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EXHIBIT 99.2
January 21, 1998
HarCor Energy, Inc.
Five Post Oak Park
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
HarCor Energy, Inc. ("HarCor") and Seneca Resources Corporation
("Seneca"), including any affiliate substituted by ▇▇▇▇▇▇ as provided in
paragraph 2.7 below, will evidence (i) our mutual intention, as set forth in
Section I of this letter, with respect to the proposed acquisition of all of
the issued and outstanding capital stock of HarCor (the "Proposed
Transaction"), all as proposed in Section I below, and (ii) certain binding
agreements, as set forth in Section II of this letter, relating to the Proposed
Transaction.
The matters set forth in Section I of this letter constitute an
expression of our mutual intention only and do not constitute a binding
agreement among the parties with respect to the Proposed Transaction or
otherwise. Any such binding agreement would only arise as a result of the
negotiations, execution and delivery of a written definitive agreement as
contemplated hereby having terms and conditions satisfactory to the parties to
such agreement. No party hereto may bring any claim or action against any
other party hereto as a result of a failure to agree on or enter into any
definitive agreement as contemplated in Section I hereof, even if all
conditions set forth therein are satisfied. The matters set forth in Section
II of this letter, however, constitute binding agreements among the parties,
for which the receipt of adequate consideration is hereby acknowledged.
SECTION I
PROPOSED TRANSACTION
1.1 Agreement. Seneca and ▇▇▇▇▇▇ will enter into negotiations
with a view to executing by the earliest practicable date, an agreement (the
"Agreement") providing for the merger of HarCor with Seneca or a subsidiary
thereof. The Agreement will contain such terms, provisions and conditions as
are usual and customary in transactions of this nature, including, without
limitation, representations and warranties. Without limiting the foregoing,
the following shall be included in the Agreement.
(a) Purchase Price. The Agreement shall provide that
each outstanding share of capital stock of HarCor ("HarCor Stock")
will be converted into the right to receive $2.00 in cash from Seneca,
resulting in a total purchase price for all the HarCor Stock of
$32,536,000.
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(b) Audit. The closing (the "Closing") of the Agreement
will be contingent upon, among other things, the completion and
delivery to Seneca of an audit of the Company's financial statements
for the fiscal year ended December 31, 1997, to be performed by the
accounting firm of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, which reveals no material
adverse information not previously disclosed in writing to Seneca, or
a material variance from the written or printed disclosures furnished
by HarCor or its representatives and used by Seneca in its economic
models.
(c) Closing. The Closing shall take place as soon as
practicable after the satisfaction or waiver of all Closing conditions
set forth in the Agreement, but no later than a time to be set in the
Agreement.
(d) Debt and Burdens. The Proposed Transaction is based
on the information set forth on Attachment I as of the dates indicated
and the recently announced $13.2 million in immediately available
funds from the sale of HarCor's non-California assets. HarCor, its
subsidiaries and their respective properties shall be free of debt and
other financial obligations at the time of Closing except for the (i)
items set forth in Attachment I and (ii) the obligation to pay fees
and expenses of ▇▇▇▇▇▇, Read & Co. Inc. and other investment banking
firms in connection with the Proposed Transaction, which will not
exceed $1.28 million, based upon a purchase price of $2.00 per share
and a total enterprise value of HarCor based upon HarCor's net debt at
November 1, 1997. There shall be no additional HarCor equity
securities outstanding, or securities convertible into equity
securities of HarCor, other than 16,268,000 shares of HarCor common
stock.
(e) Employees. There shall be no obligations and
liabilities to current and former employees of HarCor or its
subsidiaries, including, but not limited to, obligations and
liabilities related to termination of employment, benefit plans,
pensions, unemployment benefits and insurance plans exceeding the $2.3
million obligations (which are part of and not in addition to the
$74.0 million set out on Attachment I.
(f) No Material Adverse Changes. Prior to the Closing,
there shall have been no material adverse change in the business,
assets, or prospects of HarCor, and the business of HarCor shall have
been conducted in the ordinary course. ▇▇▇▇▇▇ shall have the
opportunity to review to its satisfaction the final purchase and sale
agreement covering HarCor's sale of the non-California assets.
(g) Litigation and Contingencies. There shall be no
pending or threatened litigation or other proceedings or contingencies
pursuant to contract or otherwise that ▇▇▇▇▇▇ would reasonably
determine to be material and adverse, relating to HarCor, its
subsidiaries and their respective properties and assets, or the
acquisition of HarCor Stock.
(h) Approvals. All notices to and consents of third
parties, including governmental agencies, that may be required in
connection with the Proposed Transaction shall have been given or
obtained, including, without limitation, any notice, clearance,
consent, or approval required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act, any
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applicable federal or state securities or environmental laws and
requisite approval of HarCor's stockholders.
1.2 Operator. The Closing shall be contingent upon ▇▇▇▇▇▇ being
assured to its satisfaction that HarCor's California properties will be
operated in a satisfactory manner.
SECTION II
BINDING AGREEMENTS
2.1 Access and Cooperation. HarCor shall afford ▇▇▇▇▇▇'s
employees, auditors, legal counsel and other authorized representatives all
reasonable opportunity and access during normal business hours and such other
reasonable hours as ▇▇▇▇▇▇ requests to inspect, investigate and audit the
assets, liabilities, contracts, operations, and business of HarCor. From the
date hereof until the later of February 27, 1998 or five days after the
delivery to ▇▇▇▇▇▇ of the audit referred to in Section 1.1(b) (the "Subject
Period") representatives of HarCor shall continue to meet with representatives
of ▇▇▇▇▇▇ to discuss such matters relative to the Proposed Transaction as
▇▇▇▇▇▇ may reasonably request.
2.2 Good Faith. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ shall negotiate in good faith
to arrive at a mutually acceptable definitive agreement.
2.3 Exclusive Dealing. During the Subject Period, HarCor shall
not, directly or indirectly, through any officer, director, agent,
representative, advisor or otherwise, (i) solicit, initiate, or encourage the
submission or communication of inquiries, proposals, or offers from any
potential buyer (a "Third Party Inquiry"), other than Seneca, relating to the
disposition of the assets or securities of HarCor, or any part thereof (other
than sales of oil and gas pursuant to existing contracts and sales in the
ordinary course of business consistent with current practice with any new
contract terms not to exceed 30 days and the sale of the non-California assets
pursuant to the existing contract therefor), or (ii) subject to fiduciary
obligations under applicable law as advised by counsel, participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, the disposition of the assets or any securities of HarCor or
any part thereof. ▇▇▇▇▇▇ shall be promptly advised by HarCor upon its receipt
of any Third Party Inquiry and HarCor shall furnish Seneca a written
description of the material terms and conditions thereof.
2.4 Termination. If the Agreement has not been executed by the
parties prior to the expiration of the Subject Period, this letter shall
terminate in its entirety without any further notice being necessary; provided,
however, that such termination shall not impair or otherwise affect the rights
or remedies of the parties for any breach of any obligation set forth in
Section II of this letter.
2.5 Representations and Warranties. The parties hereto hereby
represent and warrant to each other that this letter (i) has been validly
executed and delivered, (ii) has been duly authorized by all corporate action
necessary for the authorization thereof, and (iii) with respect to the matters
set forth in Section II only, constitutes a binding and enforceable obligation
of such party, enforceable in accordance with its terms.
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2.6 Costs. Seneca and HarCor shall each be solely responsible for
and bear all of its own respective costs and expenses, including, without
limitation, expenses of legal counsel, accountants, and other advisors,
incurred at any time in connection with pursuing the Proposed Transaction
contemplated hereby; provided, however, that if the parties do not enter into
and consummate the Agreement contemplated herein as a result of HarCor
terminating negotiations hereunder because of its receipt of a superior offer
for all the stock or assets of HarCor prior to or within 45 days of the end of
the Subject Period, and if HarCor shall enter into or adopt any agreement or
plan within one year of the date hereof, with respect to (i) any merger,
consolidation or other business combination with such offeror or (ii) any
recapitalization or similar transaction, in each case involving HarCor and such
offeror which is ultimately consummated and pursuant to which the stockholders
of HarCor receive consideration having a value (including, without limitation,
any tax benefits) greater than that proposed hereunder, then HarCor shall pay
to ▇▇▇▇▇▇, as liquidated damages, $1 million in cash upon consummation of such
transaction.
2.7 Substitution of ▇▇▇▇▇▇. HarCor understands that, in the
future, ▇▇▇▇▇▇ may wish to designate one or more affiliates to be parties under
the Agreement. Accordingly, on notice from Seneca, one or more affiliates
designated in that notice will be substituted under this letter. Despite any
such substitution, however, ▇▇▇▇▇▇ shall continue to be liable for the
performance of all obligations of ▇▇▇▇▇▇ under this letter, and the Agreement.
2.8 Public Announcements. No party hereto shall or shall permit
any of its subsidiaries to (and each party shall use commercially reasonable
efforts to cause its affiliates, directors, officers, employees, agents or
representatives not to) issue any press release or make any public statement
concerning this agreement or any of the transactions contemplated hereby,
without the prior written consent of the other party hereto; provided, however,
that a party may, without the prior written consent of the other party hereto,
issue such a press release or make such a public statement to the extent
required by applicable law or any listing agreement with a national securities
exchange by which such party is bound if it has used commercially reasonable
efforts to consult with the other party and to obtain such party's consent but
has been unable to do so in a timely manner.
2.9 ARBITRATION. THE PARTIES HERETO AGREE THAT ANY DISPUTE THAT
ARISES WITH RESPECT TO THIS AGREEMENT SHALL BE ARBITRATED IN ACCORDANCE WITH
THE TEXAS GENERAL ARBITRATION ACT ("ACT") AND THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION ("RULES") AND THAT THE DECISION OF THE ARBITRATOR
RENDERED PURSUANT TO THE ACT AND RULES SHALL BE BINDING UPON THE PARTIES AND
MAY BE ENFORCED IN ANY COURT OF COMPETENT JURISDICTION. ANY ARBITRATION
PROCEEDINGS PURSUANT TO THIS AGREEMENT SHALL BE HELD IN HOUSTON, ▇▇▇▇▇▇ COUNTY,
TEXAS. THE ARBITRATOR SHALL NOT AWARD INCIDENTAL, CONSEQUENTIAL, INDIRECT OR
PUNITIVE DAMAGES, NOR MULTIPLE DAMAGES IN SETTLEMENT OF ANY DISPUTE.
2.10 Complete Agreement, Notices. This letter constitutes the
entire agreement of the parties relating to the transactions contemplated by
this letter and supersedes all prior understandings or agreements with respect
to those matters, whether oral or written. All notices, requests, or consents
provided for or permitted to be given under this letter must be in writing and
are effective
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on actual receipt by the intended recipient at the address or facsimile number
for the recipient listed elsewhere in this letter or such other address as that
recipient may specify by notice to the other parties. Except as provided in
paragraph 2.7 above, a party's rights and obligations under this letter are
assignable only with the prior written consent of the other parties and any
attempted assignment without such consent is void.
If this letter correctly reflects our understanding, please sign all
originals and return one fully executed copy to the undersigned, retaining the
others in your respective files.
Very truly yours,
SENECA RESOURCES CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇
Title: President
▇▇▇▇▇▇▇▇▇ (for notices): (▇▇▇) ▇▇▇-▇▇▇▇
ACCEPTED AND AGREED TO
as of the date first above written.
HARCOR ENERGY, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chairman of the Board and
Chief Executive Officer
▇▇▇▇▇▇▇▇▇ (for notices): (▇▇▇) ▇▇▇-▇▇▇▇
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ATTACHMENT I
HARCOR DEBT AND FINANCIAL OBLIGATIONS
AT 11/1/97 ($ MILLIONS)
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ING Debt $5.3
14 7/8% Senior Secured Debt 53.7
Optional Note Defeasance costs (@1.23) 12.5
Employee Severance obligations 2.3
Accrued Interest on Sr. Secured Debt (4 months) 2.7
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Total Obligations $76.5
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Less:
Cash (9/30/97) ($2.5)
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Net Debt $74.0
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