EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
AMONG
PANHANDLE ROYALTY COMPANY,
PRC, INC.
AND
WOOD OIL COMPANY
AUGUST 9, 2001
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and entered
into as of the 9th day of August, 2001, by and among Panhandle Royalty Company,
an Oklahoma corporation ("PARENT"); PRC, Inc., an Oklahoma corporation ("MERGER
SUB"); and Wood Oil Company, an Oklahoma corporation (the "COMPANY")
(collectively the "PARTIES" and individually, "PARTY").
RECITALS
A. The board of directors of each of Parent and the Company has determined
that it is in the best interests of its respective stockholders to approve the
strategic alliance of Parent and the Company by means of the merger of Merger
Sub with and into the Company, upon the terms and subject to the conditions set
forth in this Agreement.
B. Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with such
merger and also to prescribe various conditions to such merger.
In consideration of the recitals and the mutual covenants and agreements
set forth in this Agreement, the Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, each of the following terms
has the meaning given in this Section 1.1 or in the Sections referred to below
(such meanings applicable to both the singular and plural forms of the terms
defined):
"AFFILIATE" means, with respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person.
"AGREEMENT" means this Agreement and Plan of Merger, as amended,
supplemented or modified from time to time.
"ALLOCATED VALUE" means the allocation of values for all of the assets of
the Company shown on SCHEDULE 1.1A.
"ASSETS" means all of the assets, rights, properties and goodwill of any
kind or type, tangible or intangible, wheresoever located, of the Company.
"BASE MERGER CONSIDERATION" means $25,000,000.
"BEST EFFORTS" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System List.
"CERTIFICATE OF MERGER" means the certificate of merger, prepared and
executed in accordance with the applicable provisions of the OGCA, filed with
the Secretary of State of Oklahoma to reflect the consummation of the Merger.
"CLAIM" has the meaning specified in Section 8.3.
"CLOSING" means the closing and consummation of the Merger and the other
transactions contemplated by this Agreement.
"CLOSING DATE" means the date on which the Closing occurs, which shall be
October 1, 2001, except as Parent and the Company shall mutually agree.
"CLOSING DATE MERGER CONSIDERATION" shall have the meaning set forth in
Section 5.10(b).
"COBRA" means the Consolidated Omnibus Reconciliation Act of 1985, as
amended, as contained in section 4980B of the Code.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the introductory paragraph of this
Agreement.
"COMPANY CERTIFICATE" means a certificate representing shares of the
Company Common Stock.
"COMPANY COMMON STOCK" means the common stock, par value $1.00 per share,
of the Company.
"COMPANY EMPLOYEE BENEFIT PLANS" has the meaning specified in Section
3.11(a).
"COMPANY FINANCIAL STATEMENTS" means the unaudited financial statements of
the Company (including the related notes) as of July 31, 2000, and for the year
then ended, and the unaudited financial statements of the Company as of March
31, 2001, and for the eight months then ended.
"COMPANY INDEMNIFIED PERSONS" has the meaning specified in Section 5.7.
"COMPANY PERMITS" has the meaning specified in Section 3.15.
"COMPANY REPRESENTATIVE" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors) or other
representative of the Company.
2
"COMPETING BUSINESS" has the meaning specified in Section 3.9.
"CONFIDENTIALITY AGREEMENT" means the letter agreement dated May 14, 2001,
between the Company and Parent relating to the Company's furnishing of
information to Parent in connection with Parent's evaluation of the possibility
of acquiring the Company.
"DAMAGES" has the meaning specified in Section 8.1.
"DEBT" means, for any Person, without duplication: (a) all obligations of
such Person for borrowed money; (b) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (c) all indebtedness of
such Person on which interest charges are customarily paid or accrue; (d) the
unfunded or unreimbursed portion of all letters of credit issued for the account
of such Person; (e) the present value of all obligations in respect of leases
that are capitalized on the books and records of such Person; (f) any obligation
of such Person representing the deferred purchase price of property or services
purchased by such Person other than trade payables incurred in the Ordinary
Course of Business and which are not more than 90 days past invoice date; (g)
any indebtedness, liability or obligation secured by a Lien on the assets of
such Person whether or not such indebtedness, liability or obligation is
otherwise non-recourse to such Person; (h) liabilities with respect to payments
received in consideration of oil, gas or other minerals yet to be acquired or
produced at the time of payment (including obligations under "take-or-pay"
contracts to deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment); and (i)
all liability of such Person as a general partner or joint venturer for
obligations of the nature described in clauses (a) through (h) preceding.
"DEFENSIBLE TITLE" means such right, title and interest that is: (a) with
respect to Ownership Interests of record, evidenced by an instrument or
instruments filed of record in accordance with the conveyance and recording laws
of the applicable jurisdiction to the extent necessary to give the Company and
Parent, through its ownership of the Company Common Stock, the right to enjoy
the benefits of possession (as further described in Section 3.14) of the
Ownership Interests reflected on SCHEDULE 1.1A; (b) with respect to Ownership
Interests not yet earned under a farmout agreement, described in and subject to
a farmout agreement containing terms and provisions reasonably consistent with
terms and provisions used in the domestic oil and gas business and under which
there exists no default by the Company; and (c) subject to Permitted
Encumbrances, free and clear of all Liens.
"DISCLOSURE SCHEDULE" means the DISCLOSURE SCHEDULE delivered by the
Company to Parent concurrently with the execution and delivery of this Agreement
and any documents listed on such DISCLOSURE SCHEDULE and expressly incorporated
therein by reference. Each section thereof shall qualify the correspondingly
numbered representation and warranty or covenant in this Agreement and not any
other representation, warranty or covenant herein unless specifically stated
with appropriate specific cross references to other numbered sections of the
Disclosure Schedule.
"XXXXXXX MONEY" has the meaning specified in Section 2.9.
3
"EFFECTIVE TIME" has the meaning specified in Section 2.2.
"ENVIRONMENTAL LAW" means any law, common law, ordinance, regulation or
policy of any Governmental Authority, as well as any order, decree, permit,
judgment or injunction issued, promulgated, approved or entered thereunder,
relating to the environment, health and safety, Hazardous Material (including
the use, handling, transportation, production, disposal, discharge or storage
thereof), industrial hygiene, the environmental conditions on, under, or about
any Oil and Gas Interests or real property owned, leased or operated at any time
by the Company, including soil, groundwater, and indoor and ambient air
conditions or the reporting or remediation of environmental contamination.
Environmental Laws include, without limitation, the Clean Air Act, as amended
(the "CLEAN AIR ACT"), the Federal Water Pollution Control Act, as amended, the
Rivers and Harbors Act of 1899, as amended, the Safe Drinking Water Act, as
amended, the Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of
1986, as amended ("XXXX"), the Resource Conservation and Recovery Act of 1976,
as amended ("RCRA"), the Hazardous and Solid Waste Amendments Act of 1984, as
amended, the Toxic Substances Control Act, as amended, the Occupational Safety
and Health Act, as amended ("OSHA"), the Hazardous Materials Transportation Act,
as amended, and any other federal, state and local law whose purpose is to
conserve or protect human health, the environment, wildlife or natural
resources.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time and the regulations promulgated thereunder.
"ESCROW AGENT" has the meaning specified in Section 2.6(a).
"ESCROW AGREEMENT" has the meaning specified in Section 2.6(a).
"EXCLUDED ASSETS" means all rights of the Company in and to the assets
described on SCHEDULE 1.1B.
"GOVERNMENTAL AUTHORITY" means any national, state, county or municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over any of the Parties or any of their
respective properties or assets.
"GUARANTY" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreements to keep-well, to purchase assets, goods, securities or services,
to take-or-pay, or to maintain financial statement conditions, by "comfort
letter" or other similar undertaking of support of otherwise); or (b) entered
into for the purpose of assuring in any other manner the obligee of such Debt or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, that the term "GUARANTY"
shall not include endorsements for collection or deposit in the Ordinary Course
of Business. For
4
purposes of this Agreement, the amount of any Guaranty shall be the probable
amount that the guarantor would be legally required to pay under such Guaranty.
"HAZARDOUS MATERIAL" means (a) any "hazardous substance," as defined by
CERCLA; (b) any "hazardous waste" or "solid waste," in either case as defined by
RCRA; (c) any solid, hazardous, dangerous or toxic chemical, material, waste or
substance, within the meaning of and regulated by any Environmental Law; (d) any
asbestos-containing materials in any form or condition; (e) any polychlorinated
biphenyls in any form or condition; (f) petroleum, petroleum hydrocarbons, or
any fractions or byproducts thereof; or (g) any air pollutant which is so
designated by the U.S. Environmental Protection Agency as authorized by the
Clean Air Act.
"HYDROCARBONS" means oil, condensate, gas, casinghead gas and other liquid
or gaseous hydrocarbons.
"INDEMNIFIED PERSON" has the meaning specified in Section 8.5.
"INDEMNIFYING PARTY" has the meaning specified in Section 8.5.
"KNOWLEDGE" (whether or not capitalized) means an individual will be deemed
to have "Knowledge" of a particular fact or other matter if such individual is
actually aware of such fact or other matter or could be expected to discover or
otherwise become aware of such fact or matter in the course of conducting a
reasonable investigation concerning the existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has
since January 1, 2001, served as a director, executive officer, partner,
executor or trustee of such Person (or in any similar capacity) has, at any time
had, Knowledge of such fact or other matter.
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute or treaty.
"LIEN" means any lien, mortgage, security interest, pledge, charge, claim,
equitable interest, option, deposit, restriction, burden, encumbrance, rights of
a vendor under any title retention or conditional sale agreement, or lease or
other arrangement substantially equivalent thereto, but does not include any
production payment obligation.
"MATERIAL ADVERSE EFFECT" means (a) when used with respect to the Company,
a result or consequence that would or could reasonably be expected to materially
adversely affect the financial condition, results of operations or business of
the Company, taken as a whole, or the aggregate value of the Company's Assets;
and (b) when used with respect to Parent, a result or consequence that would
materially adversely affect its ability to perform its respective obligations
hereunder or consummate the transactions contemplated hereby or prevent or
materially delay the performance of this Agreement; provided, however, "Material
Adverse Effect" shall not include results or consequences from changes or trends
generally prevalent in or affecting the oil and gas industry, including changes
in commodity prices.
"MATERIAL AGREEMENT" means, with respect to any Person, any written or oral
agreement, contract, commitment, or understanding, including all amendments and
modifications thereto, to
5
which such Person is a party, by which such Person is directly or indirectly
bound, or to which any assets of such Person may be subject (other than oil, gas
and mineral leases and oil and gas leases and other than joint operating
agreements that are in the form of the 1989, 1982 or earlier versions of the
A.A.P.L. Form 610 Model Form Operating Agreement), involving total value or
consideration in excess of $200,000: (a) which is not cancelable by such Person
upon notice of 60 days or less without liability for further payment other than
nominal penalty; (b) pursuant to which such Person acquires any portion of the
raw materials, supplies or services used or consumed by such Person in the
operation of its business (unless such raw materials, supplies or services are
readily available to such Person from other sources on comparable terms); or (c)
pursuant to which such Person derives any part of its revenues.
"MERGER" has the meaning specified in Section 2.1.
"MERGER SUB" has the meaning set forth in the introductory paragraph of
this Agreement.
"MERGER SUB COMMON STOCK" means the common stock, par value $1.00 per
share, of Merger Sub.
"OGCA" means the Oklahoma General Corporation Act, as amended.
"OIL AND GAS INTEREST(S)" means (a) direct and indirect interests in and
rights with respect to oil, gas, mineral and related properties and assets of
any kind and nature, direct or indirect, including working, royalty and
overriding royalty interests, production payments, operating rights, net profits
interests, other non-working interests and non-operating interests; (b)
interests in and rights with respect to Hydrocarbons and other minerals or
revenues therefrom and contracts in connection therewith and claims and rights
thereto (including oil and gas leases, operating agreements, unitization and
pooling agreements and orders, division orders, transfer orders, mineral deeds,
royalty deeds, oil and gas sales, exchange and processing contracts and
agreements, and in each case interests thereunder), surface interests, fee
interests, reversionary interests, reservations and concessions; (c) easements,
rights of way, licenses, permits, leases, and other interests associated with,
appurtenant to, or necessary for the operation of any of the foregoing; and (d)
interests in equipment and machinery (including well equipment and machinery),
oil and gas production, gathering, transmission, compression, treating,
processing and storage facilities (including tanks, tank batteries, pipelines
and gathering systems), pumps, water plants, electric plants, gasoline and gas
processing plants, refineries and other tangible personal property and fixtures
associated with, appurtenant to, or necessary for the operation of any of the
foregoing. References in this Agreement to the "OIL AND GAS INTERESTS OF THE
COMPANY" or "THE COMPANY'S OIL AND GAS INTERESTS" mean the collective Oil and
Gas Interests of the Company.
"ORDINARY COURSE OF BUSINESS" means an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
6
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"OWNERSHIP INTERESTS" means the ownership interests of the Company in its
Oil and Gas Interests, as set forth on SCHEDULE 1.1A.
"PARENT" has the meaning set forth in the introductory paragraph of this
Agreement.
"PARENT CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of Parent and its Subsidiaries that is not already
generally available to the public.
"PARENT INDEMNIFIED PARTY" has the meaning specified in Section 8.1.
"PARENT LOSSES" has the meaning specified in Section 8.1.
"PARENT REPRESENTATIVE" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors), Affiliate or other
representative of Parent or its Subsidiaries.
"PARTIES" and "PARTY" have the meanings set forth in the introductory
paragraph of this Agreement.
"PER SHARE AMOUNT" means the amount of the Closing Date Merger
Consideration or the Post Closing Escrow Fund, as the case may be, divided by
the number of outstanding shares of the Company's Common Stock as of the Closing
Date.
"PERMITTED ENCUMBRANCES" means (a) Liens for Taxes, assessments or other
governmental charges or levies if the same shall not at the particular time in
question be due and delinquent or (if foreclosure, distraint sale or other
similar proceedings shall not have been commenced or, if commenced, shall have
been stayed) are being contested in good faith by appropriate proceedings; (b)
Liens of carriers, warehousemen, mechanics, laborers, materialmen, landlords,
vendors, workmen and operators arising by operation of law in the Ordinary
Course of Business or by a written agreement existing as of the date hereof and
necessary or incident to the exploration, development, operation and maintenance
of Hydrocarbon properties and related facilities and assets for sums not yet due
or being contested in good faith by appropriate proceedings; (c) Liens incurred
in the Ordinary Course of Business in connection with worker's compensation,
unemployment insurance and other social security legislation (other than ERISA)
which would not, individually or in the aggregate, result in a Material Adverse
Effect on the Company; (d) Liens incurred in the Ordinary Course of Business to
secure the performance of bids, tenders, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance and repayment bonds and other
obligations of a like nature; (e) Liens, easements, rights-of-way, restrictions,
servitudes, permits, conditions, covenants, exceptions, reservations and other
similar encumbrances incurred in the Ordinary Course of Business or existing on
property not materially impairing the value of the Assets of the Company or
interfering with the ordinary conduct of the business of the Company or rights
to any of its Assets; (f) Liens created or arising by operation
7
of law to secure a Party's obligations as a purchaser of oil and gas; (g) all
rights to consent by, required notices to, filings with, or other actions by
Governmental Authorities to the extent customarily obtained subsequent to
closing; (h) farmout, carried working interest, joint operating, unitization,
royalty, overriding royalty, sales and similar agreements relating to the
exploration or development of, or production from, Hydrocarbon properties
entered into in the Ordinary Course of Business and not in violation of Section
5.1, provided the effect thereof on the working and net revenue interest of the
Company has been properly reflected in the Ownership Interests; (i) any defects,
irregularities or deficiencies in title to the Oil and Gas Interests of the
Company that do not reduce the Company's net revenue interest, or increase the
Company's working interest, in any Oil and Gas Interest of the Company from that
set forth on SCHEDULE 1.1A; (j) preferential rights to purchase and Third-Party
Consents; (k) the terms and provisions of all leases, joint operating agreements
and other documents and instruments disclosed to Parent to the extent required
to be disclosed under the terms of this Agreement; (l) valid, subsisting and
applicable laws, rules and orders of any Governmental Authorities; and (m) Liens
and other burdens described in the DISCLOSURE SCHEDULE.
"PERSON" (whether or not capitalized) means any natural person,
corporation, company, limited or general partnership, joint stock company, joint
venture, association, limited liability company, trust, bank, trust company,
land trust, business trust or other entity or organization, whether or not a
Governmental Authority.
"POST CLOSING ESCROW FUND" has the meaning specified in Section 2.6(a).
"PROCEEDING" means any action, arbitration, hearing, investigation,
litigation, suit (whether civil, criminal, administrative or investigative),
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Authority or arbitrator.
"RELATED PERSON" means with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
8
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "FAMILY" of an individual includes
(i) the individual, (ii) the individual's spouse, (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "MATERIAL INTEREST" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 50% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 50% of the outstanding equity securities or
equity interests in a Person.
"RESERVE REPORT" means that certain report dated April 30, 2001, and
effective May 1, 2001, prepared by Xxxxx X. Xxxxx Associates, Inc. relating to
the Oil and Gas Interests of the Company.
"RESPONSIBLE OFFICER" means, with respect to any entity, the Chief
Executive Officer, President, Chief Operating Officer, Chief Financial Officer,
Secretary, Treasurer or any Vice President of such entity.
"STOCKHOLDER INDEMNIFIED PARTY" has the meaning specified in Section 8.2.
"STOCKHOLDER LOSSES" has the meaning specified in Section 8.2.
"STOCKHOLDERS" means the stockholders of the Company.
"SUBSIDIARY(IES)" means, as to a particular Person, an entity more than 50
percent owned, directly or indirectly, by such Person.
"SURVIVING CORPORATION" has the meaning specified in Section 2.3.
"TAX RETURNS" has the meaning specified in Section 3.13.
"TAXES" means taxes of any kind, levies or other like assessments, customs,
duties, imposts, charges or fees, including income, gross receipts, ad valorem,
value added, excise, real or personal property, asset, sales, use, federal
royalty, license, payroll, transaction, capital, net worth and franchise taxes,
estimated taxes, withholding, employment, social security, workers compensation,
utility, severance, production, unemployment compensation, occupation, premium,
windfall profits, transfer and gains taxes or other governmental taxes imposed
or payable to the United States or any state, local or foreign governmental
subdivision or agency
9
thereof, and in each instance such term shall include any interest, penalties or
additions to tax attributable to any such Tax, including penalties for the
failure to file any Tax Return or report.
"THIRD-PARTY CLAIM" means any claim, action or proceeding made or brought
by any Person who or which is not a party to this Agreement or an Affiliate of a
party to this Agreement.
"THIRD-PARTY CONSENT" means the consent or approval of any Person other
than the Company, Parent, Merger Sub or any Governmental Authority.
"THREATENED" means a litigation, arbitration, investigation or other
Proceeding will be deemed to have been "Threatened" if any demand or statement
has been made (orally or in writing) or any notice has been given (orally or in
writing), that would lead a prudent Person to conclude that such a litigation,
arbitration, investigation or other Proceeding is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
"TITLE OR ENVIRONMENTAL DEFECT" has the meaning specified in Section
5.9(a).
"WORKING CAPITAL ADJUSTMENT" has the meaning specified in Section 5.10(a).
1.2 REFERENCES AND TITLES. All references in this Agreement to Exhibits,
Schedules, Articles, Sections, subsections and other subdivisions refer to the
corresponding Exhibits, Schedules, Articles, Sections, subsections and other
subdivisions of or to this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any Articles, Sections, subsections or other
subdivisions of this Agreement are for convenience only, do not constitute any
part of this Agreement, and shall be disregarded in construing the language
hereof. The words "THIS AGREEMENT," "HEREIN," "HEREBY," "HEREUNDER" and
"HEREOF," and words of similar import, refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The words "THIS
ARTICLE," "THIS SECTION" and "THIS SUBSECTION," and words of similar import,
refer only to the Article, Section or subsection hereof in which such words
occur. The word "OR" is not exclusive, and the word "INCLUDING" (in its various
forms) means including without limitation. Pronouns in masculine, feminine or
neuter genders shall be construed to state and include any other gender, and
words, terms and titles (including terms defined herein) in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise requires.
ARTICLE 2
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Merger Sub shall be merged with and into the
Company in accordance with the provisions of this Agreement. Such merger is
referred to herein as the "MERGER."
2.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
immediately when the Certificate of Merger is accepted for filing by the
Secretary of State of Oklahoma or at such time thereafter as is provided in the
Certificate of Merger (the "EFFECTIVE TIME"). As soon as practicable after the
Closing, the Certificate of Merger shall be filed, and the Effective Time
10
shall occur, on the Closing Date; provided, however, that the Certificate of
Merger may be filed prior to the Closing Date or prior to the Closing so long as
it provides for an effective time that occurs on the Closing Date immediately
after the Closing.
2.3 EFFECT OF THE MERGER. Upon the Effective Time, the separate existence
of Merger Sub shall cease and the Company, as the surviving corporation in the
Merger (the "SURVIVING CORPORATION"), shall continue its corporate existence
under the laws of the State of Oklahoma. The Merger shall have the effects
specified in this Agreement and the OGCA.
2.4 GOVERNING INSTRUMENTS, DIRECTORS AND OFFICERS OF THE SURVIVING
CORPORATION.
(a) The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in accordance
with its terms and applicable law.
(b) The by-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation until
duly amended in accordance with their terms and applicable law.
(c) The directors and officers of the Parent at the Effective Time
shall be the directors and officers, respectively, of the Surviving
Corporation from the Effective Time until their respective successors have
been duly elected or appointed in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation and applicable law.
2.5 EFFECT ON SECURITIES.
(a) MERGER SUB STOCK. At the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof, each share of
Merger Sub Common Stock outstanding immediately prior to the Effective Time
shall remain outstanding and continue as one share of capital stock of the
Surviving Corporation, and each certificate evidencing ownership of any
such shares shall continue to evidence ownership of the same number of
shares of the capital stock of the Surviving Corporation.
(b) COMPANY SECURITIES.
(i) COMPANY COMMON STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof, each
share of Company Common Stock that is issued and outstanding
immediately prior to the Effective Time shall be converted into the
right to receive the Per Share Amount of the Closing Date Merger
Consideration. Each share of Company Common Stock, when so converted,
shall automatically be cancelled and retired, shall cease to exist and
shall no longer be outstanding, and the holder of any certificate
representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the Closing Date Merger
Consideration upon the surrender of such certificate in accordance
with Section 2.6.
11
(ii) COMPANY TREASURY STOCK. At the Effective Time, by virtue of
the Merger, all shares of Company Common Stock that are issued and
held as treasury stock, if any, shall be cancelled and retired and
shall cease to exist, and no Closing Date Merger Consideration or
other consideration shall be paid or payable in exchange therefor.
(iii) OTHER PLANS. At the Effective Time, except as provided in
this Section 2.5(b): (A) the provisions of any other plan, program or
arrangement providing for the issuance or grant of any other interest
in respect of the capital stock of the Company shall become null and
void; and (B) the Company shall use its Best Efforts to ensure that,
following the Effective Time, no holder of options or rights or any
participant in any plan, program or arrangement shall have any right
thereunder to acquire any equity securities of the Company, Merger
Sub, Parent or any direct or indirect Subsidiary thereof.
2.6 SURRENDER AND EXCHANGE OF CERTIFICATES; SEVERANCE PAYMENTS.
(a) EXCHANGE PROCEDURES. At the Closing: (i) the Stockholders shall
surrender to Parent all Company Certificates which, immediately prior to
the Effective Time, represented all issued and outstanding shares of
Company Common Stock; (ii) Parent shall pay or cause to be paid to each
Stockholder in whose name a Company Certificate shall have been registered,
in exchange therefor, cash in an amount equal to the product of (A) the Per
Share Amount of the difference between the Closing Date Merger
Consideration and the Post Closing Escrow Fund, times (B) the number of
shares of Company Common Stock represented by such Company Certificate
(each Company Certificate so surrendered shall forthwith be cancelled); and
(iii) as security for the satisfaction of the indemnification obligation of
the Stockholders provided for in Article 8, Parent shall deliver the amount
of $750,000 in cash (the "POST CLOSING ESCROW FUND") to Bank of Oklahoma,
N.A., as escrow agent ("ESCROW AGENT"), to be held for a period of one year
following the date of this Agreement in an account created pursuant to the
terms of that certain escrow agreement (the "ESCROW AGREEMENT"), in the
form attached hereto as EXHIBIT A and the provisions of Section 2.11.
(b) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The Closing
Date Merger Consideration paid upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock. After the date three (3) days prior to the
Effective Time, there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, a Company Certificate is presented to the
Surviving Corporation for any reason, it shall be cancelled and exchanged
as provided in this Section 2.6.
(c) LOST, STOLEN, OR DESTROYED COMPANY CERTIFICATES. If any Company
Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Company Certificate
to be lost, stolen or destroyed and, if required by Parent, the written
agreement by such Person in form and substance
12
satisfactory to Parent to indemnify until the applicable statute of
limitations expires Parent and the Surviving Corporation against any claim
that may be made against it with respect to such Company Certificate,
Parent shall pay to such holder, in exchange for such lost, stolen or
destroyed Company Certificate the Closing Date Merger Consideration
deliverable with respect thereto pursuant to this Agreement.
(d) SEVERANCE PAYMENTS AND BROKERAGE FEES. Immediately prior to the
Closing, the Company shall pay (subject to all applicable withholding taxes
and in accordance with and to the extent then due) all severance and other
amounts set forth in Section 3.11 of the DISCLOSURE SCHEDULE and all
brokerage fees set forth in Section 3.20 of the DISCLOSURE SCHEDULE.
2.7 CLOSING. The Closing shall take place on the Closing Date at such time
and place as is agreed upon by Parent and the Company.
2.8 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent, Merger Sub,
and the Company shall use all reasonable efforts to take all such actions as may
be necessary or appropriate in order to effectuate the Merger on or after
October 1, 2001, under the OGCA as promptly as commercially practicable. If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Merger Sub and the Company, the
present and future officers and directors of the Surviving Corporation are fully
authorized, in the name of the Surviving Corporation or otherwise, to take, and
shall take, all such lawful and necessary action.
2.9 XXXXXXX MONEY. Contemporaneous with the execution of this Agreement,
Parent or Merger Sub shall deposit with Escrow Agent the amount of $3,750,000
(the "XXXXXXX MONEY"). In the event the Closing occurs, the Xxxxxxx Money shall
be returned to Parent or Merger Sub (with interest). If the Closing does not
occur, the Xxxxxxx Money shall be paid to the Company or returned to Parent or
Merger Sub in accordance with this Section 2.9. In the event Parent or Merger
Sub breaches this Agreement by failing or refusing to close the transaction
contemplated hereby on the Closing Date and each of the conditions contained in
Article 6 has been either fulfilled in all material respects or waived, the
Xxxxxxx Money (with interest) shall be paid to the Company as liquidated damages
in lieu of all other damages (and as the Company's sole remedy in such event).
The Parties hereby acknowledge that the extent of damages to the Company
occasioned by such failure or refusal by Parent or Merger Sub would be
impossible or extremely impractical to ascertain and that the amount of the
Xxxxxxx Money is a fair and reasonable estimate of such damages under the
circumstances. In the event the Closing does not occur and the Xxxxxxx Money is
not retained pursuant to the foregoing provisions of this Section 2.9, the
Xxxxxxx Money shall be returned to Parent or Merger Sub (with interest).
2.10 EXCLUDED ASSETS. Except as set forth in Schedule 1.1B, prior to the
Closing, the Excluded Assets will be distributed by the Company to its
Stockholders or otherwise transferred to one or more of the Stockholders of the
Company or their nominee(s). None of the representations or warranties set forth
in this Agreement nor any of the other provisions of this Agreement shall be
applicable to the Excluded Assets.
13
2.11 RELEASE FROM ESCROW. If no claim for indemnification is then pending
or unresolved, the Post Closing Escrow Fund shall terminate upon the expiration
of twelve months after the date of this Agreement. Within three days after such
termination, the Escrow Agent shall pay to each Stockholder an amount equal to
the Per Share Amount of the Post Closing Escrow Fund (as reduced by amounts
distributed to Parent in satisfaction of any claims for indemnification pursuant
to Article 8) times the number of shares of Company Common Stock surrendered by
each such Stockholder pursuant to Section 2.6(a).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Parent and Merger Sub to enter into this
Agreement and consummate the transactions contemplated herein, except as set
forth in the DISCLOSURE SCHEDULE the Company represents and warrants to Parent
and Merger Sub as of the date of this Agreement and as of the Closing Date (as
if made on such date without giving effect to any supplement or update to the
DISCLOSURE SCHEDULE after the date hereof) as follows:
3.1 ORGANIZATION. The Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oklahoma, (b) has
the requisite power and authority to own, lease and operate its Assets and
properties and to conduct its business as it is presently being conducted, and
(c) is duly qualified to do business as a foreign corporation and is in good
standing, in each jurisdiction where the character of the properties owned or
leased by it or the nature of its activities makes such qualification necessary
(except where any failure to be so qualified or to be in good standing would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company). Copies of the certificate of incorporation and by-laws of the Company
have heretofore been delivered to Parent, and such copies are accurate and
complete as of the date hereof. The Company has no Subsidiaries. The Company
does not own any equity interest in any corporation or limited liability company
or any general or limited partnership interest in any general or limited
partnership (other than joint ventures, joint operating or ownership
arrangements or tax partnerships which have been entered into in the Ordinary
Course of Business).
3.2 AUTHORITY AND ENFORCEABILITY. The Company has the requisite corporate
power and authority to enter into and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company, including approval by the board of directors and Stockholders of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company and (assuming that this
Agreement constitutes a valid and binding obligation of Parent and Merger Sub)
constitutes a valid and binding obligation of the Company enforceable against it
in accordance with its terms.
3.3 NO VIOLATIONS. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance by the
Company with the
14
provisions hereof will not, conflict with, result in any violation of or default
(with or without notice or lapse of time or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any Lien on any of the
properties or Assets of the Company under, any provision of: (a) its certificate
of incorporation or by-laws; (b) any loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or other
agreement or instrument applicable to the Company; or (c) assuming the consents,
approvals, authorizations, permits, filings and notifications referred to in
Section 3.4 are duly and timely obtained or made, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or Assets.
3.4 CONSENTS AND APPROVALS. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for such filings and
approvals as may be required by any securities, corporate or other law, rule or
regulation. No Third-Party Consent is required by or with respect to the Company
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for any such
Third-Party Consent which the failure to obtain would not, individually or in
the aggregate, result in a loss of any Ownership Interest and/or an increase in
any of the Company's obligations or liabilities having an individual value of
$100,000 or more or an aggregate value of $350,000 or more.
3.5 FINANCIAL STATEMENTS. The Company Financial Statements which have been
delivered to Parent were prepared on the basis of accounting the Company uses
for federal income tax purposes, and fairly present, in accordance with
applicable requirements of such basis of accounting (subject to normal,
recurring adjustments), the financial position of the Company as of their
respective dates and the results of operations and the cash flows of the Company
for the periods presented therein. The Company Financial Statements are
consistent with the books and records of the Company.
The financial statements of the Company to be delivered to Parent pursuant
to Section 5.12 will, when delivered, have been prepared in accordance with
generally accepted accounting principles and will show all material liabilities
required to be shown in accordance with such principles. The balance sheet
included in such financial statements will fairly present the financial
condition of the Company as at the date thereof, and the statements of
operations and cash flows included in such financial statements will fairly
present the results of operations and cash flows for the periods indicated.
3.6 CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists solely of
2,000,000 shares of the Company Common Stock, par value $1.00 per share.
(b) There are, as of the execution date of this Agreement, issued and
outstanding, 615,701 shares of the Company Common Stock. No shares of the
Company Common Stock are held by the Company as treasury stock. Section
3.6(b) of the
15
DISCLOSURE SCHEDULE sets forth the number of shares of Company Common Stock
owned of record and beneficially by each of the Stockholders.
(c) Except as set forth in Section 3.6(b), there are issued and
outstanding (i) no shares of capital stock or other voting securities of
the Company, (ii) no securities of the Company or any other Person
convertible into or exchangeable or exercisable for shares of capital stock
or other voting securities of the Company, and (iii) no subscriptions,
options, warrants, calls, rights (including preemptive rights),
commitments, understandings or agreements to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
purchase, redeem or acquire shares of capital stock or other voting
securities of the Company (or securities convertible into or exchangeable
or exercisable for shares of capital stock or other voting securities of
the Company) or obligating the Company to grant, extend or enter into any
such subscription, option, warrant, call, right, commitment, understanding
or agreement.
(d) All outstanding shares of Company Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and not
subject to any preemptive right.
(e) At the Closing there will be no stockholder agreement, voting
trust or other agreement or understanding to which the Company is a party
or by which it is bound relating to the voting of any shares of the capital
stock of the Company.
(f) There are no outstanding stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company.
3.7 MATERIAL AGREEMENTS. The DISCLOSURE SCHEDULE contains a complete and
accurate list of the Material Agreements to which the Company is a party (other
than this Agreement and related agreements) or by which the Company or its
Assets are bound. The Company has made available to Parent or provided Parent
with true and correct copies of all Material Agreements. No right or obligation
of any party to any of such Material Agreements has been waived, and no party to
any of such Material Agreements is in default of its obligations thereunder. No
event has occurred and no condition exists which, with the giving of notice or
the lapse of time or both, would constitute any such breach or default. Each of
such Material Agreements is a valid, binding and enforceable obligation of the
parties thereto in accordance with its terms and is in full force and effect.
3.8 OUTSTANDING DEBT. The Company Financial Statements and the DISCLOSURE
SCHEDULE, together provide a complete and accurate description of all Debt and
Guaranties of the Company outstanding as of the date hereof. The Company is not
in default in payment of any Debt with respect to which it is an obligor or in
default of any covenant, agreement, representation, warranty or other term of
any document, instrument or agreement evidencing, securing or otherwise
pertaining to any such Debt.
3.9 RELATIONSHIPS WITH RELATED PERSONS. Except for interests owned in oil
and gas properties, neither the Company nor any Related Person of the Company or
of any Stockholder of the Company has any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), used in or
pertaining to the Company's business. Neither the Company
16
nor any Related Person of the Company or of any Stockholder of the Company is,
or since March 30, 2001 has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with the
Company, or (ii) engaged in competition with the Company with respect to any
business of the Company (a "COMPETING BUSINESS") in any market presently served
by the Company (except for less than one percent of the outstanding capital
stock of any Competing Business that is publicly traded on a recognized exchange
or in the over-the-counter market). Neither the Company nor any Related Person
of or any Stockholder of the Company is a party to any contract with, or has any
claim or right against, the Company.
3.10 EMPLOYMENT MATTERS. The DISCLOSURE SCHEDULE contains a complete and
accurate list of all employees of the Company. The Company is not a party to or
obligated under any consulting, employment, severance, termination or similar
arrangement with respect to any of its employees, or any bonus, profit sharing,
pension, stock option, stock purchase or similar plan or other arrangement or
other fringe benefit plan entered into or maintained for the benefit of its
employees, which plan or arrangement will extend beyond or obligate the Company
after the Closing to pay, vest or accelerate any benefit. The Company is in
material compliance with all laws, rules, regulations and orders relating to the
employment of labor, including all such laws, rules, regulations and orders
relating to wages, hours, collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection and payment of
withholding or Social Security Taxes and similar Taxes.
3.11 EMPLOYEE BENEFIT PLANS.
(a) The DISCLOSURE SCHEDULE sets forth a complete and accurate list of
all "employee benefit plans," as defined in Section 3(3) of ERISA,
including severance pay, sick leave, vacation pay, salary continuation for
disability, retirement, deferred compensation, bonus, long-term incentive,
stock option, stock purchase, hospitalization, medical insurance, life
insurance and scholarship programs, maintained by the Company or to which
the Company contributed or is obligated to contribute (the "COMPANY
EMPLOYEE BENEFIT PLANS"). Except for the Company Employee Benefit Plans,
the Company does not maintain, or have any fixed or contingent liability
with respect to, any employee benefit, pension or other plan that is
subject to ERISA.
(b) There is no violation of ERISA with respect to the filing of
applicable reports, documents and notices regarding any Company Employee
Benefit Plan with any Governmental Authority or the furnishing of such
documents to the participants or beneficiaries of the Company Employee
Benefit Plans. With respect to the Company Employee Benefit Plans, there
exists no condition or set of circumstances that could reasonably be
expected to result in liability which is reasonably likely to have a
Material Adverse Effect on the Company under ERISA, the Code or any
applicable law.
(c) Except as set forth in the DISCLOSURE SCHEDULE, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in any payment becoming due to
any employee or group of employees of the Company, which payment will not
be made or accrued at or prior to the Closing.
17
(d) The Company does not maintain nor has it established any welfare
benefit plan which provides for retiree medical liabilities or continuing
benefits or coverage for any participant or any beneficiary of any
participant after such participant's termination of employment, except as
may be required by COBRA.
(e) The Company has not maintained, established or participated in any
multiple employer welfare benefit arrangement within the meaning of Section
3(40)(A) of ERISA.
3.12 LITIGATION. Except as set forth in the DISCLOSURE SCHEDULE: (a) no
litigation, arbitration, investigation or other Proceeding is pending or, to the
Knowledge of the Company, Threatened against the Company or any of its Assets
before any court, arbitrator or Governmental Authority; (b) no basis exists for
any such litigation, arbitration, investigation or other Proceeding; and (c) the
Company is not subject to any outstanding injunction, judgment, order, decree or
ruling (other than routine oil and gas field regulatory orders). There is no
litigation, Proceeding or investigation pending or, to the Knowledge of the
Company, Threatened against or affecting the Company that questions the validity
or enforceability of this Agreement or any action taken or to be taken by the
Company in connection with this Agreement or any other document, instrument or
agreement to be executed and delivered by the Company in connection with the
transactions contemplated hereby.
3.13 TAXES AND TAX RETURNS.
(a) The Company has filed all federal, state, local and foreign
returns, declarations, reports, estimates, information returns and
statements ("TAX RETURNS") required to be filed by it and has paid all
Taxes shown to be due and payable on the Tax Returns, including interest
and penalties and has paid all other Taxes which are payable by the
Company. All such Tax Returns were correct and complete in all material
respects.
(b) There is no dispute or claim concerning any Tax liability of the
Company either claimed or raised by any authority in writing or as to which
any of the Stockholders and the directors and officers of the Company has
Knowledge. No Tax liability of the Company has been asserted or Threatened
by the Internal Revenue Service or any other Governmental Authority for
Taxes in excess of those already paid or reserved against in the Company
Financial Statements. All Tax liabilities of the Company are adequately
provided for in the Company Financial Statements and will be adequately
provided for in the audited financial statements of the Company to be
delivered to Parent pursuant to Section 5.12.
(c) The DISCLOSURE SCHEDULE lists all income tax returns filed with
respect to the Company for taxable periods ended on or after July 30, 1998,
indicates those Tax Returns that have been audited and indicates those Tax
Returns that currently are the subject of audit. The Company has provided
Parent with access to copies of all federal income Tax Returns, examination
reports and statements of deficiency assessed or agreed to by the Company
since January 1, 1998. The Company has not waived any statute of limitation
in respect of Taxes or agreed to any extension of time with respect to a
tax assessment or deficiency.
18
3.14 OWNERSHIP OF OIL AND GAS INTERESTS AND OTHER ASSETS.
(a) The Company has Defensible Title to all Oil and Gas Interests of
the Company included or reflected in the Ownership Interests. Each Oil and
Gas Interest of the Company included or reflected in the Ownership
Interests entitles the Company to receive not less than the undivided
interest set forth in (or derived from) the Ownership Interests of all
Hydrocarbons produced, saved and sold from or attributable to such Oil and
Gas Interest, and the portion of the costs and expenses of operation and
development of such Oil and Gas Interest that is borne or to be borne by
the Company is not greater than the undivided interest set forth in the
Ownership Interests. No fact, circumstance or condition of the title to an
Oil and Gas Interest of the Company shall be considered to effect a
reduction in the value of such Oil and Gas Interest, unless due
consideration has been given to (i) the length of time that such Oil and
Gas Interest has been producing Hydrocarbon substances and has been
credited to and accounted for by the Company and its predecessors in title,
if any, and (ii) whether any such fact, circumstance or condition is of the
type that can generally be expected to be encountered in the area involved
and is usually and customarily acceptable to reasonable and prudent
operators, interest owners and purchasers engaged in the business of the
ownership, development and operation of oil and gas properties. All
proceeds from the sale of the Company's share of the Hydrocarbons being
produced from its Oil and Gas Interests are currently being paid in full to
the Company by the purchasers thereof on a timely basis, and none of such
proceeds are currently being held in suspense by such purchaser or any
other party.
(b) With respect to all Assets (other than Oil and Gas Interests of
the Company), the Company has good and marketable title to its Assets, free
and clear of all Liens excepting only liabilities expressly reflected or
reserved against on the Company Financial Statements and Permitted
Encumbrances.
3.15 COMPLIANCE WITH LAWS AND PERMITS. The Company is not in violation of,
or in default in any respect under, and no event has occurred that (with notice
or the lapse of time or both) would constitute a violation of or default under:
(a) its certificate of incorporation or by-laws, (b) any applicable law, rule,
regulation, order, writ, decree or judgment of any Governmental Authority, or
(c) any Material Agreement to which the Company is a party or by which its
properties are bound. The Company has obtained and holds all permits, licenses,
variances, exemptions, orders, franchises, approvals and authorizations of all
Governmental Authorities necessary for the lawful conduct of its business or the
lawful ownership, use and operation of its Assets (the "COMPANY PERMITS"). The
Company is in compliance with the terms of the Company Permits. No investigation
or review by any Governmental Authority with respect to the Company is pending
or, to the Knowledge of the Company, Threatened. None of the Company Permits
will be adversely affected by consummation of the transactions contemplated
hereby.
3.16 PROPRIETARY RIGHTS. The Company has ownership of, or valid licenses to
use, all trademarks, copyrights, patents and other proprietary rights and
intellectual property (including seismic data) used in its business. To the
Knowledge of the Company, the operation of the business of the Company does not
infringe any patent, copyright, trademark or other proprietary
19
rights of others, and, the Company has not received any notice from any third
party of any such alleged infringement by the Company.
3.17 ENVIRONMENTAL MATTERS.
(a) The Company (or its agents) has conducted its business and
operated its Assets, and is conducting its business and operating its
Assets, and the condition of all facilities and properties (including
off-site storage or disposal of any Hazardous Materials from such
facilities or properties) currently or formerly owned, leased or operated
by the Company (or its agents) is, in material compliance with all
Environmental Laws;
(b) The Company has not been notified by any Governmental Authority or
other third party that any of the operations or Assets of the Company is
the subject of any investigation or inquiry by any Governmental Authority
or other third party evaluating whether any material remedial action is
needed to respond to a release or threatened release of any Hazardous
Material or to the improper storage or disposal (including storage or
disposal at offsite locations) of any Hazardous Material;
(c) Neither the Company nor any other Person has filed any notice
under any federal, state or local law indicating that (i) the Company is
responsible for the improper release into the environment, or the improper
storage or disposal, of any Hazardous Material, or (ii) any Hazardous
Material is improperly stored or disposed of upon any property of the
Company;
(d) The Company does not have any material contingent liability in
connection with (i) the release or threatened release into the environment
at, beneath or on any property now or previously owned or leased by the
Company, or (ii) the storage or disposal of any Hazardous Material;
(e) The Company has not received any claim, complaint, notice, inquiry
or request for information involving any matter which remains unresolved as
of the date hereof with respect to any alleged violation of any
Environmental Law or regarding potential liability under any Environmental
Law relating to operations or conditions of any facilities or property
(including off-site storage or disposal of any Hazardous Material from such
facilities or property) currently or formerly owned, leased or operated by
the Company;
(f) No property now or previously owned, leased or operated by the
Company is listed on the National Priorities List pursuant to CERCLA or on
the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup;
(g) The Company is not directly transporting, has not directly
transported, and is not directly arranging for the transportation of, any
Hazardous Material to any location which is listed on the National
Priorities List pursuant to CERCLA, on the CERCLIS, or on any similar
federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations that may lead to material
claims against the Company for remedial work, damage to natural resources
or personal injury, including claims under CERCLA;
20
(h) There are no sites, locations or operations at which the Company
is currently undertaking, or has completed, any remedial or response action
relating to any such disposal or release, as required by Environmental
Laws;
(i) All underground storage tanks and solid waste disposal facilities
owned or operated by the Company are used and operated in compliance with
Environmental Laws; and
(j) There are no physical or environmental conditions existing on any
property owned or leased by the Company resulting from the Company's
operations or activities, past or present, at any location, that would give
rise to any on-site or off-site remedial obligations under any applicable
Environmental Laws, other than normal and ordinary remedial work associated
with plugging and abandoning of oil and gas facilities.
3.18 INSURANCE.
(a) Section 3.18 of the DISCLOSURE SCHEDULE sets forth the following
information with respect to each insurance policy (including policies
providing property, casualty, liability, title, life, business interruption
and workers' compensation coverage and bond and surety arrangements) with
respect to which the Company is a party, a named insured, or otherwise the
beneficiary of coverage:
(i) the name, address and telephone number of the agent;
(ii) the name of the insurer, the name of the policy holder and
the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
is on a claims made, occurrence or other basis) and amount (including
a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(v) a description of any retroactive premium adjustments or other
material loss-sharing arrangements.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding, enforceable, and in full force and effect in all
respects; (ii) neither the Company nor any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (iii) no
party to the policy has repudiated any provision thereof. Section 3.18 of
the DISCLOSURE SCHEDULE describes any self-insurance arrangements affecting
the Company.
21
3.19 GOVERNMENTAL REGULATION. The Company is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Investment Company Act
of 1940 or any state public utilities laws.
3.20 BROKERS. No broker, finder, investment banker or other Person is or
will be, in connection with the transactions contemplated by this Agreement,
entitled to any brokerage, finder's or other fee or compensation based on any
arrangement or agreement made by or on behalf of the Company and for which
Parent, or the Company will have any obligation or liability.
3.21 OIL AND GAS OPERATIONS. All xxxxx included in the Oil and Gas
Interests of the Company have been drilled and (if completed) completed,
operated and produced in accordance with generally accepted oil and gas field
practices and in compliance in all material respects with applicable oil and gas
leases, pooling and unit agreements, and applicable laws, rules, regulations,
judgments, orders and decrees issued by any court or Governmental Authority. In
addition:
(a) there are no xxxxx that have been plugged and abandoned but have
not been plugged in accordance with all applicable requirements of each
regulatory authority having jurisdiction over the Company's Oil and Gas
Interests;
(b) with respect to the oil, gas and other mineral leases, unit
agreements, pooling agreements, communitization agreements and other
documents creating interests comprising the Company's Oil and Gas
Interests: (i) the Company has fulfilled all requirements for filings,
certificates, disclosures of parties in interest, and other similar matters
contained in such leases or other documents (or otherwise applicable
thereto by Law, rule or regulation) and is fully qualified to own and hold
all such leases and other interests; (ii) there are no provisions
applicable to such leases and other documents which increase the royalty
share of the lessor thereunder; and (iii) upon the establishment and
maintenance of production in commercial quantities, such leases and other
interests are to be in full force and effect over the economic life of the
property involved and do not have terms fixed by a certain number of years;
(c) proceeds from the sale of Hydrocarbons produced from the Company's
Oil and Gas Interests are being received by the Company in a timely manner
and are not being held in suspense for any reason (except for amounts,
individually or in the aggregate, not in excess of $50,000 and held in
suspense in the Ordinary Course of Business); and
(d) no Person has any call upon, option to purchase, preferential
right to purchase or similar rights with respect to the Company's Oil and
Gas Interests or to the production therefrom.
3.22 GAS IMBALANCES. There are no aggregate production, transportation or
processing imbalances existing with respect to the Company or the Company's Oil
and Gas Interests, and the Company has received no deficiency payments under gas
contracts for which any party has a right to take deficiency gas from the
Company, nor has the Company received any payments for production which are
subject to refund or recoupment out of future production.
22
3.23 ROYALTIES. All royalties, overriding royalties, compensatory royalties
and other payments due from or in respect of production with respect to the
Company's Oil and Gas Interests, have been or will be, prior to the Closing,
properly and correctly paid or provided for.
3.24 PREPAYMENTS. No prepayment for Hydrocarbon sales has been received by
the Company for Hydrocarbons which have not been delivered as of the date
hereof.
3.25 CAPITAL EXPENDITURES. As of the execution date of this Agreement, the
presently approved face amount of any currently outstanding and effective
authorities for expenditure with respect to the Company's Oil and Gas Interests
would not require the Company to make or incur after the Closing capital
expenditures with respect to any one property in excess of $50,000 net to the
Company's interest.
3.26 OTHER MINERAL RELATED MATTERS. As of the execution date of this
Agreement, the Company was not obligated by virtue of any prepayment
arrangement, "take or pay" arrangement, production payment arrangement, gas
balancing agreement or otherwise, to deliver or to suffer the delivery of
Hydrocarbons produced in connection with any of the Company's Oil and Gas
Interests at some future time (or make a cash payment in lieu thereof) without
then or thereafter receiving full payment therefor without deduction or credit
on account of such arrangement from the price that would otherwise be received.
3.27 ADDITIONAL DRILLING OBLIGATIONS. The Company has no obligation,
including obligations implied in law, to drill additional xxxxx or conduct other
material development operations in order to earn or continue to hold during the
primary term of any lease any portion of the Company's Oil and Gas Interests,
and the Company has not been advised by a lessor under any lease affecting any
of the Company's Oil and Gas Interests of any requirements or demands to drill
additional xxxxx or conduct additional development operations.
3.28 BOOKS AND RECORDS. All books of account, records and files of the
Company (including those pertaining to the Company's Oil and Gas Interests,
xxxxx and other Assets, those pertaining to the production, gathering,
transportation and sale of Hydrocarbons, and corporate, accounting, financial
and employee records): (a) have been prepared, assembled and maintained in
accordance with sound business policies and procedures and (b) fairly and
accurately reflect all material transactions with respect to the ownership, use,
enjoyment and operation by the Company of its Assets and liabilities.
3.29 RESERVE REPORT. The Company has delivered to Parent a copy of the
Reserve Report. The factual information underlying the estimates of reserves in
the Reserve Report (including production, volumes, sales prices for production,
contractual pricing provisions under oil or gas sales or marketing contracts or
under hedging arrangements, costs of operations and development, and working
interest and net revenue information relating to the Company's Ownership
Interests) has been made available to Parent, and was true and correct in all
material respects on the date of the Reserve Report; provided, however: (i) the
reserves included in such report are estimates only and should not be construed
as exact quantities, (ii) such reserves may or may not be recovered and, if
recovered, the revenues therefrom and the costs related thereto could be more or
less than the estimated amounts, (iii) the sales rates, prices received for the
reserves, and costs incurred in recovering such reserves may vary from
assumptions included in
23
the Reserve Report, and (iv) estimates of such reserves may increase or decrease
as a result of future operations.
3.30 DISCLOSURE AND INVESTIGATION. No representation or warranty by the
Company contained in this Agreement, and no statement contained in any documents
(including, without limitation, the Disclosure Schedule, the Company Financial
Statements referenced in Section 3.5, the financial statements of the Company to
be delivered to Parent pursuant to Section 5.12 and the closing documents
delivered pursuant to Section 6), list, certificate or other instrument
furnished or to be furnished by or on behalf of the Company to Parent or
Parent's Representatives in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading in order to fully and fairly provide the information
required to be provided in any such document, list, certificate or other
instrument.
3.31 RECEIVABLES. All receivables (including, without limitation, accounts
receivable, loans receivable and advances) of the Company which are reflected on
the Company Financial Statements or arising since the date thereof: (a)
represent valid and genuine obligations, and (b) are collectible at the full
recorded amount thereof in the Ordinary Course of Business without the necessity
of legal proceedings less the recorded allowance for collection losses
specifically reflected on the Company Financial Statements. The allowance for
collection losses on the Company Financial Statements has been, and the
allowance for collection losses on the financial statements delivered pursuant
to Section 5.12 will be, determined in accordance with the standards described
in Section 3.5.
3.32 REAL PROPERTY. The Company has good and marketable title in fee simple
to the real property described in Section 3.32 of the DISCLOSURE SCHEDULE, free
and clear of all Liens.
3.33 NO MATERIAL ADVERSE EFFECT. Since March 31, 2001, no event has
occurred or circumstance exists that, individually or collectively, has had or
may result in a Material Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
the Company as follows:
4.1 ORGANIZATION. Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of Oklahoma, and has the
requisite power and authority to own, lease and operate its properties and to
conduct its business as it is presently being conducted. Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oklahoma.
4.2 AUTHORITY AND ENFORCEABILITY. Each of Parent and Merger Sub has the
requisite corporate power and authority to enter into and deliver this Agreement
and to consummate the
24
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, including approval by the boards of directors of Parent and Merger
Sub and the stockholders of Merger Sub, and no other corporate proceedings on
the part of Parent or Merger Sub are necessary to authorize the execution or
delivery of this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Parent and Merger Sub and (assuming that this Agreement constitutes a valid and
binding obligation of the Company) constitutes a valid and binding obligation of
Parent and Merger Sub enforceable against Parent and Merger Sub in accordance
with its terms.
4.3 NO VIOLATIONS. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance by
Parent and Merger Sub with the provisions hereof will not, conflict with, result
in any violation of or default (with or without notice or lapse of time or both)
under, give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
of any Lien on any of the properties or assets of Parent or Merger Sub under,
any provision of: (a) the certificate or articles of incorporation or by-laws or
other governing documents of Parent or Merger Sub; (b) any loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or other agreement or instrument applicable to Parent or
Merger Sub; or (c) assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section 4.4 are duly and timely
obtained or made, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Merger Sub or any of their respective
properties or assets, other than, in the case of clause (b) or (c) above, any
such conflict, violation, default, right, loss or Lien that, individually or in
the aggregate, would not have a Material Adverse Effect on Parent.
4.4 CONSENTS AND APPROVALS. No consent, approval, order or authorization
of, registration, declaration or filing with, or permit from, any Governmental
Authority is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for the following: (a) any such consent, approval, order,
authorization, registration, declaration, filing or permit which the failure to
obtain or make would not, individually or in the aggregate, have a Material
Adverse Effect on Parent; and (b) such filings and approvals as may be required
by any securities, corporate or other law, rule or regulation. No Third-Party
Consent is required by or with respect to Parent or Merger Sub in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for any Third-Party Consent which the
failure to obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Parent.
4.5 LITIGATION. There is no litigation, Proceeding or investigation pending
or, to the Knowledge of Parent, threatened against or affecting Parent or Merger
Sub that questions the validity or enforceability of this Agreement or any other
document, instrument or agreement to be executed and delivered by Parent or
Merger Sub in connection with the transactions contemplated hereby.
4.6 FUNDING. Parent has available adequate funds or the means to obtain
adequate funds in an aggregate amount sufficient to pay (a) all amounts required
to be paid by Parent and
25
Merger Sub under this Agreement, and (b) all expenses which have been or will be
incurred by Parent or Merger Sub in connection with this Agreement and the
transactions contemplated hereby.
4.7 BROKERS. No broker, finder, investment banker or other Person is or
will be, in connection with the transactions contemplated by this Agreement,
entitled to any brokerage, finder's or other fee or compensation based on any
arrangement or agreement made by or on behalf of Parent or Merger Sub and for
which the Company will have any obligation or liability. Parent shall indemnify
and hold the Company harmless from any and all claims, liabilities, damages,
costs and expenses asserted against the Company by any Person claiming to have
acted on behalf of Parent or Merger Sub, or to have been retained by Parent or
Merger Sub, as a broker in connection with the transaction contemplated by this
Agreement.
4.8 DISCLOSURE AND INVESTIGATION. No representation or warranty of Parent
or Merger Sub set forth in this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein not misleading.
ARTICLE 5
COVENANTS
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING CLOSING. Except as
contemplated by this Agreement or to the extent that Parent shall otherwise
consent in writing, during the period from July 31, 2001, to the Closing, the
Company will not take any action except in the Ordinary Course of Business and
the Company will use all reasonable efforts to preserve intact in all material
respects its business organization, Assets, prospects and advantageous business
relationships and to maintain satisfactory relationships with its operators,
lessors, general partners, managing members, licensors, licensees, suppliers,
contractors, distributors, customers and others having advantageous business
relationships with it. Without limiting the generality of the foregoing, except
as contemplated by this Agreement, the Company will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Company will not
take any of the following actions, except as set forth in the DISCLOSURE
SCHEDULE, without the written consent of Parent:
(a) Authorize or effect any change in its certificate of incorporation
or bylaws;
(b) Grant any options, warrants, or other rights to purchase or obtain
any of its capital stock or issue, sell or otherwise dispose of any of its
capital stock;
(c) Declare, set aside or pay any dividend or distribution with
respect to its capital stock (whether in cash or in kind), or redeem,
repurchase, or otherwise acquire any of its capital stock, except that,
prior to Closing, the Company may declare and distribute to its
Stockholders a dividend consisting of the Excluded Assets;
26
(d) Issue any note, bond, or other Debt security or create, incur,
assume, or guarantee any indebtedness for borrowed money, capitalized lease
obligation or other liability outside the Ordinary Course of Business;
(e) Impose any security interest upon any of its Assets outside the
Ordinary Course of Business;
(f) Make any capital investment in, make any loan to, or acquire the
securities or assets of any other Person outside the Ordinary Course of
Business;
(g) Make any change in employment terms for any of its officers or
employees outside the Ordinary Course of Business, except for such actions
as are otherwise provided for or permitted in this Agreement;
(h) Enter into, adopt or amend any employment agreement or employee
benefit or pension plan, or grant, or become obligated to grant, any
increase in the compensation payable or to become payable to any of its
officers or employees or any general increase in the compensation payable
or to become payable to its employees, except for such actions as are
otherwise provided for herein;
(i) Pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than (A)
the payment, discharge or satisfaction in the Ordinary Course of Business
of liabilities reflected or reserved against on the Company Financial
Statements, subsequently incurred in the Ordinary Course of Business or
disclosed pursuant to this Agreement, (B) payments of current liabilities,
and (C) other payments that are considered in the adjustment set forth in
Section 5.10;
(j) Acquire (including by lease) any material Assets or properties or
dispose of, mortgage or encumber any material Assets or properties, other
than in the Ordinary Course of Business;
(k) Waive, release, grant or transfer any material rights or modify or
change in any material respect any material existing license, lease,
contract or other document, other than in the Ordinary Course of Business,
and other than actions otherwise contemplated by this Agreement;
(l) Make any single capital expenditure of $50,000 or more net to the
Company's interest, except for capital expenditures pursuant to commitments
disclosed under or not covered by Section 3.25; or
(m) Commit to any of the foregoing.
5.2 ACCESS TO ASSETS, PERSONNEL AND INFORMATION.
(a) From the date hereof until the Closing, the Company will afford to
Parent and the Parent Representatives and prospective lenders and their
representatives, at Parent's sole risk and expense, full and free access to
any of the Assets, books and records, contracts, facilities, audit work
papers and payroll records of the Company and
27
any of the officers of the Company and furnish the Company copies thereof.
Notwithstanding the foregoing, no investigation pursuant to this Section
5.2(a) will affect or be deemed to modify any of the representations or
warranties made by the Company in this Agreement.
(b) Parent and the Parent Representatives shall have the right and
opportunity to make an environmental and physical assessment of the Assets
of the Company and, in connection therewith, shall have the right to enter
and inspect such Assets and all buildings and improvements thereon. Parent
may not, without the prior written consent of the Company, conduct any soil
or water tests or borings or other invasive tests or examinations with
respect to the Assets of the Company. The Company shall be provided 48
hours prior notice of any such inspection, and the Company Representatives
shall have the right to witness all such inspections. Parent shall (and
shall cause the Parent Representatives to) keep any data or information
acquired by any such examinations and the results of any analyses of such
data and information strictly confidential and will not (and will cause the
Parent Representatives not to) disclose any of such data, information or
results to any Person unless otherwise required by law or regulation and
then only after written notice to the Company of the determination of the
need for disclosure. Parent shall indemnify, defend and hold the Company
and the Company Representatives harmless from and against any and all
claims to the extent arising out of or as a result of the activities of
Parent and the Parent Representatives on the Assets of the Company in
connection with conducting such environmental and physical assessment,
except to the extent of and limited by the negligence or willful misconduct
of the Company or any Company Representative.
(c) From the date hereof until the Closing, the Company shall fully
and accurately disclose to Parent and Parent Representatives all
information that is (i) reasonably requested by Parent or any of the Parent
Representatives and (ii) to which the Company has Knowledge.
(d) The Company will not (and will cause the Company Representatives
not to), and Parent will not (and will cause the Parent Representatives not
to), use any information obtained pursuant to this Section 5.2 for any
purpose unrelated to the consummation of the transactions contemplated by
this Agreement.
5.3 ADDITIONAL ARRANGEMENTS. Subject to the terms and conditions herein
provided, each of the Parties shall take, or cause to be taken, all action and
shall do, or cause to be done, all things necessary, appropriate or desirable
under any applicable laws and regulations or under applicable governing
agreements to consummate and make effective the transactions contemplated by
this Agreement, including using reasonable efforts to obtain all necessary
waivers, consents and approvals and effecting all necessary registrations and
filings. Each of the Parties shall take, or cause to be taken, all action or
shall do, or cause to be done, all things necessary, appropriate or desirable to
cause the covenants and conditions applicable to the transactions contemplated
hereby to be performed or satisfied as soon as practicable. In addition, if any
Governmental Authority shall have issued any order, decree, ruling or
injunction, or taken any other action that would have the effect of restraining,
enjoining or otherwise prohibiting or preventing the consummation of the
transactions contemplated hereby, each of the Parties shall
28
use reasonable efforts to have such order, decree, ruling or injunction or other
action declared ineffective as soon as practicable.
5.4 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY. Prior to the Closing, the
Company and Parent shall consult with each other before any of them issues any
press release or otherwise makes any public statement with respect to the
transactions contemplated by this Agreement, and no Party shall issue any press
release or make any such public statement prior to obtaining the approval of the
other Parties which shall not be unreasonably withheld; provided, however, that
such approval shall not be required where such release or announcement is
required by applicable law; and provided further, that any Party may respond to
inquiries by the press or others regarding the transactions contemplated by this
Agreement, so long as such responses are consistent with such party's previously
issued press releases. The Company acknowledges that Parent's securities are
publicly traded and accordingly it has disclosure obligations under the Federal
securities laws. The Company will not use or disclose to any third party any
Parent Confidential Information. The Parties each acknowledge and agree that
non-public information concerning the progress of the transaction contemplated
by this Agreement is confidential information.
5.5 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Closing Date, the Company shall give prompt notice to Parent of: (a) any
representation or warranty contained in Article 3 being untrue or inaccurate
when made, (b) the occurrence of any event or development that would cause (or
could reasonably be expected to cause) any representation or warranty contained
in Article 3 to be untrue or inaccurate on the Closing Date, (c) any failure of
the Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, and/or (d) the Company's becoming
aware of any representation and warranty contained in Article 4 being or
becoming untrue or inaccurate when made or as of a later date. Parent shall give
prompt notice to the Company of: (w) any representation or warranty contained in
Article 4 being untrue or inaccurate when made, (x) the occurrence of any event
or development that would cause (or could reasonably be expected to cause) any
representation or warranty contained in Article 4 to be untrue or inaccurate on
the Closing Date, (y) any failure of Parent to comply with or satisfy any
covenant, condition, or agreement to be complied with or satisfied by it
hereunder, and/or (z) Parent's becoming aware of any representation and warranty
contained in Article 3 being or becoming untrue or inaccurate when made or as of
a later date. No disclosure by any party pursuant to this Section 5.5, however,
shall be deemed to amend or supplement the DISCLOSURE SCHEDULE or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
5.6 PAYMENT OF EXPENSES. Each Party shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, whether or not Closing
occurs.
5.7 CONTINUATION OF THE COMPANY'S EXISTING INDEMNIFICATION OBLIGATIONS.
From and after the Closing, the Company or its successor shall indemnify and
hold harmless each Person who has been at any time prior to the Closing, an
officer, director or controlling stockholder of the Company (collectively, the
"COMPANY INDEMNIFIED PERSONS") but only to the extent that such Company
Indemnified Person was entitled to indemnification from the Company immediately
prior to the date hereof under applicable law or the certificate of
incorporation and/or bylaws of the Company. The procedures associated with such
29
indemnification shall be the same as those associated with the Company
Indemnified Persons' indemnification from the Company immediately prior to the
date hereof (provided, however, that Parent shall be under no obligation to
deposit trust funds pursuant to any "change-in-control" or similar provisions).
The provisions of this Section 5.7 are intended to be for the benefit of, and
shall be enforceable by, the Parties and each Company Indemnified Person and
their respective heirs and representatives.
5.8 RESIGNATION OF DIRECTORS AND OFFICERS. Each director and officer of the
Company shall resign his or her position with the Company effective at Closing.
5.9 TITLE AND ENVIRONMENTAL DEFECTS.
(a) Parent may conduct, at its sole cost, such title examination or
investigation, and other examinations and investigations, as it may in its
sole discretion choose to conduct with respect to the Company's Oil and Gas
Interests in order to determine whether any Title or Environmental Defects
exist. Parent must deliver to the Company in writing on or before September
8, 2001, at 5:00 p.m. C.D.T., a written notice specifying each defect
associated with the Oil and Gas Interests of the Company that it asserts
constitutes a violation of the representations set forth in Section 3.14 or
3.17 (a "TITLE OR ENVIRONMENTAL DEFECT"), a description of each such Title
or Environmental Defect, the amount of the adjustment to the Base Merger
Consideration that it asserts based on such defect and its method of
calculating such adjustment. If such notice is not timely submitted, Parent
will be deemed to have waived its basis for a purchase price adjustment
under this Section 5.9 based on a violation of the representations set
forth in Section 3.14 or 3.17. For the purpose of determining an
Environmental Defect under this Section 5.9 only, the representations and
warranties set forth in Section 3.17 shall be deemed not to be qualified by
the Knowledge of the Company.
(b) Upon timely delivery of a notice under Section 5.9(a), Parent and
the Company will in good faith negotiate the validity of the claim and the
amount of any adjustment to the Base Merger Consideration using the
following criteria:
(i) No adjustment will be made to the Base Merger Consideration
under this Section 5.9 except to the extent that the net total of all
individual adjustments under this Section 5.9 exceed $250,000 in the
aggregate; by way of example, if the net total of all individual
adjustments under this Section 5.9 equals $300,000, then an adjustment
of $50,000 shall, subject to Section 5.9(d), be made to the Base
Merger Consideration.
(ii) If the requested adjustment is based on the Company owning a
net revenue interest for a well, unit rights or leasehold rights less
than that shown in SCHEDULE 1.1A, then a downward adjustment shall be
calculated by multiplying the Allocated Value set forth for such well,
unit rights or leasehold rights on SCHEDULE 1.1A by a fraction (A) the
numerator of which is an amount equal to the net revenue interest
shown on SCHEDULE 1.1A for such well, unit rights or leasehold rights
less the decimal share to which the Company would be entitled as a
result of its ownership interest in such well, unit rights or
leasehold rights which is unaffected by such Title Defect, and (B) the
denominator of which is the net
30
revenue interest shown for such well, unit rights or leasehold rights
on SCHEDULE 1.1A. Any downward adjustments requested by Parent may be
offset by upward adjustments if it is determined that the Company's
net revenue interest for any other well, unit rights or leasehold
rights shown on SCHEDULE 1.1A is greater than that shown on SCHEDULE
1.1A.
(iii) If the adjustment is based on the Company owning a working
interest that is larger than the working interest shown on SCHEDULE
1.1A, but without a proportionate increase in the Company's net
revenue interest, then the adjustment is calculated by determining the
effective net revenue interest that results from such larger working
interest, determining what the net revenue interest would be using
such effective net revenue interest and the working interest shown on
SCHEDULE 1.1A and then calculating the adjustment in the manner set
forth in clause (iii) preceding.
(iv) If the adjustment is based on a Lien or other monetary
charge upon an Oil and Gas Interest or a liability to remediate or
otherwise cure an environmental defect related to an Oil and Gas
Interest that is liquidated in amount, then the adjustment is the
lesser of (A) the amount necessary to remove such Lien or other
monetary charge from, or a liability to remediate or otherwise cure an
environmental defect relating to, the affected Oil and Gas Interest,
or (B) the Allocated Value of the affected Oil and Gas Interest.
(v) If the adjustment is based on an obligation, burden or
liability upon the affected Oil and Gas Interest for which Parent's
economic detriment is not liquidated but can be estimated with
reasonable certainty, then the adjustment is the amount necessary to
compensate Parent at Closing for the adverse economic effect on the
affected Oil and Gas Interest.
(c) If the value of a Title or Environmental Defect and, consequently,
the adjustment to the Base Merger Consideration cannot be determined based
on the above criteria, or if the Parties cannot otherwise agree on the
amount of an adjustment, the Company may convey the affected Oil and Gas
Interest to another entity and reduce the Base Merger Consideration by the
Allocated Value of such interest.
(d) In the event that the aggregate potential adjustments to the Base
Merger Consideration pursuant to this Section 5.9 could reduce the Base
Merger Consideration by more than $2,000,000, either the Company or Parent
may terminate this Agreement.
5.10 ADJUSTMENT TO BASE MERGER CONSIDERATION.
(a) The Base Merger Consideration will be adjusted (i) upward or
downward, as applicable, by the Company's positive or negative Working
Capital Adjustment as of the Closing Date, (ii) upward by an amount equal
to all capital expenditures paid by the Company on or after July 17, 2001
(which, if required under Section 5.1(l) to be approved by Parent, have
been so approved), (iii) upward or downward, as applicable, as required by
Section 5.9, (iv) downward by the amount of the severance payments
described in Section 3.11 of the DISCLOSURE SCHEDULE, (v) downward by the
amount of
31
the brokerage fee described in Section 3.20 of the DISCLOSURE SCHEDULE, and
(vi) downward by the estimated amount of all accrued but unpaid income
taxes relating to the Company's fiscal year ending July 31, 2001, and
relating to the sale of properties by Staghorn Resources, LLC in May, 2001,
as reasonably determined by the Company. For purposes hereof, the "WORKING
CAPITAL ADJUSTMENT" as of the Closing Date shall be equal to the Company's
aggregate cash, accounts receivable and other current Assets as of such
date, less the Company's accounts payable, and other current liabilities as
of the Closing Date, as determined in accordance with the Company's usual
basis of accounting, and less the amount of $4,527,000. Obligations of the
Company for the payment of capital expenditures shall not be considered a
current liability for the purpose of the Working Capital Adjustment.
Accrued income taxes deducted from the Base Merger Consideration pursuant
to subparagraph (vi) above shall not be considered a current liability for
the purpose of the Working Capital Adjustment. The severance payments
described in Section 3.11 of the DISCLOSURE SCHEDULE and the brokerage fee
described in Section 3.20 of the DISCLOSURE SCHEDULE shall be paid prior to
Closing by the Company and shall be deducted from the Company's cash for
the purpose of the Working Capital Adjustment. Any excise tax due and
payable on such severance payments shall be deducted for the purpose of the
Working Capital Adjustment. The expenses of the audit described in Section
5.12 shall not be deducted for the purpose of the Working Capital
Adjustment.
(b) Immediately prior to the Closing, the Company will determine the
Working Capital Adjustment and will deliver to Parent a statement setting
forth all of the adjustments to the Base Merger Consideration that are
required pursuant to this Agreement. Payments at the Closing shall be on
the basis of the Base Merger Consideration as so adjusted (the "CLOSING
DATE MERGER CONSIDERATION").
5.11 COMPANY EMPLOYEES. Following the Closing, Parent intends to retain
certain employees of the Company for the purpose of the transition of ownership.
Such employment shall continue at least through December 31, 2001. Such
employees who are employed on a full-time basis during such transition period by
the Surviving Corporation shall receive health insurance benefits equivalent to
the benefits now provided by the Company at the cost of the Surviving
Corporation. Prior to the Closing, the Company shall pay to all employees any
accrued vacation pay. Parent shall interview all personnel of the Company
interested in being employed by Parent in its Oklahoma City office. Parent shall
pay the reasonable moving expenses of any employee accepting a job with Parent.
The Parties acknowledge that, after the Effective Time, Parent may or may not,
in its sole discretion, offer employment to, or cause the Surviving Corporation
to continue the employment of, employees of the Company. In connection with the
Wood Oil Company 401(k) Plan, which shall have been terminated immediately prior
to the Closing, Parent agrees to obtain a favorable determination letter as to
the qualification of such plan as of the date of termination of such plan, to
administer such plan in compliance with its terms and applicable law, and to
make final distribution of the assets of such plan promptly after obtaining such
favorable determination letter. The Company shall prepay to General American
Life Insurance Company prior to Closing the amount of $2,500 for services
relating to termination of such 401(k) plan. The provisions of this Section 5.11
are intended to be for the benefit of, and shall be enforceable by, the Parties
and the employees of the Company covered by the Company Employee Benefit Plans
at the Effective Time and their respective heirs and representatives.
32
5.12 AUDIT. The Company shall use its Best Efforts to deliver to Parent on
or before October 1, 2001, audited financial statements of the Company comprised
of balance sheets as of the fiscal years ending July 31, 2000 and 2001 and the
related statements of operations and cash flows for the fiscal years ending July
31, 1999, 2000 and 2001, together with the unqualified audit reports of Ernst &
Young prepared in accordance with generally accepted accounting principles and
Regulation S-X of the Securities and Exchange Commission. Parent will be allowed
to monitor the audit proceedings. Parent shall bear the costs of obtaining such
audited financial statements. A failure to obtain such financial statements by
October 1, 2001, shall not be deemed to be a breach of this Agreement and shall
not result in a delay of the Closing.
5.13 NONSOLICITATION. Following the execution of this Agreement, neither
the Company nor any of its Stockholders, representatives or advisors shall
directly or indirectly solicit or entertain offers from, provide information to,
negotiate with or in any manner encourage, discuss or consider any proposal of
any other Person relating to the acquisition of the capital stock of the
Company, its Assets or business, in whole or in part.
5.14 BEST EFFORTS. Between the date of this Agreement and the Closing Date,
the Company and Parent will each use its Best Efforts to cause the conditions in
Article 6 to be satisfied.
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO PROCEED WITH CLOSING. The
respective obligations of each Party to proceed with Closing shall be subject to
the satisfaction, at or prior to the Closing, of the following conditions:
(a) APPROVALS. All filings required to be made prior to the Closing
with, and all consents, approvals, permits and authorizations required to
be obtained prior to the Closing from, any Governmental Authority or other
person in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by the Parties
shall have been made or obtained (as the case may be), except where the
failure to obtain such consents, approvals, permits and authorizations
would not be reasonably likely to result in a Material Adverse Effect on
Parent or to materially adversely affect the consummation of the
transaction contemplated by this Agreement.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the transaction contemplated by this Agreement shall be
in effect; provided, however, that prior to invoking this condition, each
Party shall use all reasonable efforts to have any such decree, ruling,
injunction or order vacated, and, if necessary, the Closing shall be
delayed for up to 60 days while such efforts are taking place.
33
6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligations of
Parent and Merger Sub to proceed with Closing are subject to the satisfaction of
the following conditions, any or all of which may be waived in whole or in part
by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in Article 3 considered both collectively and
individually (disregarding all qualifications and exceptions contained
therein relating to materiality, Material Adverse Effect and Knowledge)
shall be true and correct in all material respects as of the Closing Date
as if made on and as of the Closing Date (except that any such
representations and warranties which expressly relate only to an earlier
date shall be true and correct on the Closing Date as of such earlier date
without giving effect to any supplement to the DISCLOSURE SCHEDULE). The
representations and warranties set forth in Section 3.6(b) shall be true
and correct as of the Closing Date as if made on and as of the Closing
Date, except for changes necessitated by the administration of the Estate
of Xxxx Xxxxx and changes relating to estate planning by the Stockholders.
The Company shall deliver to Parent at Closing a list of the Stockholders
and the number of shares of Company Common Stock owned of record and
beneficially by each of them as of the Closing Date certified as true and
correct by the Secretary of the Company. Parent shall have received a
certificate signed by the chief executive officer or the chief operating
officer of the Company to such effect; provided, however, that the
condition set forth in this Section 6.2(a) shall not be applicable to the
representations and warranties set forth in Section 3.14 (Ownership of Oil
and Gas Interests) and Section 3.17 (Environmental Matters), which are
addressed in Section 5.9.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY THE COMPANY. The
Company shall have performed and complied with in all material respects all
covenants and agreements required to be performed by it under this
Agreement at or prior to the Closing Date, and Parent shall have received a
certificate signed by the chief executive officer or the chief operating
officer of the Company to such effect.
(c) LEGAL OPINION. Parent shall have received an opinion of Xxxxxx &
Xxxxxxx, counsel for the Company, dated the Closing Date, in form and
substance reasonably acceptable to Parent, covering the subjects set forth
in Sections 3.1, 3.2, 3.3, 3.4 and 3.6.
(d) DISMISSAL OF LITIGATION. The lawsuit styled Xxxx X. Xxxxx v. Xxx
X. Xxxxx and Xxxx Oil Company, Case No. CJ-98-03050, in the District Court
in and for Tulsa County, State of Oklahoma, shall have been dismissed with
prejudice.
(e) PAYMENT OF DEBT OWED BY STOCKHOLDERS. All Debt owed to the Company
by Stockholders and employees of the Company shall have been paid in full.
(f) TERMINATION OF PLANS. The Company shall have terminated,
immediately prior to the Closing, all of the employee benefit plans listed
in Section 3.11 of the DISCLOSURE SCHEDULE, except for any plans providing
for health insurance to employees.
34
6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to proceed with Closing are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent set forth in Article 4 considered both collectively and
individually (disregarding all qualifications and exceptions contained
therein relating to materiality and Knowledge) shall be true and correct in
all material respects as of the Closing Date as if made on and as of the
Closing Date (except that any such representations and warranties which
expressly relate only to an earlier date shall be true and correct on the
Closing Date as of such earlier date) without giving effect to any
supplement to the DISCLOSURE SCHEDULE. The Company shall have received a
certificate signed by the chief executive officer or the chief operating
officer of Parent to such effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS BY PARENT. Parent shall
have performed in all material respects all covenants and agreements
required to be performed by it under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed by
the chief executive officer, the chief operating officer or the chief
financial officer of Parent to such effect.
(c) LEGAL OPINION. The Company shall have received an opinion of
counsel to Parent, dated the Closing Date, in form and substance reasonably
acceptable to the Company, covering the subjects set forth in Sections 4.1,
4.2, 4.3 and 4.4.
ARTICLE 7
TERMINATION
7.1 TERMINATION RIGHTS. This Agreement may be terminated at any time prior
to the Closing:
(a) By mutual written consent of Parent and the Company;
(b) By either Parent or the Company if (i) the Closing has not
occurred by November 15, 2001 (provided, however, that the right to
terminate this Agreement pursuant to this clause (i) shall not be available
to any Party whose breach of any representation or warranty or failure to
perform any covenant or agreement under this Agreement has been the cause
of or resulted in the failure of Closing to occur on or before such date);
or (ii) any Governmental Authority shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting Closing and such order, decree, ruling or other
action shall have become final and nonappealable (provided, however, that
the right to terminate this Agreement pursuant to this clause (ii) shall
not be available to any Party until such Party has used all reasonable
efforts to remove such injunction, order or decree);
(c) By Parent if (i) the Company has failed to comply in any material
respect with any of its covenants or agreements contained in this Agreement
and such failure has
35
not been, or cannot be, cured within a reasonable time after notice and
demand for cure thereof; or (ii) Parent elects to exercise its right to
terminate this Agreement pursuant to Section 5.9(d).
(d) By the Company if (i) Parent or Merger Sub has failed to comply in
any material respect with any of its respective covenants or agreements
contained in this Agreement, and such failure has not been, or cannot be,
cured within a reasonable time after notice and a demand for cure thereof;
or (ii) the Company elects to exercise its right to terminate this
Agreement pursuant to Section 5.9(c) or (d).
(e) (i) By Parent if any of the conditions in Sections 6.1 and 6.2 has
not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Parent to comply with its obligations under this Agreement) and Parent has
not waived such condition on or before the Closing Date; or (ii) by the
Company, if any of the conditions in Sections 6.1 and 6.3 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of the Company to
comply with its obligations under this Agreement) and the Company has not
waived such condition on or before the Closing Date.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated by either Parent
or the Company pursuant to the provisions of Section 7.1, this Agreement shall
forthwith become void except for, and there shall be no further obligation on
the part of any Party or its respective Affiliates, directors, officers, or
stockholders except pursuant to, the provisions of Sections 2.9 (with respect to
the Xxxxxxx Money), 4.7 (with respect to the indemnification provisions
contained therein), 5.2(b) (but only to the extent of the confidentiality and
indemnification provisions contained therein), 5.4 (with respect to the
confidentiality provisions contained therein), 5.6 and the Confidentiality
Agreement (which shall continue pursuant to their terms); provided, however,
that a termination of this Agreement shall not relieve any Party from any
liability for damages or specific performance incurred as a result of a breach
by such Party of its covenants, agreements or other obligations hereunder
occurring prior to such termination.
ARTICLE 8
INDEMNIFICATION
8.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. The right
to indemnification, payment of Damages, or other remedy based on the
representations, warranties, covenants and obligations in this Agreement will
not be affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired), at any time, whether before or after
the execution and delivery of this Agreement or the Closing Date, with respect
to, the accuracy or inaccuracy of or compliance with, any such representation or
warranty, or the performance of or compliance with any such covenant or
obligation, and will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants
and obligations; provided, however, Parent agrees to (a) notify the Company in
writing promptly after obtaining any Knowledge with respect to the inaccuracy or
noncompliance by the Company with any representation or warranty in this
Agreement or any
36
failure to perform a covenant or obligation in this Agreement, and (b) permit
the Company a reasonable period of time to cure any such inaccuracy or failure,
prior to asserting any rights of Parent to indemnification set forth in this
Agreement,
8.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE STOCKHOLDERS. The
Stockholders will indemnify and hold harmless Parent and its directors,
officers, employees, agents and advisors, stockholders, controlling persons, and
Affiliates for, and will pay to such Indemnified Persons the amount of, any
loss, liability, obligation, debt, claim, damage, expense (including costs of
investigation and defense and reasonable attorneys' fees), whether or not
involving a Third-Party Claim (collectively "Damages"), arising, directly or
indirectly, from and in connection with:
(a) any breach of any representation or warranty made by the Company
in this Agreement (which representations and warranties shall each be read
without giving effect to any update or supplement to the Schedules), the
Schedules, the updates and supplements to the Schedules, or any other
certificate or document delivered by the Company pursuant to this
Agreement;
(b) any estimate of taxes owed pursuant to Section 5.10(a)(vi) which
is insufficient to cover the actual amount of such taxes; and
(c) any breach of any covenant made by the Company in Section 5.1 of
this Agreement.
8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY PARENT. Parent will indemnify
and hold harmless the Stockholders and will pay to the Stockholders the amount
of any Damages arising, directly or indirectly, from and in connection with (a)
any breach of any representation or warranty made by Parent in this Agreement or
in any certificate delivered by Parent pursuant to this Agreement, or (b) any
breach by Parent of any covenant or obligation of Parent in this Agreement.
8.4 SURVIVAL.
(a) If the Closing occurs, the representations and warranties of the
Company and Parent will survive the Closing for a period of one year after
the date of this Agreement.
(b) The Stockholders shall have no liability under Section 8.2 unless,
before the time period set forth in (a) above, Parent notifies the
Stockholders of a claim specifying the factual basis for the claim in
reasonable detail to the extent then known by Parent.
If any claim for indemnification made is still pending or unresolved
at the expiration of the survival period, such claim shall continue to be
subject to the indemnification provisions of this Agreement.
(c) If the Closing occurs, Parent will have no liability (for
indemnification or otherwise) with respect to any representation, warranty,
or covenant or obligation to be
37
performed and complied with prior to the Closing Date, unless on or before
one year after the date of this Agreement, the Stockholders notify Parent
of a claim specifying the factual basis of that claim in reasonable detail
to the extent then known by the Stockholders.
8.5 PROCEDURE FOR INDEMNIFICATION - THIRD-PARTY CLAIMS.
(a) Promptly after receipt by a Party entitled to indemnification
under Section 8.2 or 8.3 (an "Indemnified Person") of notice of the
commencement of any Proceeding against it, such Indemnified Person will, if
a claim is to be made against any Party required to provide indemnification
under Section 8.2 or 8.3 (an "Indemnifying Party"), give notice to the
Indemnifying Party of the commencement of such claim, but the failure to
notify the Indemnifying Party will not relieve the Indemnifying Party of
any liability that it may have to any Indemnified Person, except to the
extent that the Indemnifying Party demonstrates that the defense of such
action is prejudiced by the Indemnified Person's failure to give such
notice.
(b) If any Proceeding referred to in Section 8.5(a) is brought against
an Indemnified Person and it gives notice to the Indemnifying Party of the
commencement of such Proceeding, the Indemnifying Party will be entitled to
participate in such Proceeding and, to the extent that is wishes (unless
(i) the Indemnifying Party is also a party to such Proceeding and the
Indemnified Person determines in good faith that joint representation would
be inappropriate, or (ii) the Indemnifying Party fails to provide
reasonable assurance to the Indemnified Person of its financial capacity to
defend such Proceeding and provide indemnification with respect to such
Proceeding) to assume the defense of such Proceeding with counsel
reasonably satisfactory to the Indemnified Person and, after written notice
from the Indemnifying Party to the Indemnified Person of its election to
assume the defense of such Proceeding and confirming its obligation to
indemnify the Indemnified Person for the liability asserted in the claim,
the Indemnifying Party will not, as long as it diligently conducts such
defense, be liable to the Indemnified Person under this Article 8 for any
fees of other counsel or any other expenses with respect to the defense of
such Proceeding, in each case subsequently incurred by the Indemnified
Person in connection with the defense of such Proceeding. If the
Indemnifying Party assumes the defense of a Proceeding: (i) it will be
conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be
effected by the Indemnifying Party without Indemnified Person's consent
(which consent shall not be unreasonably withheld) unless (A) there is no
finding or admission of any violation of Legal Requirements or any
violation of the rights of any person and no effect on any other claims
that may be made against the Indemnified Person, and (B) the sole relief
provided is monetary damages that are paid in full by the Indemnifying
Party; and (iii) the Indemnified Person will have no liability with respect
to any compromise or settlement of such claims effected without its
consent. If notice is given to an Indemnifying Party of the commencement of
any Proceeding and the Indemnifying Party does not, within ten (10) days
after the Indemnified Person's notice is given, give notice to the
Indemnified Person of its election to assume the defense of such
Proceeding, the Indemnifying Party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the
Indemnified Person,
38
provided, however, the Indemnified Person may not compromise or settle such
Proceeding without the prior consent of the Indemnifying Party (which
consent will not be unreasonably withheld).
(c) Notwithstanding the foregoing, if any Indemnified Person
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its Affiliates other than as a result
of monetary damages for which it would be entitled to indemnification under
this Agreement, the Indemnified Person may, by notice to the Indemnifying
Party, assume the exclusive right to defend, compromise, or settle such
Proceeding, but the Indemnifying Party will not be bound by any compromise
or settlement effected without its consent, which may not be unreasonably
withheld.
8.6 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS. A claim for
indemnification for any matter not involving a Third-Party Claim may be asserted
by notice to the Party from whom indemnification is sought.
8.7 LIMITS ON INDEMNITY OBLIGATIONS.
(a) If the total amount of all Damages which the Indemnified Parties
have the right to assert against the Stockholders under this Article 8 does
not exceed $100,000 in the aggregate, then the Stockholders shall have no
obligation under this Article 8 with respect to any such Damages. If the
total amount of all Damages exceeds $100,000 in the aggregate, then the
Stockholders' obligations under this Article 8 shall be limited to the
amount by which the aggregate amount of all Damages exceeds $100,000.
(b) Notwithstanding anything contained herein to the contrary, the
sole recourse and exclusive remedy for the recovery of Damages from the
Stockholders shall be against the Post Closing Escrow Fund. The
Stockholders shall have no liability for Damages in excess of the amounts
contained in the Post Closing Escrow Fund.
ARTICLE 9
MISCELLANEOUS
9.1 AMENDMENT. This Agreement may not be amended except by a written
instrument signed on behalf of each of the Parties.
9.2 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally (effective upon
delivery), by facsimile transmission (effective on the next day after
transmission), by recognized overnight delivery service (effective on the next
day after delivery to the service), or by registered or certified mail, postage
prepaid and return receipt requested (effective on the fifth day after being so
mailed), at the following addresses or facsimile transmission numbers (or at
such other address or facsimile transmission number for a Party as shall be
specified by like notice):
39
(a) If to Parent or Merger Sub:
Panhandle Royalty Company
0000 Xxxxx Xxxxx Xxxx.
Xxxxx 000
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attention: H. W. Peace II, President
Facsimile: (000) 000-0000
With a copy (which shall not constitute notice) to:
Xxx Xxxxxx, III
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
(b) If to the Company:
Wood Oil Company
0000 Xxxx 00xx Xxxxxx, Xxxxx X
Xxxxx, Xxxxxxxx 00000
Attention: Xxx X. Xxxxx
Facsimile: (000) 000-0000
With a copy (which shall not constitute notice) to:
Xxxxxx & Xxxxxxx
0000 Xxxxx Xxxxx Tower
00 Xxxx 0xx Xxxxxx
Xxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. XxXxxx, Xx.
Facsimile: (000) 000-0000
9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties, it being understood that all
Parties need not sign the same counterpart.
9.4 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
9.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(together with the Confidentiality Agreement and the documents and instruments
delivered by the Parties
40
in connection with this Agreement): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the Parties with respect to the subject matter hereof; and (b) except as
provided in Sections 5.2, 5.7 and 5.11, is solely for the benefit of the Parties
and their respective successors, legal representatives and assigns and does not
confer on any other Person any rights or remedies hereunder.
9.6 APPLICABLE LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Oklahoma, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
9.7 NO REMEDY IN CERTAIN CIRCUMSTANCES. Each Party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any Party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein shall not in any way be affected
or impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement shall terminate
pursuant to Article 7. Except as otherwise contemplated by this Agreement, to
the extent that a Party took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent Governmental Authority, such Party shall not incur
any liability or obligation unless such Party breached its obligations under
Section 5.6 or did not in good faith seek to resist or object to the imposition
or entering of such order or judgment.
9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the Parties (whether by
operation of law or otherwise) without the prior written consent of the other
Parties, except that Parent may assign, in its sole discretion, its rights,
interests and obligations hereunder to any wholly-owned Subsidiary of Parent,
provided that Parent shall notify the Company of any such assignment and remain
responsible for all of its obligations hereunder. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
9.9 WAIVERS. At any time prior to the Closing, the Parties may, to the
extent legally allowed: (a) extend the time for the performance of any of the
obligations or other acts of the other Parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive performance of any of the covenants or
agreements, or satisfaction of any of the conditions, contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such Party. Except
as provided in this Agreement, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any Party, shall be deemed to
constitute a waiver by the Party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any Party of a breach of any provision hereof shall not
operate or be construed as a waiver of any prior or subsequent breach of the
same or any other provisions hereof.
9.10 CONFIDENTIALITY AGREEMENT. The Confidentiality Agreement is hereby
incorporated herein by reference and shall constitute a part of this Agreement
for all purposes
41
and shall remain in full force and effect following the execution of this
Agreement until terminated in accordance with its terms; provided, however, to
the extent the terms of this Agreement conflict with the terms of the
Confidentiality Agreement, the terms of this Agreement shall control. Any and
all information received by Parent or Merger Sub pursuant to the terms and
provisions of this Agreement shall be governed by the applicable terms and
provisions of the Confidentiality Agreement.
9.11 INCORPORATION BY REFERENCE. Exhibits and Schedules referred to herein
are attached to and by this reference incorporated herein for all purposes.
9.12 COOPERATION AFTER CLOSING. Each Party shall, at any time and from time
to time after Closing, execute, acknowledge where appropriate and deliver such
further instruments and documents and take such other action as may be
reasonably requested by another Party in order to carry out the intent and
purpose of this Agreement.
9.13 SPECIFIC PERFORMANCE; ATTORNEYS' FEES. The Parties recognize that if
the Company refuses to perform under the provisions of this Agreement, monetary
damages alone will not be adequate to compensate Parent for its injury. Parent
shall therefore be entitled, in addition to any other remedies that may be
available, to obtain specific performance of the terms of this Agreement. If any
action is brought by Parent to enforce this Agreement, the Company and the
Company's Stockholders shall waive the defense that there is an adequate remedy
at law. In the event of a default by either Party which results in the filing of
a lawsuit relating to such default, the prevailing Party in such lawsuit shall
be entitled to reimbursement from the non-prevailing Party of all reasonable
legal fees and expenses incurred by the prevailing Party.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives, on the date first written above.
"PARENT" "COMPANY"
PANHANDLE ROYALTY COMPANY WOOD OIL COMPANY
By: By:
------------------------------- --------------------------------
H. W. Peace II Xxx X. Xxxxx
President President
"MERGER SUB"
PRC, Inc.
By:
-------------------------------
H. W. Peace II
President
42
