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