merger (it being understood that such
receiving party's representatives shall be informed by the receiving party
of the confidential nature of such information and shall be required to
treat such information confidentially), (ii) any disclosure of
Confidential Information may be made to the extent to which the disclosing
party consents in writing, (iii) Confidential Information may be disclosed
by the receiving party or any receiving party's representatives to the
extent that, in the opinion of counsel for the receiving party or such
receiving party's representatives is legally compelled to do so, provided
that, prior to making such disclosure, the party being legally compelled
to disclose such information advises and consults with the disclosing
party regarding such disclosure and provided further that the party being
legally compelled to disclose such information discloses only that portion
of the Confidential Information as is legally required, and (iv) any of
such Confidential Information may be disclosed to any banks or other
financial institutions or other prospective investors that may provide
the Financing if such banks or other financial institutions or other
prospective investors agree to comply with the provisions of this Section.
The term "CONFIDENTIAL INFORMATION", as used herein, means all information
(irrespective of the form of communication) obtained by or on behalf of
a receiving party from a disclosing party or its representatives, other
than information which (i) was or becomes generally available to the
public other than as a result of disclosure by the receiving party or
any receiving party's representative, (ii) was or becomes available to
the receiving party on a nonconfidential basis prior to disclosure to
the receiving party or its representatives, or (iii) was or becomes
available to the receiving party from a source other than the disclosing
party or its representatives, provided that such source is not known by
the receiving party to be bound by a confidentiality agreement with the
disclosing party.
(b) If this Agreement is terminated, each receiving party shall
promptly return, and shall use their reasonable best efforts to cause all
receiving party representatives to promptly return, all Confidential
Information to the disclosing party without retaining any copies thereof,
provided that such portion of the Confidential Information as consists of
notes, compilations, analyses, reports, studies, or other documents
prepared by the receiving party or the receiving party's representatives
shall be destroyed.
7.15 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES; COMMUNITY PROPERTY
INTERESTS. This Agreement and the Confidentiality Agreement constitute the
entire agreement and supersede all other prior agreements and understandings,
both oral and written, among the parties or any of them, with respect to the
subject matter hereof, and neither this Agreement nor any document delivered in
connection with this Agreement confers upon any person not a party hereto any
rights or remedies hereunder except as provided in Sections 5.7.
7.16 DISCLOSURE LETTERS.
(a) The Mercury Disclosure Letter, executed by Mercury as March 17,
1997, and delivered to MSR on such date, contains all disclosures required
to be made by Mercury under the various terms and provisions of this
Agreement. Each item of disclosure set forth in the Mercury Disclosure
Letter specifically refers to
55
the Article and Section of this Agreement to which such disclosure responds,
and shall not be deemed to be disclosed with respect to any other Article
or Section of this Agreement.
(b) The MSR Disclosure Letter, executed by MSR as of March 10, 1997,
and delivered to Mercury on such date, contains all disclosures required to
be made by MSR under the various terms and provisions of this Agreement.
Each item of disclosure set forth in the MSR Disclosure Letter specifically
refers to the Article and Section of this Agreement to which such
disclosure responds, and shall not be deemed to be disclosed with respect
to any other Article or Section of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized, all as of the
date first above written.
MSR Exploration Ltd.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇, Chairman of the Board
Mercury Exploration Company
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
Mercury Montana, Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
56
EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE
SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY
BE SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE SKY
LAWS OR EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE CONDITIONS
SPECIFIED IN THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER, OR OTHER
DISPOSITION OF THIS WARRANT SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH
CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
No. 1C Right to Purchase Up to 1,250,000 Shares
---- ---------
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Mercury Exploration Company, or
registered assigns, is entitled to purchase from MSR Exploration Ltd., a
Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Paragraph 2 hereof, of up to One Million, Two Hundred
Fifty Thousand (1,250,000) fully paid and nonassessable shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), at an
exercise price per share of $.01 (the "Exercise Price"). The term "Warrant
Shares", as used herein, refers to the shares of Common Stock purchasable
hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in Paragraphs 3 and 5 hereof. The term "Warrants", as
used herein, shall mean this Stock Purchase Warrant and all Stock Purchase
Warrants issued in connection with any transfer, exchange, or replacement
thereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE: ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part (but not as to a fractional Warrant Share), by
the surrender of this Warrant, together with a completed Exercise Agreement
in the form attached hereto, to the Company during normal business hours on
any business day at the Company's principal office in Fort Worth, Texas (or
such other office or agency of the Company as it may designate by notice to
the holder hereof), and upon payment to the Company in cash or by certified
or official bank check of the Exercise Price for the Warrant Shares specified
in said Exercise Agreement. The Warrant Shares so purchased shall be deemed
to be issued to the holder hereof or its designee as the record owner of such
shares as of the close of business on the date on which this Warrant shall
have been surrendered, the completed Exercise Agreement delivered, and
payment made for such shares as aforesaid. Certificates for the Warrant
Shares so purchased, representing
the aggregate number of shares specified in said Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding seven
business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested
by the holder hereof and shall be registered in the name of said holder or
such other name as shall be designated by said holder. If this Warrant shall
have been exercised only in part, then, unless this Warrant has expired, the
Company shall, at its expense, at the time of delivery of said certificates,
deliver to said holder a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised. The Company
shall pay all taxes and other expenses and charges payable in connection with
the preparation, execution, and delivery of stock certificates (and any new
Warrants) pursuant to this Paragraph 1 except that, in case such stock
certificates shall be registered in a name or names other than the holder of
this Warrant, funds sufficient to pay all stock transfer taxes which shall be
payable in connection with the execution and delivery of such stock
certificates shall be paid by the holder hereof to the Company at the time of
the delivery of such stock certificates by the Company as mentioned above.
2. PERIOD OF EXERCISE. Subject to the satisfaction of the conditions
specified in Paragraph 3 below, this Warrant is only exercisable during the
period commencing on the date (the "Initial Exercise Date") on which a "Tax
Event" (as defined below) occurs and ending on March 31, 2002 at 5:00 p.m.
Fort Worth, Texas local time; provided, however, such date shall
automatically be extended in the event any litigation or administrative
proceeding with respect to a possible Tax Event is pending as of such date to
a date that is 90 days after the final resolution of such administrative
proceeding or litigation (the "Termination Date").
3. DETERMINATION OF NUMBER OF WARRANT SHARES; CONDITIONS TO EXERCISE.
(a) The number of Warrant Shares with respect to which this Warrant is
exercisable shall be an amount equal to the lesser of (i) One Million Two
Hundred Fifty Thousand (1,250,000) or (ii) an amount determined by dividing
the amount of any "Tax Liability" (as defined below) by the "Market Price"
per share of Common Stock (as defined below) as of the date of the Tax Event.
(b) This Warrant is exercisable only if a Tax Event shall have occurred
prior to the Termination Date, and then only in the amount of Warrant Shares
determined pursuant to Paragraph 3(a) above. If a Tax Event shall not have
occurred on or before the Termination Date, this Warrant shall terminate and
be of no further force or effect.
2
(c) For purposes of this Warrant, the following terms shall ▇▇▇▇▇ the
meanings set forth below:
"Tax Event" shall mean a final, binding and non-appealable determination by
a governmental taxing authority or court of appropriate jurisdiction that
the Company has a liability for taxes, or for failure to withhold taxes,
under Canadian or United States tax laws as a result of the continuance of
MSR Exploration Ltd., an Alberta, Canada corporation and predecessor in
interest to the Company, from the Province of Alberta to the State of
Delaware.
"Tax Liability" shall mean the amount of the taxes, including fines,
penalties and interest, if any, required to be paid by the Company as a
result of a Tax Event.
"Market Price" shall mean the average of the last reported per share sale
prices for Common Stock for the 20 consecutive Trading Days (as defined
below) commencing 30 Trading Days before the day in question. The last
reported sale price for each day shall be (i) the last reported sale price
of the Common Stock on the National Market of the National Association of
Securities Dealers, Inc. Automated Quotation System, or any similar system
of automated dissemination of quotations of securities prices then in
common use, if so quoted, or (ii) if not quoted as described in clause
(i) above, the mean between the high bid and low asked quotations for the
Common Stock as reported by the National Quotation Bureau, Inc. if at least
two securities dealers have inserted both bid and asked quotations for such
security on at least 10 of such 20 consecutive Trading Days, or (iii) if
the Common Stock is listed or admitted for trading on any national
securities exchange, the last sale price, or the closing bid price if no
sale occurred, of the Common Stock on the principal securities exchange on
which the Common Stock is listed or admitted to trading. If the Common
Stock is quoted on a national securities or central market system, in lieu
of a market or quotation system described above, the last reported sale
price shall be determined in the manner set forth in clause (ii) of the
preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (iii) of the
preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the last reported sale price of the
Common Stock on any day or the average of such last reported sale prices
for any period shall be the fair market value of such security as
determined by a member firm of the New York Stock Exchange, Inc. selected
by the Company. The term "Trading Days", as used herein, means (i) if the
Common Stock is quoted on the National Market of the National Association
of Security Dealers, Inc. Automated Quotation System, or any similar system
of automated dissemination of quotations of securities prices, days on
which trades may be made on such system or (ii) if the Common Stock is
listed or admitted for trading on any national securities exchange, days on
which such national securities exchange is open for business.
3
4. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon issuance, be
validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the period commencing on the date
hereof and ending on the Termination Date, the Company will at all times have
authorized, and reserved for the purpose of issue upon exercise of this
Warrant, a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.
5. PROTECTION AGAINST DILUTION. The number of shares of Common Stock
purchasable pursuant to the exercise of the rights under this Warrant and the
Exercise Price shall be adjusted as hereinafter set forth:
(a) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS, ETC. In case at
any time or from time to time after the date hereof the Company shall:
(i) fix a record date for the holders of its issued and outstanding
Common Stock for the purposes of entitling them to receive a dividend
payable in, or other distribution of, Common Stock, or
(ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock;
then, and in each such case the Exercise Price shall be adjusted to that
price determined by multiplying the Exercise Price in effect immediately
prior to such event by a fraction (i) the numerator of which shall be the
total number of outstanding shares of Common Stock immediately prior to such
event, and (ii) the denominator of which shall be the total number of
outstanding shares of Common Stock immediately after such event.
(b) ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon each adjustment in
the Exercise Price, pursuant to Paragraph 5(a) above, such number of shares
of Common Stock purchasable hereunder shall be adjusted by multiplying the
number of shares of Common Stock by a fraction, the numerator of which shall
be the Exercise Price immediately prior to such adjustment and the
denominator of which shall be the Exercise Price in effect upon such
adjustment.
4
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
(a) Prior to the expiration date of this Warrant, the Company shall not
consolidate with or merge into another corporation, or convey all or
substantially all of its assets to any other corporation or corporations,
whether affiliated or unaffiliated (any such corporation being included
within the meaning of the term "successor corporation"), or agree to so
consolidate, merge or convey assets unless and until prior to consummation of
such consolidation, merger or conveyance the successor corporation thereto
shall assume, by written instrument executed and mailed to the holder of this
Warrant at such time, the obligation to issue and deliver to such holder such
shares of stock, securities or property as, in accordance with the provisions
of Paragraph 6(b) below, such holder shall be entitled to purchase or receive.
(b) In case of any capital reorganization or reclassification of the
Common Stock of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this
Warrant) after the date of execution of this Warrant or in case, after such
date, the Company (or any such other corporation) shall consolidate with or
merge into another corporation or convey all or substantially all its assets
to another corporation, then and in each such case the holder of this
Warrant, upon exercise, at any time after the consummation of such
reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock of the Company (or such other
corporation) the proportionate share of all stock, securities or other
property issued, paid or delivered for or on all of the Common Stock of the
Company (or such other corporation) as is allocable to the shares of Common
Stock then called for by this Warrant, as if such holder had exercised this
Warrant immediately prior thereto.
7. REGISTRATION RIGHTS.
(a) RIGHT TO PARTICIPATE IN REGISTRATIONS. If, at any time prior to the
expiration of two years from the last date on which this Warrant is validly
exercised, the Company proposes to register shares of Common Stock under the
Securities Act of 1933, as amended (the "Securities Act"), on Form ▇-▇, ▇-▇,
or S-3 (or any form which replaces or is substantially similar to such form),
the Company shall each such time give notice of such proposed registration to
the holder of this Warrant, if this Warrant has not yet expired, and to all
holders of shares of Common Stock acquired by reason of exercise of this
Warrant. Subject to the terms and provisions of this Paragraph 6, upon the
request of any such holder ("Holder") made within 20 days after the giving of
such notice by the Company, the Company shall use its best efforts to cause
all shares of Common Stock that have been acquired by such Holder pursuant to
the exercise of this Warrant, and all shares of Common Stock that will be
acquired by such Holder pursuant to the exercise of this Warrant not later
than the fifth day prior to the filing of the registration statement under
the Securities Act, which shares such Holder shall have requested to be
included in the proposed registration ("Registrable Shares"), to be included
in such registration to the extent requisite to permit the sale or other
disposition by such Holder of such Registrable Shares. In the event the
offering
5
to be conducted pursuant to the proposed registration is to be an
underwritten public offering, the registration rights provided in this
Paragraph 6 shall be subject to the approval of the managing underwriter or
underwriters of such offering, who shall determine the number of Registrable
Shares, if any, that may be included in such registration without adversely
affecting such offering.
(b) REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Paragraph 6 to use its best efforts to cause
Registrable Shares to be included in the registration of securities of the
Company under the Securities Act, the Company will, as expeditiously as
possible:
(i) prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement (the "Registration Statement")
covering such Registrable Shares and use its best efforts to cause the
Registration Statement to become effective and to remain effective for so
long as may reasonably be necessary to complete the sale or other
disposition of such Registrable Shares, provided that the Company shall not
in any event be required to use its best efforts to maintain the
effectiveness of the Registration Statement for a period in excess of 90
days;
(ii) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus contained
therein as may be necessary to keep the Registration Statement effective,
and comply with the provisions of the Securities Act, with respect to the
sale or other disposition of such Registrable Shares whenever the Holders
thereof shall desire to sell or otherwise dispose of the same but only to
the extent provided in this Paragraph 7(b);
(iii) furnish to each Holder of such Registrable Shares such
numbers of copies of the Registration Statement, the prospectus contained
therein (including each preliminary prospectus), and each amendment and
supplement to the Registration Statement and such prospectus, in conformity
with the requirements of the Securities Act, and such other documents, as
such Holder may reasonably request in order to facilitate the sale or other
disposition of such Registrable Shares; and
(iv) before filing the Registration Statement, any prospectus to be
used in connection with the offering to be conducted pursuant to such
registration, or any amendments or supplements to the Registration
Statement or such prospectus with the Commission, furnish counsel to the
Holders of such Registrable Shares with copies of all such documents
proposed to be filed, which shall be subject to the reasonable approval
of such counsel.
(c) REQUIRED INFORMATION. The Company shall not be required to use its
best efforts to include any Registrable Shares in a proposed registration of
its securities under the Securities Act unless and until (i) the Holder of
such Registrable Shares furnishes to the Company such information regarding
such Holder and such Registrable Shares and the
6
intended method of disposition of such Registrable Shares as the Company
shall reasonably request in order to satisfy the requirements applicable to
such registration, and (ii) in the event the offering to be conducted
pursuant to such registration is to be an underwritten public offering, such
Holder agrees to the terms of the underwriting agreed to between the Company
and the underwriter or underwriters of such offering and executes all
documents reasonably required to effect such offering.
(d) EXPENSES OF REGISTRATION. In the event of the inclusion pursuant to
the provisions of this Paragraph 7 of Registrable Shares in a registration by
the Company of its securities under the Securities Act, the Holder of such
Registrable Shares shall pay any federal and blue sky filing and registration
or qualification fees attributable to such Holder's Registrable Shares, any
brokerage and underwriting discounts and commissions payable in respect of
Registrable Shares sold on such Holder's behalf, all fees and expenses of any
attorneys and accountants employed by such Holder, and any other costs
directly incurred by such Holder, and the Company shall pay or cause to be
paid and shall indemnify and hold harmless such Holder from and against any
and all other costs and expenses incurred in connection with such
registration and related blue sky registrations and qualifications.
(e) INDEMNIFICATION. In connection with any registration of Registrable
Shares pursuant to the provisions of this Paragraph 7, the Company shall
indemnify and hold harmless the Holder of such Registrable Shares to the
extent that companies generally indemnify and hold harmless underwriters in
connection with public offerings under the Securities Act, and such Holder
shall indemnify and hold harmless the Company, each director and officer of
the Company, and each person who controls the Company within the meaning of
the Securities Act to the extent that selling shareholders generally
indemnify and hold harmless issuers of securities in connection with public
offerings under the Securities Act with respect to the written information
provided by such Holder for use by the Company in the preparation of the
Registration Statement.
8. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax in respect thereof.
9. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no
mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Exercise Price or as
a shareholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
10. Transfer Exchange and Replacement of Warrant.
7
(a) REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(b) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided
in this Paragraph 10, this Warrant shall be promptly canceled by the Company.
The Company shall pay all taxes (other than securities transfer taxes) and
all other expenses and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Paragraph 10.
(c) REGISTER. The Company shall maintain, at its principal office in
Fort Worth, Texas (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(d) EXERCISE OR TRANSFER WITHOUT REGISTRATION. Anything in this Warrant
to the contrary notwithstanding, if, at the time of the surrender of this
Warrant in connection with any exercise, transfer, or exchange of this
Warrant, this Warrant or the Warrant Shares shall not be registered under the
Securities Act of 1933, as amended, and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
exercise, transfer, or exchange, that (i) the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the
effect that such exercise, transfer, or exchange may be made without
registration under said Act and under applicable state securities or blue sky
laws and (ii) the holder or transferee execute and deliver to the Company an
investment letter in form and substance acceptable to the Company. The holder
of this Warrant, by taking and holding the same, represents to the Company
that such holder is acquiring this Warrant for investment and not with a view
to the distribution thereof.
11. NOTICES. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant
shall be in writing, and shall be personally delivered, or shall be sent by
certified or registered mail, postage prepaid and addressed, to such holder
at the address shown for such holder on the books of the Company, or at such
other address as shall have been furnished to the Company by notice from such
holder. All notices, requests, and other communications required or permitted
to be given or delivered hereunder to the Company shall be in writing, and
shall be personally delivered, or shall be sent by certified or registered
mail, postage prepaid and addressed, to the office of the Company at ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attention: President, or at
such other address as shall have been furnished to the holder of this Warrant
by notice from the Company. Any such notice, request, or other communication
may be sent by telegram or
8
telex, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail as provided
above. All notices, requests, and other communications shall be deemed to
have been given either at the time of the delivery thereof to (or the receipt
by, in the case of a telegram or telex) the person entitled to receive such
notice at the address of such person for purposes of this Paragraph Il, or,
if mailed, at the completion of the third full day following the time of such
mailing thereof to such address, as the case may be.
12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
13. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific enforcement of any
agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
14. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may not be
changed, waived, discharged, or terminated orally, but only by an instrument
in writing signed by the party (or any predecessor in interest thereof)
against which enforcement of the same is sought.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all the Company's assets.
9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as
of __________ 1997.
MSR Exploration Ltd.
By
------------------------------------
10
FORM OF EXERCISE AGREEMENT
Dated: _______, 19____
To:
-----------------
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase _______ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of $________. Please issue a certificate or certificates for such shares
of Common Stock in the name of the undersigned and pay any cash for any
fractional share to the undersigned.
Name:
-----------------------------------
Signature:
------------------------------
Title of Signing Officer or Agent (if
any):
-----------------------------------
Note: The above signature should correspond exactly
with the name on the face of the within Warrant
or with the name of the assignee appearing in
the assignment form.
11
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------- ------- -------------
, and hereby irrevocably constitutes and appoints _____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: 19 .
--------------- ---
In the presence of
----------------------
Name:
-----------------------------------
Signature:
------------------------------
Title of Signing Officer or Agent
(if any):
-------------------------------
Address:
-------------------------------
-------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
12
EXHIBIT B
SHEET 1
MERCURY MONTANA, INC.
FIELD WORKING INTEREST NET REVENUE INTEREST O.R.R.I
CUTBANK AIRPORT FIELD 1.0000000000 0.8333333000
DAQUIST UNIT 1.0000000000 0.8938680900
LANGABEER UNIT 1.0000000000 0.8868690000
▇▇▇▇▇▇▇▇▇ WATERFLOOD 1.0000000000 N/A
▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇ 1.0000000000 0.8750000000
▇▇▇▇▇▇ #416 1.0000000000 0.8750000000
▇▇▇▇▇▇ #417 1.0000000000 0.8750000000
▇▇▇▇▇ UNIT 1.0000000000 0.8958160000
▇▇▇▇▇▇-▇▇▇▇▇▇ 1.0000000000 0.8750000000
▇▇▇▇▇▇-▇▇▇▇▇▇ 1.0000000000 0.8750000000
TETRUD, A.E., M., L. 1.0000000000 0.8750000000
TETRUD, M 1.0000000000 0.8750000000
TETRUD, 1L2 1.0000000000 0.8750000000
▇▇▇▇▇▇ ▇▇▇▇ ▇ 1.0000000000 0.8750000000
SCCBSU - SCCBSU SUNBURST 0.9422127000 0.8361845271
▇▇▇▇▇▇ - SCCBSU SUNBURST 1.0000000000 0.8750000000 0.▇▇▇▇▇▇▇▇▇▇
STATE 16 - SCCBSU SUNBURST 1.0000000000 0.8421870000 0.0078130000
LOOKOFF - SCCBSU SUNBURST 1.0000000000 0.8750000000
▇▇▇▇▇▇▇ - SCCBSU SUNBURST 1.0000000000 0.8737500000
▇▇▇▇▇▇▇ - SCCBSU SUNBURST 1.0000000000 0.9125000000 0.0108696000
SOUTH CENTRAL CBSU INJECTION 0.9422127000 N/A
Page 1
Page 1
MERCURY EXPLORATION COMPANY
OIL AND GAS PRODUCERS
March 17,1997
MSR Exploration Ltd.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
Reference is made to that certain Agreement and Plan of Merger among MSR
Exploration Ltd., Mercury Exploration Company and Mercury Montana, Inc. dated as
of the date hereof (the "Agreement"). This letter constitutes the "Mercury
Disclosure Letter" referred to in the Agreement. All capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to them
in the Agreement.
SECTION 2.2(A). Mercury is incorporated in Texas. Mercury Montana, Inc.
("MM") is incorporated in Delaware.
SECTION 2.2(C). Ownership of shares of capital stock of MM:
Mercury Exploration Company 6,480,000
▇▇▇▇▇ ▇▇▇▇▇▇ 1,200,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 1,200,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 1,200,000
▇▇▇▇ ▇▇▇▇▇▇ Self 1,200,000
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 600,000
▇▇▇▇ ▇▇▇▇ 120,000
SECTION 2.2(c)(ii). List of all 5 year warrants for Mercury Montana, Inc.
at the following exercise prices:
$1.25 $2.00
----- -----
Mercury Exploration Company 2,970,000 2,970,000
▇▇▇▇▇ ▇▇▇▇▇▇ 550,000 550,000
MSR Exploration Company
March 17, 1997
Page 2
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 550,000 550,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 550,000 550,000
▇▇▇▇ ▇▇▇▇▇▇ Self 550,000 550,000
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 275,000 275,000
▇▇▇▇ ▇▇▇▇ 55,000 55,000
--------- ---------
5,500,000 5,500,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President/Director Option for 114,285 common shares at
$.875 per share flat
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Executive Vice
President/Director Option for 114,285 common share at
$.875 per share flat
SECTION 2.2(d). None
SECTION 2.2(f). Consummation of the Agreement requires consent of
NationsBank of Texas, N.A.
SECTION 2.2(h). None
SECTION 2.2(i). Granting of stock options to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ as shown in documents furnished to MSR.
SECTION 2.2(i). None
SECTION 2.2(k). None
SECTION 2.2(l). None
SECTION 2.2(m). None
SECTION 2.2(n). Environmental Matters. In September 1994, in
connection with the acquisition of properties from Unocal, a Phase One
environmental assessment was performed by ENSR Consulting and Engineering.
Upon their recommendation, Glacier Pipeline and Tank Farm Hill were excluded
from the purchase and retained by Unocal. The Phase One assessment documents
from ENSR are provided herewith and are incorporated herein by reference.
MSR Exploration Company
March 17, 1997
Page 3
SECTION 2.2(o)(i). Exhibit A. List of Oil and Gas Leases in Montana
Exhibit B. List of Agreements (▇▇▇▇▇ Agreement)
SECTION 2.2(o)(ii). None
SECTION 2.2(o)(iii).SDGI Conveyance of Production Payment and Related
Agreements (Attached)
Unocal Call on Oil Production in Unocal/Mercury
Purchase and Sale Agreement (Attached)
SECTION 2.2(o)(iv). SDGI Conveyance of Production Payment and Related
Agreements (Attached)
SECTION 2.2(o)(v). None
SECTION 2.2(o)(vi). ▇▇▇▇▇ Agreement
SECTION 2.2(o)(ix). None
SECTION 2.2(o)(x). None
SECTION 2.2(o)(xi). Liens to NationsBank
▇▇▇▇▇ Agreement
Unocal Call on Production
SECTION 2.2(o)(xii).Reserve Report Provided.
SECTION 2.2(p). Agreements to Purchase Oil & Gas
SECTION 2.2(q)(i). All directors and officers including current year
compensation:
▇▇▇▇▇ ▇▇▇▇▇▇, Chairman/Director $0.00
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President/Director Option for 114,285 common shares at
$.875 per share flat
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Executive Vice
President/Director Option for 114,285 common
shares at $.875 per share flat
MSR Exploration Company
March 17, 1997
Page 4
SECTION 2.2(q)(ii). None.
SECTION 2.2(r). Insider Interests. Refer to listing of shares held by
Directors and Officers of Mercury in Section 2.2(c) above.
SECTION 2.2(s). List of all bonds:
- $25,000 Personal Statewide Oil and Gas Bond (BLM Bond No. MT 0885)
- $25,000 Multi-Well Bond (Certificate of Deposit) CD6368 with Farmers State
Bank of Cut Bank
- $16,302 EPA Underground Injection Control Bond (Irrevocable Letter of
Credit).
SECTION 2.2(t). None
Very truly yours,
MERCURY EXPLORATION COMPANY
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
Executive Vice President
GD:sh
MSR EXPLORATION LTD.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
March 10, 1997
REVISED
Mercury Exploration Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Re: Supplemental Disclosure Letter
Gentlemen:
Reference is made for all purposes to that certain Agreement and Plan of
Merger dated as of the date hereof by and among MSR Exploration Ltd., an
Alberta, Canada corporation, ("MSR"), Mercury Exploration Company, a Texas
corporation ("Mercury") and Mercury Montana, Inc., a Delaware corporation and
a wholly owned subsidiary of Mercury, ("Mercury Sub"), ("the Agreement").
This letter constitutes the "Disclosure Letter" referred to in the Agreement.
All defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement.
Section 2.1(a) Organization and Good Standing.
1. Name: MSR Exploration Ltd.
Jurisdiction of Incorporation: Alberta, Canada
2. Name: Mountain States Resources, Inc.
Jurisdiction of Incorporation: Colorado
3. Name: MSR Exploration, Inc.
Jurisdiction of Incorporation: Texas
4. Name: Gypsy Highview Gathering System, Inc.
Jurisdiction of Incorporation: Montana
5. Name: Monte Grande Exploration, Inc.
Jurisdiction of Incorporation: Montana
6. Name: MSR Drilling, Inc.
Jurisdiction of Incorporation: Montana
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ - ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ - FAX (▇▇▇) ▇▇▇-▇▇▇▇
Mercury Exploration Company Page 2
March 10, 1997
Section 2.1 (b) Capitalization.
All MSR Subsidiaries shares have been pledged as part of the
security under a certain Credit Agreement dated December 30,
1994 between MSR and Banque Paribas as Agent.
Section 2.1 (d) Authority.
Consent of Banque Paribas is required under certain Credit
Agreement dated as of December 30, 1994 among MSR and all its
subsidiaries and Banque Paribas as Agent
Section 2.1 (e) Absence of Undisclosed Liabilities.
None.
Section 2.1 (f) Conducting Of Business In The Ordinary Course.
None.
Section 2.1 (g) Litigation.
None.
Section 2.1 (h) Compliance With Laws.
Under the U.S. Environmental Protection Agency's (EPA)
Underground Injection Control Program, Operators of injection
▇▇▇▇▇ associated with oil and gas production must maintain
financial responsibility and resources to close, plug and
abandon such ▇▇▇▇▇. To demonstrate financial responsibility,
MSR has issued through a local bank a letter of credit in
the amount of $191,625 for forty one injection ▇▇▇▇▇.
Section 2.1 (i) Employee Benefit Plans.
MSR provides a major medical and dental plan including a
$5,000 life insurance policy. Employees may add dependents
by paying 75% of the additional cost. Copies of the major
medical and dental plan such policies are included with this
letter. MSR provides state required Workmen's Compensation
Insurance.
Section 2.1 (i) Taxes.
None.
Section 2.1 (k) Environmental Matters.
In January 1995, in connection with bank financing, an
environmental consulting firm performed an environmental
assessment of all of MSR's U. S. producing properties.
In June, 1995 the acquired Southeast Texas properties
were assessed. The phase one assessment documents from
EnecoTech Environmental Consultants are provided herewith
and are incorporated herein by reference.
Mercury Exploration Company
Page 3
March 10, 1997
Section 2.1 (1) Properties.
(i) Oil and Gas leases and other Agreements.
Exhibit A.1 List of oil and gas leases ▇▇▇▇▇▇▇, County, Texas.
Exhibit A.2 List of oil and gas leases Southeast Texas.
Exhibit A.3 List of oil and gas leases Montana through 12/31/94.
Exhibit A.4 List of oil and gas leases Montana since 1/1/95.
Exhibit B.1 Casinghead gas gathering system ▇▇▇▇▇▇▇ County, Tx.
Exhibit B.2 Gas pipeline system Glacier County, Montana.
(ii) Commitments to make expenditures.
One well to be drilled in the ▇▇▇▇▇▇▇ (▇▇▇▇▇) Field in the April-May 1997
period.
Approximate depth is 4500' and the estimated dry hole cost is $75,000.
(iii) Sale of Assets.
None.
(iv) Prepayments for Products.
None.
(vi) Area of mutual agreement or non complete or any farm-out or farm-in
agreements or any tax partnership.
None.
(ix) Preferential Rights or Consents.
Consent of Banque Paribas is required under certain Credit Agreement dated
as of December 30, 1994 among MSR and all its subsidiaries and Banque
Paribas as Agent
(x) Agreements to gather, transport, process or market products.
Gas Purchase and Sale Contract among MSR Exploration, Inc. (assigned) and
Enron Capital and Trade Resources dated March 16, 1994
Gas Purchase and Sale Contract among MSR Exploration, Inc. (assigned) and
Rio Vista Gas Marketing dated August 1, 1995
Oil Purchase and Sale agreement between MSR Exploration, Inc. and Pride
Petroleum, Inc. dated June 22, 1990.
Gas and Gas Liquids Purchase and Sale contract between MSR Exploration,
Inc. and C & L Processors (assigned from Omni Petroleum Corporation, dated
March 2, 1988.
Mercury Exploration Company Page 4
March 10, 1997
Condensate Purchase Contract between MSR Exploration, Inc. and Gulfmark
Energy, Inc. presently month to month.
Oil Purchase Contract between JN Petroleum Marketing and Gypsy Highview
Gathering System, Inc., dated October 28, 1996.
Oil Purchase Contract between JN Petroleum Marketing and Mountain States
Resources, Inc. dated October 28, 1996.
Oil Purchase Contract between JN Petroleum Marketing and Monte Grande
Exploration, Inc. dated October 28, 1996.
Oil Purchase Contract between Cenex and Gypsy Highview Gathering System,
Inc. dated May 23, 1986.
Gas Purchase Contract between Montana Power Company and Gypsy Highview
Gathering System, Inc. (Red River Gas Plant) agreement dated November 1,
1993.
Section 2.1 (m) Other Agreements.
Credit Agreement among MSR and all subsidiaries and Banque Paribas as Agent
dated December 30. 1994.
Employment Agreement between MSR and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ dated January 1,
1994
Section 2.1 (n) Employees, Labor Relations.
(i) Employees.
Attached is a list of all directors, officers and employees including
current year compensation for prior year and current year.
(ii) Labor Relations.
None.
Section 2.1(o) Insider Interests.
See attached listing of shares held by Directors and Officers of MSR.
Section 2.1 (p) Financial Requirements.
See Environmental requirements in Section 2.1 (h)
Section 2.1 (r) Brokerage Fees.
None
Mercury Exploration Company Page 5
March 10, 1997
Section 2.1(t) Bank Accounts and Powers of Attorney.
Bank accounts - see listing attached.
Power of Attorney.
None.
Very truly yours,
/s/ ▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇
Chairman of the Board, President and Chief Operating
Officer
OJB/lt
enclosures
msr\mercury\supdis.doc
Mercury Exploration Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Exec. ▇.▇.
▇▇▇▇▇▇ & Hanger, L.L.P. (Enclosures)
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ B. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
MSR Exploration Ltd
Supplemental Disclosure Letter to:
Mercury Exploration Company
Dated March 7, 1997
* REVISED MARCH 10, 1997
LIST OF DOCUMENTS AND EXHIBITS ACCOMPANYING LETTER:
Section 2.1 (i) Employee Benefit Plans.
MetLife Health Coverage - Plan
MetLife Life and Dental Benefits - Plan
Section 2.1(k) Environmental Matters.
EnecoTech, Inc. - Environmental Consultants
1. Limited Phase I environmental assessment of ▇▇▇▇▇▇ Production
Company Properties (Southeast Texas gas ▇▇▇▇▇) dated July,
1995.
2. *LIMITED PHASE I ENVIRONMENTAL ASSESSMENT OF
MSR'S WINTER ▇▇▇▇▇ FIELD, ▇▇▇▇▇▇▇ COUNTY, TEXAS; NORTH
CENTRAL CUT BANK SAND UNIT AND GRABEN COULEE FIELD, GLACIER
COUNTY, MONTANA DATED DECEMBER __, 1994
Section 2.1(l) Properties.
Listing of oil and gas properties.
(i) Oil and gas leases and other Agreements.
Exhibit A.1 List of oil and gas leases ▇▇▇▇▇▇▇, County, Texas.
Exhibit A.2 List of oil and gas leases Southeast Texas.
Exhibit A.3 List of oil and gas leases Montana through 12/31/94.
Exhibit A.4 List of oil and gas leases Montana since 1/1/95.
Exhibit B.1 Casinghead gas gathering system ▇▇▇▇▇▇▇ County, Tx.
Exhibit B.2 Gas pipeline system Glacier County, Montana.
(x) Agreements to gather, transport, process or market products.
Gas Purchase and Sale Contract among MSR Exploration, Inc.
(assigned) and Enron Capital and Trade Resources dated March 16,
1994
Gas Purchase and Sale Contract among MSR Exploration, Inc.
(assigned) and Rio Vista Gas Marketing dated August 1, 1995
Oil Purchase and Sale agreement between MSR Exploration, Inc. and
Pride Petroleum, Inc. dated June 22, 1990.
Mercury Exploration Company Page 2
March 7, 1997 Revised
Gas and Gas Liquids Purchase and Sale contract between MSR Exploration,
Inc. and C & L Processors (assigned from Omni Petroleum Corporation, dated
March 2, 1988.
Condensate Purchase Contract between MSR Exploration, Inc. and Gulfmark
Energy, Inc. presently month to month.
Oil Purchase Contract between Cenex and Gypsy Highview Gathering System,
Inc. dated May 23, 1986.
Gas Purchase Contract between Montana Power Company and Gypsy Highview
Gathering System, Inc. (Red River Gas Plant) agreement dated November 1,
1993.
Oil Purchase Contract between JN Petroleum Marketing and Gypsy Highview
Gathering System, Inc., dated October 28, 1996.
Oil Purchase Contract between JN Petroleum Marketing and Mountain States
Resources, Inc. dated October 28, 1996.
Oil Purchase Contract between JN Petroleum Marketing and Monte Grande
Exploration, Inc. dated October 28, 1996.
Section 2.1(m) Agreements.
* EMPLOYMENT AGREEMENT BETWEEN MSR AND ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
DATED JANUARY 1, 1994
Section 2.1 (n) Employees, Labor Relations.
(i) Employees.
List of all directors, officers and employees including current
year compensation prior year and current year.
Section 2.1 (o) Insider Interests.
List of shares held by Directors and Officers of MSR.
Section 2.1 (t) Bank Accounts and Powers of Attorney.
List of Bank accounts -
------------------------------------------------------------------------------------------------------------------
M S R EXPLORATION, LTD EXHIBIT "C"
------------------------------------------------------------------------------------------------------------------
OIL AND GAS PROPERTIES NET
------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 WORKING NET
------------------------------------------------------------------------------------------------------------------
(EXPENSE) REVENUE
------------------------------------------------------------------------------------------------------------------
WELL INTEREST INTEREST
------------------------------------------------------------------------------------------------------------------
No DESCRIPTION ST FIELD COUNTY NWI NRI
------------------------------------------------------------------------------------------------------------------
UNITED STATES PROPERTIES
------------------------------------------------------------------------------------------------------------------
MOUNTAIN STATES RESOURCES (MONTANA PROPERTIES)
------------------------------------------------------------------------------------------------------------------
2000 STATE 4770-56 MT GRABEN COULEE GLACIER 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2001 ▇▇▇▇▇▇▇▇ ET AL MT GRABEN COULEE GLACIER 1.00000000 0.88541660
------------------------------------------------------------------------------------------------------------------
2002 ▇▇▇▇▇ ▇▇▇▇ MT GRABEN COULEE GLACIER 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2003 EXXON ▇▇▇▇▇▇▇▇ ET AL MT GRABEN COULEE GLACIER 1.00000000 0.82291660
------------------------------------------------------------------------------------------------------------------
2004 STATE ▇▇-▇▇▇-▇▇ MT GRABEN COULEE GLACIER 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2005 ▇▇▇▇▇▇▇▇ ▇▇ - ▇ ▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.75625000
------------------------------------------------------------------------------------------------------------------
2006 ▇▇▇▇▇▇▇ ET AL MT HIGHVIEW TETON 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ #▇▇ ▇▇&▇▇ ▇▇ HIGHVIEW PONDERA 1.00000000 0.84500000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ #▇▇▇▇-▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.84500000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ #▇▇▇▇-▇▇ ▇▇ GYPSY BASIN PONDERA 1.00000000 0.83750000
------------------------------------------------------------------------------------------------------------------
2010 STATE ▇▇-▇▇▇-▇▇ MT GYPSY BASIN PONDERA 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2011 BILLS A MT GYPSY BASIN TETON 1.00000000 0.83750000
------------------------------------------------------------------------------------------------------------------
2012 BILLS B MT GYPSY BASIN PONDERA 1.00000000 0.83750000
------------------------------------------------------------------------------------------------------------------
2013 BILLS C MT GYPSY BASIN PONDERA 1.00000000 0.83750000
------------------------------------------------------------------------------------------------------------------
2014 BILLS COULEE MT BILLS COULEE TETON 1.00000000
------------------------------------------------------------------------------------------------------------------
2015 ▇▇▇▇ ▇▇▇▇ M MT GYPSY BASIN PONDERA 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇-▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ #▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.85000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ #▇▇-▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2019 ▇▇▇▇▇▇ ▇▇-▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2020 ▇▇▇▇▇▇ ▇▇-▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇-▇▇ ▇▇ ▇▇▇▇ ▇&▇ MUSELSHELL 1.00000000 0.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ #▇ ▇▇ ▇▇▇▇ ▇&▇ ▇▇▇▇ ▇&▇ 1.00000000
------------------------------------------------------------------------------------------------------------------
2023 FEDERAL ▇▇-▇ ▇▇ ▇▇▇▇ ▇&▇ ▇▇▇▇ ▇&▇ 1.00000000
------------------------------------------------------------------------------------------------------------------
2024 NAVAJO 0 LEASE AZ NONE P&A APACHE 1.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ 26 N 1/2 #4 MT CUT BANK GLACIER 1.00000000 0.84000000
------------------------------------------------------------------------------------------------------------------
2026 ▇▇▇▇▇▇▇ LEASE MT RED RIVER GLACIER 1.00000000
------------------------------------------------------------------------------------------------------------------
2027 BERKRAM LEASE MT RED RIVER GLACIER 1.00000000
------------------------------------------------------------------------------------------------------------------
2028 ▇▇▇▇▇▇▇ RED CREEK MT RED CREEK GLACIER 1.00000000
------------------------------------------------------------------------------------------------------------------
2029 ▇▇▇▇▇ 3-1 MT RED RIVER GLACIER 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2030 ▇▇▇▇▇ ▇▇-▇ **▇▇▇** ▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 0.50000000 0.43750000
------------------------------------------------------------------------------------------------------------------
2030 ▇▇▇▇▇ 34-1 **OIL** MT RED RIVER GLACIER 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2032 VASBOE ET AL SEC 27 MT CUT BANK GLACIER 1.00000000 0.85000000
------------------------------------------------------------------------------------------------------------------
2034 ▇▇▇▇▇▇▇ 22-1 MT GLACIER 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
2038 VASBOE ET AL SEC 22 MT CUT BANK GLACIER 1.00000000 0.82500000
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
MONTE GRANDE EXPLORATION, INC (MONTANA PROPERTIES)
------------------------------------------------------------------------------------------------------------------
3000 ▇▇▇▇▇▇▇ MT HIGHVIEW TETON 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ 10 NEE 1/4 B MT GRABEN COULEE GLACIER 1.00000000 0.88583363
------------------------------------------------------------------------------------------------------------------
3002 ▇▇▇▇▇▇▇ A MT GRABEN COULEE GLACIER 1.00000000 0.92106186
------------------------------------------------------------------------------------------------------------------
Page 1 of 4
------------------------------------------------------------------------------------------------------------------
M S R EXPLORATION, LTD EXHIBIT "C"
------------------------------------------------------------------------------------------------------------------
OIL AND GAS PROPERTIES NET
------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 WORKING NET
------------------------------------------------------------------------------------------------------------------
(EXPENSE) REVENUE
------------------------------------------------------------------------------------------------------------------
WELL INTEREST INTEREST
------------------------------------------------------------------------------------------------------------------
No DESCRIPTION ST FIELD COUNTY NWI NRI
------------------------------------------------------------------------------------------------------------------
GYPSY HIGHVIEW GATHERING SYSTEM, INC (MONTANA PROPERTIES)
------------------------------------------------------------------------------------------------------------------
501 GYPSY HIGHVIEW GAS PLANT MT 1.00000000 1.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇ 1.00000000 1.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇ NORTH CENTRAL GLACIER 0.97390390 0.81125937
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇ GLACIER 1.00000000 0.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ 3 S 112 MT GRABEN COULEE GLACIER 1.00000000 0.88583330
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ 10 W 1/2 MT GRABEN COULEE GLACIER 1.00000000 0.83515620
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇-▇▇-▇▇ ▇ ▇▇ GRABEN COULEE GLACIER 1.00000000 0.86859380
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇-▇▇-▇▇ ▇ ▇▇ GRABEN COULEE GLACIER 1.00000000 0.86859380
------------------------------------------------------------------------------------------------------------------
4006 ▇▇▇▇▇▇▇▇ SEC 11 S 1/2 MT GRABEN COULEE GLACIER 1.00000000 0.85875000
------------------------------------------------------------------------------------------------------------------
4007 KRUGER B SEC 14 MT CUT BANK GLACIER 1.00000000 0.80000000
------------------------------------------------------------------------------------------------------------------
4008 BLM GTH # 087977 MT CUT BANK GLACIER 1.00000000 0.92625000
------------------------------------------------------------------------------------------------------------------
4009 KRUGER A SEC 23 MT CUT BANK GLACIER 1.00000000 0.87499990
------------------------------------------------------------------------------------------------------------------
4010 ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1 2 3 - 13 ND BLUELL RENVILLE 1.00000000 0.84609372
------------------------------------------------------------------------------------------------------------------
4011 ▇▇▇▇▇ SEC 7-1 MT CUT BANK GLACIER 1.00000000 0.86000000
------------------------------------------------------------------------------------------------------------------
4012 ▇▇▇▇▇▇▇▇ ▇▇▇ LEASE MT CUT BANK GLACIER 1.00000000 0.00000000
------------------------------------------------------------------------------------------------------------------
4013 ▇▇▇▇ MT DARLING GLACIER 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
4014 ▇▇▇▇▇▇ MT DARLING TOOLE 1.00000000 0.61468850
------------------------------------------------------------------------------------------------------------------
4015 ▇▇▇▇▇ (NEW BORDER) MT NEW BORDER TOOLE 1.00000000 0.80000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇ OLD BORDER TOOLE 1.00000000 0.77127516
------------------------------------------------------------------------------------------------------------------
4017 ▇▇▇▇▇▇ UNIT MT CUT BANK GLACIER 0.96131350 0.73882950
------------------------------------------------------------------------------------------------------------------
4018 TWEEDY UNIT MT CUTBANK GLACIER 0.99611200 0.74720255
------------------------------------------------------------------------------------------------------------------
4019 ▇▇▇▇▇ ▇▇▇▇▇▇▇ 5-13 ND BLUELL RENVILLE 1.00000000 0.84609380
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Page 2 of 4
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
M S R EXPLORATION, LTD EXHIBIT "C"
------------------------------------------------------------------------------------------------------------------
OIL AND GAS PROPERTIES Net
------------------------------------------------------------------------------------------------------------------
DECEMBER 31,1996 Working Net
------------------------------------------------------------------------------------------------------------------
(Expense) Revenue
------------------------------------------------------------------------------------------------------------------
WELL Interest Interest
------------------------------------------------------------------------------------------------------------------
No DESCRIPTION ST FIELD COUNTY NWI NRI
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
MSR EXPLORATION INC (TEXAS PROPERTIES)
------------------------------------------------------------------------------------------------------------------
6000 ADAMI #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.87500000
------------------------------------------------------------------------------------------------------------------
6001 ▇▇▇▇▇▇▇▇▇▇ TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ #1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.82204160
------------------------------------------------------------------------------------------------------------------
6003 ▇▇▇▇▇▇ A #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83622440
------------------------------------------------------------------------------------------------------------------
6004 ▇▇▇▇▇ #1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83246160
------------------------------------------------------------------------------------------------------------------
6005 ▇▇▇▇▇ #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83058020
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇ #▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83058020
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇ #▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83246160
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇ #▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.80497440
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.82729208
------------------------------------------------------------------------------------------------------------------
6010 ▇▇▇▇▇▇▇▇▇▇▇ #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.72000000
------------------------------------------------------------------------------------------------------------------
6011 GERSTENGERG A #1 1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.73749092
------------------------------------------------------------------------------------------------------------------
6012 H&G ▇▇▇▇▇▇▇ TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.00000000
------------------------------------------------------------------------------------------------------------------
6013 ▇▇▇▇▇ #3 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83246160
------------------------------------------------------------------------------------------------------------------
6014 ▇▇▇▇▇▇▇▇ #1 2 3 4 5 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83622440
------------------------------------------------------------------------------------------------------------------
6015 ▇▇▇▇▇▇▇▇ SWD BATTERY TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.00000000
------------------------------------------------------------------------------------------------------------------
6016 JKA ▇▇▇▇▇▇ ▇▇▇▇▇ TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.00000000
------------------------------------------------------------------------------------------------------------------
6017 KETTLER #1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83246160
------------------------------------------------------------------------------------------------------------------
6018 MARKS #1 2 3 4 5 6 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83246160
------------------------------------------------------------------------------------------------------------------
6019 MATHIS #1 2 3 4 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.80902410
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ #▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83622440
------------------------------------------------------------------------------------------------------------------
6021 PRUSSER #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83667076
------------------------------------------------------------------------------------------------------------------
6022 ▇▇▇▇ #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83998720
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ #▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83810580
------------------------------------------------------------------------------------------------------------------
6024 ▇▇▇▇▇▇▇ ▇ ▇ #1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.80000000
------------------------------------------------------------------------------------------------------------------
6025 SPILL #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 1.00000000
------------------------------------------------------------------------------------------------------------------
6026 ▇▇▇▇▇▇▇▇ A #1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83622440
------------------------------------------------------------------------------------------------------------------
6027 ▇▇▇▇▇▇▇▇ A SPILL #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.80811220
------------------------------------------------------------------------------------------------------------------
6028 ▇▇▇▇▇▇▇▇ A ST UT A $ I TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.82860822
------------------------------------------------------------------------------------------------------------------
6029 ▇▇▇▇▇▇▇▇ A ST UT B #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.82962250
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇ ▇▇▇▇ ▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.82132727
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇ ▇▇ ▇▇▇▇ ▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.82319381
------------------------------------------------------------------------------------------------------------------
6032 ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ #1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83246160
------------------------------------------------------------------------------------------------------------------
6033 TKP ▇▇▇ ▇▇▇▇▇ A TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000
------------------------------------------------------------------------------------------------------------------
6034 ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000
------------------------------------------------------------------------------------------------------------------
6038 UECKERT UNIT #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83622440
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ #▇ & #▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83000000
------------------------------------------------------------------------------------------------------------------
6040 WHITE A #1 & 2 & B #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83246160
------------------------------------------------------------------------------------------------------------------
6041 WHITE C #1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83622440
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇ #▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83998720
------------------------------------------------------------------------------------------------------------------
6043 WJD #1 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.79339910
------------------------------------------------------------------------------------------------------------------
6044 ▇▇▇ ▇▇▇▇▇ A #1 & 2 TX ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ 1.00000000 0.83246160
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇ #▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ 0.74355470 0.54266590
------------------------------------------------------------------------------------------------------------------
6102 ▇▇▇▇▇▇▇ #1 TX DANBURY BRAZORIA 0.42500000 0.31600000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ #▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 0.41568600 0.32456730
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Page 3 of 4
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
M S R EXPLORATION, LTD EXHIBIT "C"
------------------------------------------------------------------------------------------------------------------
OIL AND GAS PROPERTIES Net
------------------------------------------------------------------------------------------------------------------
DECEMBER 31,1996 Working Net
------------------------------------------------------------------------------------------------------------------
(Expense) Revenue
------------------------------------------------------------------------------------------------------------------
WELL Interest Interest
------------------------------------------------------------------------------------------------------------------
No DESCRIPTION ST FIELD COUNTY NWI NRI
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
CANADIAN PROPERTIES
------------------------------------------------------------------------------------------------------------------
MSR EXPLORATION LTD
------------------------------------------------------------------------------------------------------------------
1001 ▇▇▇▇▇ ETAL AB 0.02924100 0.02924100
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ 0.02924100
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇ 0.01462050
------------------------------------------------------------------------------------------------------------------
1005 MED ▇▇▇▇▇ ▇-▇▇-▇▇-▇▇ ▇▇ ▇▇ 0.00935307
------------------------------------------------------------------------------------------------------------------
1006 MED LODGE 14-20-52-21-W5 AB
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇
------------------------------------------------------------------------------------------------------------------
1008 MED LODGE/▇▇▇▇▇
16-29-52-21W5M AB 0.02290000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇ ▇▇
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇/▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇ 0.06904400
------------------------------------------------------------------------------------------------------------------
1011 ▇▇▇▇▇▇▇/POCO 4 29 AB 0.12830000 0.12830000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇/▇▇▇▇ ▇▇ 0.23773500
------------------------------------------------------------------------------------------------------------------
1013 SNOWFALL AB
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇ ▇▇ 0.05848200
------------------------------------------------------------------------------------------------------------------
1015 JOFFREE AB
------------------------------------------------------------------------------------------------------------------
1017 MED LODGE NUMAS
14-15-53-21W5M AB
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ ▇ ▇▇▇ ▇▇▇▇▇
▇▇-▇▇-▇▇-▇▇ ▇▇ 0.01053018
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
1004 ▇▇▇▇ A 29 BC 0.19500000 0.19500000
------------------------------------------------------------------------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ 0.01462050
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
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NOTE -PROPERTIES WITH NO NET REVENUE INTEREST ARE NON PRODUCING PROPERTIES.
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