SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Earliest Event Reported: June 8, 1999
HALLWOOD ENERGY CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 0-9579 84-1489099
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
4610 South Ulster Street, Suite 200
Denver, Colorado 80237
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 850-7373
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ITEM 5. OTHER EVENTS
------------
On June 8, 1999, Hallwood Energy Corporation announced that it
completed its previously announced consolidation, pursuant to which Hallwood
Energy Partners, L.P. and Hallwood Consolidated Resources Corporation have been
consolidated and the energy interests of The Hallwood Group Incorporated have
been acquired. The consolidation creates an exploration and production company
with estimated pro forma 1998 year-end reserves of approximately 213 billion
cubic feet of natural gas equivalent (bcfe). Combined pro forma production for
the first quarter of 1999 is estimated to be approximately 8.0 bcfe, 75% of
which is natural gas. After completing the transaction, Hallwood Energy
Corporation has, at December 31, 1998, on a pro forma basis, total assets of
approximately $205,000,000, subject to total debt of approximately $98,000,000.
The transaction will be accounted for using the purchase method. Anthony J.
Gumbiner will be Chairman and Chief Executive Officer and William L. Guzzetti
will be President and Chief Operating Officer of Hallwood Energy Corporation.
Hallwood Energy Corporation's principal objectives are to explore for, develop,
acquire and produce oil and gas properties. Hallwood Energy Corporation is based
in Denver, Colorado with properties primarily located in South Louisiana, the
San Juan Basin in New Mexico and Colorado, West Texas and the Rocky Mountain
Region.
A copy of the Press Release, dated June 8, 1999, issued by Hallwood
Energy Corporation relating to the consolidation is attached as Exhibit 4 hereto
and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
1. Merger and Asset Contribution Agreement, dated as of
December 15, 1998, by and among Hallwood Energy
Corporation, HEC Acquisition Corp., HEC Acquisition
Partnership, Hallwood Energy Partners, L.P., Hallwood
Consolidated Resources Corporation, HCRC Acquisition
Corp., and HEPGP Ltd.
2. First Amendment to Merger and Asset Contribution
Agreement, dated as of December 15, 1998, by and
among Hallwood Energy Corporation, HEC Acquisition
Corp., HEC Acquisition Partnership, Hallwood Energy
Partners, L.P., Hallwood Consolidated Resources
Corporation, HCRC Acquisition Corp., and HEPGP Ltd.
3. Second Amendment to Merger and Asset Contribution
Agreement, dated as of December 15, 1998, by and
among Hallwood Energy Corporation, HEC Acquisition
Corp., HEC Acquisition Partnership, Hallwood Energy
Partners, L.P., Hallwood Consolidated Resources
Corporation, HCRC Acquisition Corp., and HEPGP Ltd.
4. Press Release, dated June 8, 1999, relating to
transactions between Hallwood Energy Corporation, HEC
Acquisition Corp., HEC Acquisition Partnership, L.P.,
Hallwood Energy Partners, L.P., Hallwood
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Consolidated Resources Corporation, HCRC Acquisition
Corp., and HEPGP Ltd.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 8, 1999
HALLWOOD ENERGY CORPORATION
By: /s/ Cathleen M. Osborn
-------------------------
Name: Cathleen M. Osborn
Title: Vice President
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Exhibit 1
MERGER
AND ASSET CONTRIBUTION AGREEMENT
By and Among
HALLWOOD ENERGY CORPORATION,
and
HEC ACQUISITION PARTNERSHIP, L.P.
HEC ACQUISITION CORP.,
HALLWOOD ENERGY PARTNERS, L.P.
and
HCRC ACQUISITION CORP.,
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
and
HEPGP LTD.
Dated as of December 15, 1998
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I - The Transactions; Closing; Effective Time.............................................................3
1.1 The Transactions................................................................................3
1.2 Closings........................................................................................3
1.3 Effective Time..................................................................................3
ARTICLE II - The Surviving Entities...............................................................................4
2.1 The Surviving Partnership.......................................................................4
2.2 The Surviving Corporation.......................................................................4
ARTICLE III - Conversion or Cancellation of Units in the HEP Merger...............................................4
3.1 Conversion or Cancellation of Units.............................................................4
3.2 HEP General Partnership Interest................................................................5
3.3 HEP Options.....................................................................................5
3.4 Acquisition Partnership Interests...............................................................5
3.5 Exchange Agency; Surrender of Certificates......................................................5
3.6 Transfer of Units After the Effective Time......................................................7
ARTICLE IV - Conversion or Cancellation of Shares in the HCRC Merger..............................................7
4.1 Conversion or Cancellation of Shares............................................................7
4.2 HCRC Stock......................................................................................8
4.3 HCRC Options and Warrants.......................................................................8
4.4 Exchange Agency; Surrender of Certificates......................................................8
4.5 Transfer of Shares After the Effective Time....................................................10
ARTICLE V - Contribution of Assets...............................................................................10
5.1 Contribution Consideration.....................................................................10
ARTICLE VI - Representations and Warranties......................................................................10
6.1 Representations and Warranties of HEP..........................................................10
6.2 Representations and Warranties of HCRC.........................................................16
6.3 Representations and Warranties of HEPGP........................................................21
6.4 Representations and Warranties of Hallwood Energy, HEC Acquisition
Partnership and HEC Acquisition Corp...........................................................26
6.5 Representations and Warranties of Hallwood Energy and HCRC
Acquisition Corp. .............................................................................29
6.6 Representations and Warranties of Hallwood Energy..............................................32
ARTICLE VII - Covenants..........................................................................................34
7.1 Conduct of HEP's, HCRC's, Hallwood Energy's and HEPGP's
Business Pending Transactions..................................................................34
7.2 Other Actions..................................................................................36
7.3 Preparation of the Registration Statement and the Proxy Statement;
HEP Unitholders Meeting; HCRC Stockholders Meeting.............................................36
7.4 Access to Information; Confidentiality.........................................................38
7.5 Comfort Letters. .............................................................................38
7.6 Consents; Notifications; Other Actions.........................................................39
7.7 Tax Treatment..................................................................................39
7.8 Public Announcements...........................................................................39
7.9 Listing........................................................................................40
7.10 Affiliates; Etc................................................................................40
7.11 Filings; Other Action..........................................................................40
7.12 Indemnification; Directors' and Officers Insurance.............................................40
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7.13 Other Agreements...............................................................................42
ARTICLE VIII - Conditions........................................................................................43
8.1 Conditions to Obligations of Parties...........................................................43
8.2 Conditions to Obligations of Hallwood Energy...................................................44
8.3 Conditions To Obligations of HEP...............................................................45
8.4 Conditions To Obligations of HCRC..............................................................46
8.5 Conditions To Obligations of HEPGP.............................................................46
ARTICLE IX - Termination.........................................................................................47
9.1 Termination by Mutual Consent..................................................................47
9.2 Termination by Either Hallwood Energy, HEC Acquisition Partnership,
HEC Acquisition Corp, HEP, HCRC Acquisition Corp., HCRC or HEPGP...............................47
9.3 Termination by Hallwood Energy, HEC Acquisition Partnership,
HEC Acquisition Corp. or HCRC Acquisition Corp.................................................48
9.4 Termination by HEP, HCRC or HEPGP..............................................................48
9.5 Termination by HEP or HCRC.....................................................................48
9.6 Effect of Termination and Abandonment..........................................................49
9.7 Extension of Time..............................................................................49
ARTICLE X - Miscellaneous and General............................................................................50
10.1 Payment of Expenses............................................................................50
10.2 Nonsurvival of Representations and Warranties..................................................50
10.3 Modification or Amendment......................................................................50
10.4 Waiver of Conditions...........................................................................50
10.5 Actions by Directors...........................................................................50
10.6 Counterparts...................................................................................50
10.7 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL..................................................51
10.8 Notices........................................................................................51
10.9 Entire Agreement...............................................................................53
10.10 Obligations of Hallwood Energy, HEC Acquisition Partnership, HEC
Acquisition Corp., HCRC Acquisition Corp. or HEP, HCRC and HEPGP...............................53
10.11 Severability...................................................................................53
10.12 Interpretation.................................................................................54
10.13 Assignment.....................................................................................54
10.14 Definition of "Subsidiary" and "Person"........................................................54
</TABLE>
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MERGER
AND ASSET CONTRIBUTION AGREEMENT
THIS MERGER AND ASSET CONTRIBUTION AGREEMENT (this "Agreement"), dated
as of December 15, 1998, is between Hallwood Energy Corporation, a Delaware
corporation ("Hallwood Energy"), HEC Acquisition Partnership, L.P., a Delaware
limited partnership ("HEC Acquisition Partnership"), HEC Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Hallwood Energy ("HEC
Acquisition Corp."), in its capacity as general partner of HEC Acquisition
Partnership, Hallwood Energy Partners, L.P., a Delaware limited partnership
("HEP"), HCRC Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Hallwood Energy ("HCRC Acquisition Corp."), Hallwood Consolidated
Resources Corporation, a Delaware corporation ("HCRC"), and HEPGP Ltd., a
Colorado limited partnership ("HEPGP"). Hallwood Energy, HEC Acquisition
Partnership, HEC Acquisition Corp., HEP, HCRC Acquisition Corp., HCRC and HEPGP
are referred to collectively as the "Constituent Entities."
RECITALS
WHEREAS, the Boards of Directors of each of the Constituent Entities
have determined that a consolidation of the businesses of HEP, HCRC, and the
energy interests of The Hallwood Group Incorporated would be beneficial to the
unitholders and shareholders of each of the Constituent Entities;
WHEREAS, based upon such determination, each of the Constituent
Entities have entered into this Agreement to effectuate the consolidation;
WHEREAS, Hallwood Energy has been formed to be the entity resulting
from the consolidation;
WHEREAS, the consolidation, as more fully described below, will be
effected by (1) merging HEP with HEC Acquisition Partnership (with HEP as the
surviving entity), (2) merging HCRC with HCRC Acquisition Corp. (with HCRC as
the surviving entity), and (3) the contribution by The Hallwood Group
Incorporated, through HEPGP, of its energy related interests to Hallwood Energy;
WHEREAS, upon completion of the consolidation (1) HEP will be a
wholly-owned subsidiary of Hallwood Energy, (2) HCRC will be a wholly owned
subsidiary of Hallwood Energy, and (3) the energy interests of The Hallwood
Group Incorporated will be owned by Hallwood Energy;
WHEREAS, in connection with the consolidation, the currently
outstanding equity securities of HCRC and HEP will be canceled and the former
equity security holders of HCRC and HEP (other than equity securities of HCRC
held by HEP, or a Subsidiary of HEP, and equity securities of HEP held by HCRC,
or a Subsidiary of HCRC) will receive equity securities of Hallwood Energy;
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Delaware Revised Uniform Limited Partnership Act
("DRULPA"), HEC Acquisition Partnership will merge (the "HEP Merger") with and
into HEP, with HEP as the surviving partnership (the "Surviving Partnership"),
with HEC Acquisition Corp. as the Surviving Partnership's general partner, and
with Hallwood Energy and Hallwood Consolidated Partners, L.P. as the Surviving
Partnership's limited partners;
WHEREAS, the Boards of Directors of Hallwood Energy, HEC Acquisition
Corp. and Hallwood G.P., Inc., a Delaware corporation ("Hallwood G.P."), the
general partner of HEPGP, which is the general partner of HEP, have determined
that the HEP Merger is advisable and is fair to, and in the best interests of,
their respective stockholders, partners and unitholders, as the case may be;
have approved and adopted this Agreement and the transactions contemplated
hereby; and have recommended approval and adoption of this Agreement by their
respective stockholders, partners and unitholders;
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Delaware General Corporation Law ("DGCL"), HCRC
Acquisition Corp. will merge (the "HCRC Merger" and,
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with the HEP Merger, sometimes referred to herein as the "Mergers") with and
into HCRC, with HCRC as the surviving corporation (the "Surviving Corporation");
WHEREAS, the Boards of Directors of Hallwood Energy, HCRC Acquisition
Corp. and HCRC have determined that the HCRC Merger is advisable and is fair to,
and in the best interests of, their respective stockholders; have approved and
adopted this Agreement and the transactions contemplated hereby; and have
recommended approval and adoption of this Agreement by their respective
stockholders;
WHEREAS, upon the terms and subject to the conditions of this
Agreement, HEPGP will contribute certain oil and gas related assets (the "Asset
Contribution" and, with the Mergers, sometimes referred to herein as the
"Transactions") to Hallwood Energy and Hallwood Energy, in turn, will contribute
those same assets to HEPGP Acquisition Corp., a Delaware corporation and
wholly-owned Subsidiary of Hallwood Energy ("HEPGP Acquisition Corp.");
WHEREAS, the Boards of Directors of Hallwood Energy and Hallwood G.P.,
which is the general partner of HEPGP, have determined that the Asset
Contribution is advisable and is fair to, and in the best interests of, their
respective stockholders and partners; and have approved and adopted this
Agreement and the transactions contemplated hereby;
WHEREAS, for federal income tax purposes, it is intended that the
Mergers and the Asset Contribution will qualify as tax-free transactions under
the provisions of the United States Internal Revenue Code of 1986, as amended
(the "Code"), and it is also intended that the Mergers and the Asset
Contribution will be accounted for as a purchase by HEP of the assets of HCRC
and HEPGP; and
WHEREAS, Hallwood Energy, HEC Acquisition Partnership, HEC Acquisition
Corp., HEP, HCRC Acquisition Corp., HCRC and HEPGP desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties agree as follows:
ARTICLE I
The Transactions; Closing; Effective Time
1.1 The Transactions.
----------------
(a) HEP Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3) HEC Acquisition
Partnership shall be merged with and into HEP and the separate existence of HEC
Acquisition Partnership shall thereupon cease. HEP shall be the Surviving
Partnership in the HEP Merger and shall continue to be governed by the laws of
the State of Delaware, and the separate existence of HEP with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
HEP Merger. The HEP Merger shall have the effects specified in DRULPA.
(b) HCRC Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time HCRC Acquisition Corp. shall be merged with and
into HCRC and the separate existence of HCRC Acquisition Corp. shall thereupon
cease. HCRC shall be the Surviving Corporation in the HCRC Merger and shall
continue to be governed by the laws of the State of Delaware, and the separate
existence of HCRC with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the HCRC Merger. The HCRC Merger shall
have the effects specified in DGCL.
(c) Asset Contribution. Subject to the terms and conditions of
this Agreement, immediately prior to the Effective Time, HEPGP shall contribute
those certain oil and gas related assets and assign those certain liabilities
set forth on Schedule 1.1(c) attached hereto (the "Contributed Assets") to
Hallwood Energy and Hallwood Energy in turn, will contribute and assign the
Contributed Assets to HEPGP Acquisition Corp.
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1.2 Closings. The closings (the "Closings") of the Transactions shall
take place (a) at the offices of Jenkens & Gilchrist, a Professional
Corporation, 1445 Ross Avenue, Suite 3200, Dallas, Texas at 10:00 a.m. on the
first business day on which the last to be fulfilled or waived of the conditions
set forth in Article VIII (other than those conditions that by their nature are
to be satisfied at the Closings, but subject to the fulfillment or waiver of
those conditions) shall be fulfilled or waived in accordance with this Agreement
or (b) at such other place and time and/or on such other date as HEP, HCRC,
HEPGP and Hallwood Energy may agree.
1.3 Effective Time. As soon as practicable following the Closings, and
provided that this Agreement has not been terminated or abandoned pursuant to
Article IX hereof, (a) each of HEP and HEC Acquisition Corp., on behalf of HEC
Acquisition Partnership, will cause a Certificate of Merger (the "HEP
Certificate of Merger") to be executed and filed with the Secretary of State of
Delaware as provided in Section 211 of DRULPA, (b) each of HCRC and HCRC
Acquisition Corp. will cause a Certificate of Merger (the "HCRC Certificate of
Merger") to be executed and filed with the Secretary of State of Delaware as
provided in Section 251 of the DGCL and (c) HEPGP will execute and deliver those
items necessary to transfer, convey and assign the Contributed Assets. The
Transactions shall become effective on the date on which (x) each Certificate of
Merger has been duly filed with the Secretary of State of Delaware and (y) all
of those items required to be delivered to consummate the Asset Contribution
have been delivered, and such time is hereinafter referred to as the "Effective
Time."
ARTICLE II
The Surviving Entities
2.1 The Surviving Partnership.
-------------------------
(a) The Agreement of Limited Partnership of HEC Acquisition
Partnership (the "Partnership Agreement") in effect at the Effective Time shall
be the Partnership Agreement of the Surviving Partnership, until duly amended in
accordance with the terms thereof and DRULPA.
(b) The general partner of HEC Acquisition Partnership, HEC
Acquisition Corp., will be the general partner of the Surviving Partnership.
2.2 The Surviving Corporation.
-------------------------
(a) The Certificate of Incorporation of HCRC (the
"Certificate") in effect at the Effective Time and the Bylaws of HCRC (the
"Bylaws") in effect at the Effective Time shall be the Certificate and Bylaws,
respectively, of the Surviving Corporation, until duly amended in accordance
with the terms thereof and DGCL.
(b) The directors and officers of HCRC at the Effective Time
shall, from and after the Effective Time, be the directors and officers,
respectively, of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate and Bylaws.
ARTICLE III
Conversion or Cancellation of Units in the HEP Merger
3.1 Conversion or Cancellation of Units. At the Effective Time, each
Class A and Class B Unit (other than those held by HCRC, or a Subsidiary of
HCRC, a "Common Unit") of HEP issued and outstanding immediately prior to the
Effective Time shall, by virtue of the HEP Merger and without any action on the
part of the holder thereof, be converted into the right to receive 0.7417 of one
(the "HEP Common Conversion Ratio") fully paid and nonassessable share of common
stock, par value $.01 per share, of Hallwood Energy (the "Hallwood Energy Common
Stock"). Each Class C Unit (other than those held by HCRC, or a Subsidiary of
HCRC, a "Class C Unit") of HEP issued and outstanding immediately prior to the
Effective Time shall, by virtue of the HEP Merger and without any action on the
part of the holder thereof, be converted into the right to receive
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one (the "HEP Class C Conversion Ratio") fully paid and nonassessable share of
Series A Preferred Stock, par value $0.01 per share, of Hallwood Energy (the
"Hallwood Energy Preferred Stock"). The Hallwood Energy Common Stock and the
Hallwood Energy Preferred Stock are collectively referred to in this Agreement
as the "Hallwood Energy Stock" and the Hallwood Energy Stock to be received by
holders of Common Units and Class C Units at the Effective Time is referred to
in this Agreement as the "HEP Merger Consideration." At the Effective Time, all
Common Units and Class C Units (collectively, the "Units"), by virtue of the HEP
Merger and without any action on the part of the holders thereof (other than the
Class A Units and Class C Units held by HCRC or a Subsidiary of HCRC), shall no
longer be outstanding and shall be canceled and retired and shall cease to
exist, and each holder (other than HCRC or a Subsidiary of HCRC) of a
certificate representing any such Units (the "Converted Common Units" or the
"Converted Class C Units," as applicable, and collectively, the "Converted
Units") shall thereafter cease to have any rights with respect to the Converted
Units, except the right to receive the HEP Merger Consideration for such
Converted Units upon the surrender of such certificate in accordance with
Section 3.5. After the Effective Time, all Class A Units and Class C Units held
by HCRC or a Subsidiary of HCRC, shall continue to represent limited partner
interests in the Surviving Partnership.
3.2 HEP General Partnership Interest. At the Effective Time, by virtue
of the HEP Merger and without any action on the part of the holder thereof, the
general partnership interest in HEP shall be canceled in consideration of the
mutual covenants contained in this Agreement.
3.3 HEP Options. All options outstanding at the Effective Time to
purchase Common Units shall, by virtue of the HEP Merger and without any action
on the part of the holder of the option, be converted into options to purchase
Hallwood Energy Common Stock at the HEP Common Conversion Ratio. All options
outstanding at the Effective Time to purchase Class C Units shall, by virtue of
the HEP Merger and without any action on the part of the holder of the option,
be converted into options to purchase Hallwood Energy Preferred Stock at the HEP
Class C Conversion Ratio.
3.4 Acquisition Partnership Interests. The general partner interest in
HEC Acquisition Partnership outstanding immediately prior to the HEP Merger
shall remain outstanding after the HEP Merger and shall represent the general
partner interest in the Surviving Partnership.
3.5 Exchange Agency; Surrender of Certificates.
------------------------------------------
(a) HEP Exchange Fund. At or prior to the Effective Time,
Hallwood Energy shall deposit, or cause to be deposited, with an agent
designated by Hallwood Energy (the "Exchange Agent"), for the benefit of the
holders of Converted Units, for exchange in accordance with this Article III,
through the Exchange Agent, (i) certificates evidencing a number of shares of
Hallwood Energy Common Stock equal to the product of the HEP Common Conversion
Ratio multiplied by the number of Converted Common Units issued and outstanding,
and (ii) certificates evidencing a number of shares of Hallwood Energy Preferred
Stock equal to the product of the HEP Class C Conversion Ratio multiplied by the
number of Converted Class C Units issued and outstanding. The certificates
deposited with the Exchange Agent in accordance with this Section 3.5(a) are
referred to as the "HEP Exchange Fund." The Exchange Agent shall, pursuant to
irrevocable instructions, deliver Hallwood Energy Common Stock and/or Hallwood
Energy Preferred Stock, in exchange for surrendered certificates pursuant to the
terms of this Agreement out of the HEP Exchange Fund.
(b) Exchange Procedures. As soon as practicable after the
Effective Time, Hallwood Energy shall cause the Exchange Agent to send to each
record holder of Units at the Effective Time (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing Units (the "Unit Certificates") shall
pass, only upon delivery of the Unit Certificates to the Exchange Agent and
shall be in such form and contain such other provisions as Hallwood Energy and
HEP shall reasonably determine), and (ii) instructions for use in effecting the
surrender of the Unit Certificates in exchange for certificates representing
shares of Hallwood Energy Stock into which the Units represented by such Unit
Certificate or Unit Certificates shall have been converted pursuant to this
Agreement. Upon surrender of a Unit Certificate for cancellation to the Exchange
Agent, together with the letter of transmittal, duly executed, the holder of
such Unit Certificate shall be entitled to receive in exchange therefor, a
certificate representing that number of whole shares of Hallwood Energy Stock
that such holder has the right to receive pursuant to the provisions of this
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Article III and the Unit Certificate so surrendered shall be canceled. In the
event of a transfer of ownership of Units that are not registered in the
transfer records of HEP, a certificate evidencing the proper number of shares of
Hallwood Energy Stock may be issued to the transferee if the Unit Certificate
evidencing the Units shall be surrendered to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by evidence that
any applicable transfer taxes have been paid. Until surrendered for exchange in
accordance with the provisions of Section 3.5 of this Agreement, each Unit
Certificate previously representing Converted Units shall from and after the
Effective Time represent for all purposes only the right to receive the
applicable HEP Merger Consideration as set forth in this Agreement. If any
holder of Converted Units shall be unable to surrender such holder's Unit
Certificates because such Unit Certificates have been lost or destroyed, such
holder may deliver in lieu thereof an affidavit and indemnity bond in form and
substance and with surety reasonably satisfactory to Hallwood Energy. No
interest shall be paid on any HEP Merger Consideration payable to former holders
of Converted Units.
(c) Distributions with Respect to Hallwood Energy Stock. No
dividends or other distributions declared or made after the Effective Time with
respect to Hallwood Energy Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Unit Certificate previously
representing Units, and no HEP Merger Consideration shall be paid to any such
holder until the holder of such Unit Certificate shall surrender such Unit
Certificate previously representing Units. Subject to applicable laws, following
surrender of any such Unit Certificate, there shall be paid to the holder of the
certificates evidencing whole shares of Hallwood Energy Stock issued in exchange
therefor, without interest, (i) promptly following the surrender of such Unit
Certificate, the amount of dividends or other distributions with a record date
after the Effective Time previously paid with respect to such whole shares of
Hallwood Energy Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time,
but prior to surrender, and a payment date occurring after surrender, payable
with respect to such whole shares of Hallwood Energy Stock.
(d) No Fractional Shares. No certificates or scrip evidencing
fractional shares of Hallwood Energy Stock shall be issued upon the surrender
for exchange of Unit Certificates, and such fractional share interests shall not
entitle the owner thereof to any rights of a stockholder of Hallwood Energy. In
lieu of fractional shares, each holder of a Unit Certificate previously
evidencing Units, upon surrender of such Unit Certificate for exchange pursuant
to this Article III, shall receive a number of shares of Hallwood Energy Common
Stock rounded to the nearest whole share of Hallwood Energy Common Stock, with
half shares being rounded up to the nearest whole share of Hallwood Energy
Common Stock.
(e) Termination of HEP Exchange Fund. Any portion of the HEP
Exchange Fund that remains unclaimed by the former holders of Converted Units
180 days after the Closing Date shall be delivered to Hallwood Energy, upon
demand, and any former holders of Converted Units who have not complied with
this Article III shall thereafter look only to Hallwood Energy for the HEP
Merger Consideration and dividends or distributions to which they are entitled,
without any interest thereon. Neither Hallwood Energy nor HEP shall be liable to
any former holder of Converted Units for any HEP Merger Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar laws.
(f) Withholding. Hallwood Energy (or any affiliate thereof)
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any former holder of Converted Units such
amounts as Hallwood Energy (or any affiliate thereof) is required to deduct and
withhold with respect to the making of such payment under the Code or any other
provision of federal, state, local or foreign tax law and Hallwood Energy agrees
to remit to the proper taxing authority such amounts so withheld. To the extent
that amounts are so withheld by Hallwood Energy, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the former
holder of the Converted Units in respect of which such deduction and withholding
was made by Hallwood Energy.
3.6 Transfer of Units After the Effective Time. At the Effective Time,
the transfer books of HEP shall be closed and there shall be no further
registration of transfers of Units thereafter on the records of HEP. If, after
the Effective Time, Unit Certificates are presented to the Surviving
Partnership, they shall be canceled and
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exchanged for the HEP Merger Consideration, deliverable in respect thereof
pursuant to this Agreement in accordance with the procedures set forth in this
Article III.
ARTICLE IV
Conversion or Cancellation of Shares in the HCRC Merger
4.1 Conversion or Cancellation of Shares. At the Effective Time, each
share of common stock of HCRC, par value $.01 per share (other than those held
by HEP, or a Subsidiary of HEP, the "HCRC Common Stock"), issued and outstanding
immediately prior to the Effective Time shall, by virtue of the HCRC Merger and
without any action on the part of the holder thereof, be converted into the
right to receive 1.5918 (the "HCRC Conversion Ratio") fully paid and
nonassessable shares of Hallwood Energy Common Stock. The Hallwood Energy Common
Stock to be received by holders of HCRC Common Stock at the Effective Time is
referred to in this Agreement as the "HCRC Merger Consideration." At the
Effective Time, all shares of HCRC Common Stock (the "HCRC Shares"), by virtue
of the HCRC Merger and without any action on the part of the holders thereof,
shall no longer be outstanding and shall be canceled and retired and shall cease
to exist, and each holder (other than HEP or a Subsidiary of HEP) of a
certificate representing any such HCRC Shares (the "Converted Shares") shall
thereafter cease to have any rights with respect to the Converted Shares, except
the right to receive the HCRC Merger Consideration for such Converted Shares
upon the surrender of such certificate in accordance with Section 4.3. At the
Effective Time, all of the HCRC Common Stock held by HEP or a Subsidiary of HEP,
by virtue of the HCRC Merger and without any action on the part of HEP or a
Subsidiary of HEP, shall no longer be outstanding and shall be canceled and
retired and cease to exist.
4.2 HCRC Stock. Each share of common stock, par value $0.01 per share,
of HCRC Acquisition Corp. issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding and shall thereafter
represent one validly issued, fully paid and nonassessable share of common stock
of the Surviving Corporation, and shall not be converted or affected by virtue
of the HCRC Merger.
4.3 HCRC Options and Warrants. All options and warrants outstanding at
the Effective Time to purchase HCRC Common Stock shall, by virtue of the HCRC
Merger and without any action on the part of the holder of the option or
warrant, be converted into options or warrants to purchase Hallwood Energy
Common Stock at the HCRC Conversion Ratio.
4.4 Exchange Agency; Surrender of Certificates.
------------------------------------------
(a) HCRC Exchange Fund. At or prior to the Effective Time,
Hallwood Energy shall deposit, or cause to be deposited, with the Exchange
Agent, for the benefit of the holders of Converted Shares, for exchange in
accordance with this Article IV, through the Exchange Agent, certificates
evidencing a number of shares of Hallwood Energy Common Stock equal to the
product of the HCRC Conversion Ratio multiplied by the number of Converted
Shares issued and outstanding. The certificates deposited with the Exchange
Agent in accordance with this Section 4.4(a) are referred to as the "HCRC
Exchange Fund." The Exchange Agent shall, pursuant to irrevocable instructions,
deliver Hallwood Energy Common Stock, in exchange for surrendered certificates
pursuant to the terms of this Agreement out of the HCRC Exchange Fund.
(b) Exchange Procedures. As soon as practicable after the
Effective Time, Hallwood Energy shall cause the Exchange Agent to send to each
record holder of HCRC Shares at the Effective Time (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the certificates theretofore representing HCRC Shares (the "Share
Certificates") shall pass, only upon delivery of the Share Certificates to the
Exchange Agent and shall be in such form and contain such other provisions as
Hallwood Energy and HCRC shall reasonably determine), and (ii) instructions for
use in effecting the surrender of the Share Certificates in exchange for
certificates representing shares of Hallwood Energy Stock into which the HCRC
Shares represented by such Share Certificate or Share Certificates shall have
been converted pursuant to this Agreement. Upon surrender of a Share Certificate
for cancellation to the Exchange Agent, together with the letter of transmittal,
duly executed, the holder of such Share Certificate shall be entitled to receive
in exchange therefor, a certificate representing that number of whole shares of
Hallwood Energy Stock that such holder has the right to
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receive pursuant to the provisions of this Article IV, and the Share Certificate
so surrendered shall be canceled. In the event of a transfer of ownership of
HCRC Shares that is not registered in the transfer records of HCRC, a
certificate evidencing the proper number of shares of Hallwood Energy Stock may
be issued to the transferee if the Share Certificate evidencing the HCRC Shares
shall be surrendered to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable transfer taxes have been paid. Until surrendered for exchange in
accordance with the provisions of Section 4.4 of this Agreement, each Share
Certificate previously representing Converted Shares shall from and after the
Effective Time represent for all purposes only the right to receive the
applicable HCRC Merger Consideration as set forth in this Agreement. If any
holder of Converted Shares shall be unable to surrender such holder's Share
Certificates because such Share Certificates have been lost or destroyed, such
holder may deliver in lieu thereof an affidavit and indemnity bond in form and
substance and with surety reasonably satisfactory to Hallwood Energy. No
interest shall be paid on any HCRC Merger Consideration payable to former
holders of Converted Shares.
(c) Distributions with Respect to Hallwood Energy Stock. No
dividends or other distributions declared or made after the Effective Time with
respect to Hallwood Energy Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Share Certificate previously
representing HCRC Shares, and no HCRC Merger Consideration shall be paid to any
such holder until the holder of such Share Certificate shall surrender such
Share Certificate previously representing HCRC Shares. Subject to applicable
laws, following surrender of any such Share Certificate, there shall be paid to
the holder of the certificates evidencing whole shares of Hallwood Energy Stock
issued in exchange therefor, without interest, (i) promptly following the
surrender of such Share Certificate, the amount of dividends or other
distributions with a record date after the Effective Time previously paid with
respect to such whole shares of Hallwood Energy Stock and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time, but prior to surrender, and a payment date
occurring after surrender, payable with respect to such whole shares of Hallwood
Energy Stock.
(d) No Fractional Shares. No certificates or scrip evidencing
fractional shares of Hallwood Energy Stock shall be issued upon the surrender
for exchange of Share Certificates, and such fractional share interests shall
not entitle the owner thereof to any rights of a stockholder of Hallwood Energy.
In lieu of fractional shares, each holder of a Share Certificate previously
evidencing HCRC Shares, upon surrender of such Share Certificate for exchange
pursuant to this Article IV, shall receive a number of shares of Hallwood Energy
Common Stock rounded to the nearest whole share of Hallwood Energy Common Stock,
with half shares being rounded up to the nearest whole share of Hallwood Energy
Common Stock.
(e) Termination of HCRC Exchange Fund. Any portion of the HCRC
Exchange Fund that remains unclaimed by the former holders of Converted Shares
180 days after the Closing Date shall be delivered to Hallwood Energy, upon
demand, and any former holders of Converted Shares who have not complied with
this Article IV shall thereafter look only to Hallwood Energy for the HCRC
Merger Consideration and dividends or distributions to which they are entitled,
without any interest thereon. Neither Hallwood Energy nor HCRC shall be liable
to any former holder of Converted Shares for any HCRC Merger Consideration (or
dividends or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar laws.
(f) Withholding. Hallwood Energy (or any affiliate thereof)
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any former holder of Converted Shares such
amounts as Hallwood Energy (or any affiliate thereof) is required to deduct and
withhold with respect to the making of such payment under the Code or any other
provision of federal, state, local or foreign tax law and Hallwood Energy agrees
to remit to the proper taxing authority such amounts so withheld. To the extent
that amounts are so withheld by Hallwood Energy, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the former
holder of the Converted Shares in respect of which such deduction and
withholding was made by Hallwood Energy.
4.5 Transfer of Shares After the Effective Time. At the Effective Time,
the transfer books of HCRC shall be closed and there shall be no further
registration of transfers of shares of HCRC Common Stock thereafter on the
records of HCRC. If, after the Effective Time, Share Certificates are presented
to the Surviving
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Corporation, they shall be canceled and exchanged for the HCRC Merger
Consideration, deliverable in respect thereof pursuant to this Agreement in
accordance with the procedures set forth in this Article IV.
ARTICLE V
Contribution of Assets
5.1 Contribution Consideration. In consideration for the contribution
of the Contributed Assets, Hallwood Energy shall issue 1,312,411 shares of
Hallwood Energy Common Stock to HEPGP.
ARTICLE VI
Representations and Warranties
6.1 Representations and Warranties of HEP. HEP hereby represents and
warrants to Hallwood Energy and HCRC that:
(a) Organization and Qualification. Each of HEP and its
Subsidiaries is a corporation or partnership, as applicable, duly organized,
validly existing and in good standing, under the laws of its respective
jurisdiction of incorporation or organization and is qualified to do business
and in good standing as a foreign corporation or partnership, as applicable, in
each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except for where such
failure to so qualify or be in such good standing, which, when taken together
with all other such failures, could not reasonably be expected to have a
Material Adverse Effect (as defined below) on HEP. Each of HEP and its
Subsidiaries has the requisite corporate power and authority to carry on its
respective businesses as they are now being conducted, except where the failure
to have such power or authority could not reasonably be expected to have a
Material Adverse Effect on HEP. As used in this Agreement, the term "Material
Adverse Effect" means a material adverse effect on the condition (financial or
otherwise), properties, assets, liabilities, business or results of operations
of an entity and its Subsidiaries, taken as a whole.
(b) Authorized Capital. At the date hereof, the total number
of authorized Units of HEP consists of 100,000,000 Units of which 10,011,854
Class A Units are issued and outstanding, 143,773 Class B Units are issued and
outstanding and 2,464,063 Class C Units are issued and outstanding. At the date
hereof there were 415,900 Class A Units and 120,000 Class C Units reserved for
issuance pursuant to HEP's Unit option plans. All of the outstanding Units have
been duly authorized and are validly issued, fully paid and nonassessable
(subject to the obligation of a limited partner to repay the amount of any
distribution wrongly received from HEP for a period of three years from the date
of the distribution). Except as set forth on Schedule 6.1(b), each of the
outstanding shares of capital stock or partnership interests, as applicable, of
each of HEP's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and owned, either directly or indirectly, by HEP free and clear of
all liens, pledges, security interests, claims or other encumbrances. Except as
set forth in the HEP Reports (as defined in Section 6.1(e)) filed with the
Securities and Exchange Commission (the "SEC"), there are no Units of HEP
authorized, issued or outstanding and there are no preemptive rights nor any
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of HEP or any of its Subsidiaries.
After the Effective Time, the Surviving Partnership will have no obligation to
issue, transfer or sell any Units or units of the Surviving Partnership pursuant
to any HEP unit or option plans or any other employee benefit plan of HEP.
(c) Authority. HEP has the requisite partnership power and
authority and has taken all partnership action necessary to execute and deliver
this Agreement and, subject only to approval of this Agreement by the holders of
a majority of each class of the outstanding Units, to consummate the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of HEP enforceable against HEP in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors rights
and to general equitable principles.
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(d) Governmental Filings; No Violations.
-----------------------------------
(i) Other than the filing of a certificate of
merger under DRULPA, filings under the Securities Act of 1933, as amended (the
"Act") and filings required to be made pursuant to the Securities and Exchange
Act of 1934, as amended (together, the "HEP Regulatory Filings"), no notices,
reports or other filings are required to be made by HEP or any of its
Subsidiaries with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by HEP or any of its Subsidiaries from,
any governmental, regulatory or administrative authority, agency, tribunal,
commission or other entity, domestic, international or foreign (each a
"Governmental Entity"), in connection with the execution and delivery of this
Agreement by HEP and the consummation by HEP of the transactions contemplated
hereby, the failure to make or obtain any or all of which could reasonably be
expected to have a Material Adverse Effect on HEP or could prevent or materially
delay the transactions contemplated by this Agreement, and
(ii) The execution and delivery of this Agreement
by HEP do not, and the consummation by HEP of the transactions contemplated by
this Agreement will not, constitute or result in (A) a breach or violation of,
or a default under the partnership agreement of HEP or the comparable governing
instruments of any of its Subsidiaries, (B) except as provided in Schedule
6.1(d), a breach or violation of, a default under or the triggering of any
payment or other material obligations pursuant to, any of HEP's existing
employee benefit plans or any grant or award made under any of the foregoing,
(C) except as provided in Schedule 6.1(d), a breach or violation of, or a
default under, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of notice or
the lapse of time) pursuant to, any provision of any agreement, lease, contract,
note, mortgage, indenture, arrangement or other obligation ("Contracts") of HEP
or any of its Subsidiaries or any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or non-governmental permit or
license to which HEP or any of its Subsidiaries is subject or (D) any change in
the rights or obligations of any party under any of the Contracts, except, in
the case of clause (C) or (D) above, for those items provided in Schedule 6.1(d)
and such breaches, violations, defaults, accelerations or changes that, alone or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on HEP or that could not prevent or materially delay the transactions
contemplated by this Agreement. Schedule 6.1(d) sets forth, to the best
knowledge of the officers of the general partner of the general partner of HEP,
a list of any consents required under any Contracts to be obtained prior to
consummation of the transactions contemplated by this Agreement (whether or not
subject to the exception set forth with respect to clause (C) above). HEP will
use its best efforts to obtain the consents referred to on Schedule 6.1(d).
(e) Partnership Reports; Financial Statements. HEP has made
available to representatives of Hallwood Energy, HCRC and HEPGP each
registration statement, schedule, report, proxy statement or information
statement prepared by it since December 31, 1997 and filed with the SEC (the
"HEP Audit Date"), including, without limitation, (i) HEP's Annual Report on
Form 10-K for the year ended December 31, 1997, (ii) HEP's Quarterly Reports on
Form 10-Q for the periods ended March 31, 1998, June 30, 1998 and September 30,
1998, and (iii) the registration statement on Form S-3 (No. 333 - 38973), each
in the form (including exhibits and any amendments thereto) filed with the SEC
(collectively, the "HEP Reports"). As of their respective dates, the HEP Reports
did not, and any HEP Reports filed with the SEC subsequent to the date hereof
will not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the HEP Reports (including the related notes and schedules)
fairly presents the consolidated financial position of HEP and its Subsidiaries
as of its date and each of the consolidated statements of income and of changes
in financial position included in or incorporated by reference into the HEP
Reports (including any related notes and schedules) fairly presents the results
of operations, earnings and changes in financial position, as the case may be,
of HEP and its Subsidiaries for the periods set forth therein (subject, in the
case of unaudited statements, to normal year-end adjustments that will not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein. Other than the HEP Reports, HEP has not filed
any other reports or statements with the SEC since the HEP Audit Date.
(f) Absence of Certain Changes. Except as disclosed in the HEP
Reports filed with the SEC prior to the date hereof, since the HEP Audit Date,
HEP and its Subsidiaries have conducted their respective
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businesses only in, and have not engaged in any material transaction other than
according to, the ordinary and usual course of such businesses and there has not
been: (i) any material adverse change (including, without limitation, any change
arising out of or related to any natural disaster) in the condition (financial
or otherwise), properties, assets, liabilities, business or results of
operations of HEP or any of its Subsidiaries or any development or combination
of developments of which HEP or any of its Subsidiaries has knowledge which is
reasonably likely to result in any such change; (ii) any declaration, setting
aside or payment of any dividend or other distribution with respect to the
equity interests of HEP, other than in the ordinary course of business
consistent with past practice; or (iii) any change by HEP in accounting
principles, practices or methods.
(g) Compliance with Laws. Since December 31, 1997, the
businesses of HEP and its Subsidiaries have not and are not being conducted in
violation of, nor were they conducted in violation of, any law, ordinance or
regulation of any Governmental Entity (provided that no representation or
warranty is made in this section with respect to Environmental Laws (as defined
herein)), except as disclosed in any of the HEP Reports and except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on HEP.
(h) Brokers and Finders. Neither HEP nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the transactions contemplated herein, except that Kirkpatrick Energy Associates
(the "HEP Financial Advisor") has been employed as financial advisor to the
Board of Directors of Hallwood G.P., acting as the general partner of the
general partner of HEP, and the arrangements with the HEP Financial Advisor have
been disclosed in writing to Hallwood Energy prior to the date hereof.
(i) Litigation. As of the date of this Agreement, except as
disclosed in any of the HEP Reports, there is no (i) class action litigation
pending or, to the best knowledge of HEP, threatened against or affecting HEP or
any of its Subsidiaries, (ii) other suit, action or proceeding pending (or any
known basis therefor) or, to the best knowledge of HEP, threatened against or
affecting HEP or any of its Subsidiaries or any of their respective properties
that could reasonably be expected to have a Material Adverse Effect on HEP or
that in any manner challenges or seeks to prevent, enjoin, alter or materially
delay the HEP Merger or any of the other transactions contemplated hereby, or
(iii) judgment, decree, injunction, rule or order of any court, Governmental
Entity or arbitrator outstanding against HEP or any of its Subsidiaries, which
if determined adversely to HEP, is reasonably likely to have a Material Adverse
Effect on HEP or that in any manner challenges or seeks to prevent, enjoin,
alter or materially delay the HEP Merger or any of the other transactions
contemplated hereby.
(j) Permits. HEP and its Subsidiaries have such certificates,
permits, licenses, franchises, consents, approvals, orders, authorizations,
registrations, qualifications and clearances from appropriate Governmental
Entities ("Permits") as are necessary to own, lease or operate their properties
and to conduct their businesses in the manner described in the HEP Reports and
as currently owned or leased and conducted, and all such Permits are valid and
in full force and effect, except for such Permits the failure of which to have
or to be in full force and effect, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on HEP. Neither HEP nor
any of its Subsidiaries has received any written notice that any violations are
being or have been alleged in respect of any such Permit and no proceeding is
pending or, to the best of HEP's knowledge, after due inquiry, threatened, to
suspend, revoke or limit any such Permit. To the best of HEP's knowledge, after
due inquiry, HEP and its Subsidiaries are in compliance in all material respects
with their respective obligations under such Permits, with such exceptions as
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect on HEP, and no event has occurred that allows, or after
notice or lapse of time would allow, revocation, suspension, limitation or
termination of such Permits, except such events as could not reasonably be
expected to have a Material Adverse Effect on HEP.
(k) Fairness Opinion. The Board of Directors of Hallwood G.P.
has received an opinion of the HEP Financial Advisor dated the date hereof, to
the effect that the HEP Merger is fair, from a financial point of view, to the
holders of Class A and Class C Units (other than HCRC and The Hallwood Group
Incorporated ("Hallwood Group")).
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(l) Reserve Report. With respect to the reserve report dated
July 1, 1998 (the "HEP Reserve Report"), relating to certain of HEP's oil and
gas properties, a copy of which has been delivered to representatives of
Hallwood Energy, HCRC and HEPGP (i) the information furnished by HEP to the
reserve engineers in connection with the preparation of the HEP Reserve Report
was true and correct in all material respects; (ii) the estimates of proved
reserves of oil and natural gas set forth in the HEP Reserve Report are
reasonable at the date of the HEP Reserve Report in light of the properties
involved; (iii) the calculations and other methodology utilized in the
preparation of the HEP Reserve Report are consistent with generally accepted
standards of petroleum reservoir engineering; (iv) the estimates of proved
reserves of oil and natural gas set forth in the HEP Reserve Report are
reasonable under the assumptions utilized in the HEP Reserve Report; and (v) the
information used in connection with the preparation of the HEP Reserve Report
was true and correct in all material respects as of July 1, 1998, and no new
information has come to the attention of HEP that would result in a material
change to the estimated reserves of HEP as of July 1, 1998. Williamson Petroleum
Consultants ("Williamson") which are independent engineering consultants have
reviewed properties containing approximately 80% in value of the reserves
reported in the HEP Reserve Report (the "HEP Specified Properties"). A copy of
Williamson's report regarding their review has been provided to Hallwood Energy.
(m) Physical Condition of Facilities. The surface physical
facilities on the HEP Specified Properties have been maintained in accordance
with normal industry maintenance practices and are in a state of repair (normal
wear and tear excepted) that HEP believes to be adequate for the normal use of
such facilities in the ordinary conduct of the business of HEP. Without limiting
the foregoing, but subject to ordinary wear and tear, such facilities are not in
need of maintenance or improvements except for maintenance and improvements in
the ordinary course in accordance with normal industry practice.
(n) Environmental Matters. Except as previously described in
the HEP Reports, (i) each of HEP and its Subsidiaries is in material compliance
with all applicable federal, state, local and foreign laws, regulations, rules,
orders, decrees, treaties, judicial decisions, judgments, injunctions, permits
and governmental restrictions relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata) (collectively
"Environmental Laws"), except for such non-compliance as could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
HEP, and, to the best knowledge of HEP, there are no circumstances that are
reasonably likely to materially prevent or interfere with such compliance in the
next three years, and (ii) neither HEP nor any of its Subsidiaries has received
written notice of or, to the best knowledge of HEP, is the subject of, any
actions, causes of action, claims, investigations, demands, notices, requests
for information, complaints, suits or proceedings by any Person alleging
liability under or non-compliance with any Environmental Law that are reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
HEP.
(o) Revenues; Expenses. HEP has not made any transfer or
conveyance, entered into any contract or agreement, or taken any action that has
caused, or will cause, it to be entitled to less than the net revenue interests,
or to be subject to more than the expense interests, set forth in the HEP
Reserve Report that would constitute a Material Adverse Effect on HEP, other
than as disclosed in the HEP Reports.
(p) Operating Contracts. No party to any operating contract is
in dispute with any other party to such contract or is in breach or default with
respect to any of its obligations under such contract that would constitute a
Material Adverse Effect on HEP, and there has not occurred any event, fact, or
circumstances that, with the lapse of time or giving of notice, or both, would
constitute a breach or default under such contract that would constitute a
Material Adverse Effect on HEP.
(q) Production Data. HEP has provided to representatives of
Hallwood Energy, HCRC and HEPGP aggregate production data on the HEP Specified
Properties and data on lease operating expenses incurred on the HEP Specified
Properties. All of such data is accurate and complete as of the date provided.
Since the date of the HEP Reserve Report, none of the HEP Specified Properties
has experienced any reduction in the average rate of production of oil, gas, or
other substances as compared with the average for the period from January 1,
1998, through the date of the HEP Reserve Report (except such as may be
occasioned by depletion due to normal operations) that would constitute a
Material Adverse Effect on HEP.
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(r) Ordinary Course Operations. Except as disclosed on
Schedule 6.1(r), since the date of the HEP Reserve Report, HEP has not operated
or in any manner dealt with, incurred obligations with respect to, or undertaken
any transactions relating to, the HEP Specified Properties other than in the
ordinary course of business consistent with past practice and none of the HEP
Specified Properties has suffered any material destruction, damage, or loss
(except depreciation of equipment through ordinary wear and tear) or been
subjected by HEP to any mortgage, lien, encumbrance, claim, or security interest
that has not previously been disclosed to representatives of Hallwood Energy or
that would constitute a Material Adverse Effect on HEP.
(s) Sale of Production. All contracts to which HEP is or will
be, after giving effect to the HEP Merger, a party, or to which the HEP
Specified Properties are subject, with respect to the sale of production from
the HEP Specified Properties have been made available by HEP to Hallwood Energy.
Such contracts have not been amended in any material respect and remain in full
force and effect in accordance with their respective terms. There has been no
payment to HEP, and no accrual of liability for payments under, such contracts
for production not yet taken by or delivered to the purchaser under such
contracts. Any imbalance that exists between HEP and any other owner of an
interest in any of the HEP Specified Properties with respect to the share of
hydrocarbons produced from a HEP Specified Property, since the date of first
production, for the account of HEP and such other owners when compared to the
net revenue interest of HEP and such other owners in any such property has been
disclosed to Hallwood Energy in writing.
6.2 Representations and Warranties of HCRC. HCRC hereby represents and
warrants to Hallwood Energy and HEP that:
(a) Organization and Qualification. Each of HCRC and its
Subsidiaries is a corporation or partnership, as applicable, duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation or organization and is qualified to do business
and in good standing as a foreign corporation or partnership, as applicable, in
each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except for where such
failure to so qualify or be in such good standing, which, when taken together
with all other such failures, could not reasonably be expected to have a
Material Adverse Effect on HCRC. Each of HCRC and its Subsidiaries has the
requisite corporate power and authority to carry on its respective businesses as
they are now being conducted, except where the failure to have such power or
authority could not reasonably be expected to have a Material Adverse Effect on
HCRC.
(b) Authorized Capital. At the date hereof, the total number
of authorized shares of HCRC consists of 10,500,000 shares, of which 10,000,000
are shares of HCRC Common Stock and 500,000 are shares of HCRC Preferred Stock,
of which 3,007,852 shares of HCRC Common Stock are issued and outstanding, and
no shares of HCRC Preferred Stock are issued and outstanding. At the date hereof
there were 295,730 HCRC Shares reserved for issuance pursuant to HCRC's stock
option plans. All of the outstanding HCRC Shares have been duly authorized and
are validly issued, fully paid and nonassessable. Except as set forth on
Schedule 6.2(b), each of the outstanding shares of capital stock or partnership
interests, as applicable, of each of HCRC's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and owned, either directly or
indirectly, by HCRC free and clear of all liens, pledges, security interests,
claims or other encumbrances. Except as set forth in the HCRC Reports (as
defined in Section 6.2(e)) filed with the SEC, there are no HCRC Shares
authorized, issued or outstanding and there are no preemptive rights nor any
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of HCRC or any of its Subsidiaries.
After the Effective Time, the Surviving Corporation will have no obligation to
issue, transfer or sell any HCRC Shares or shares of the Surviving Corporation
pursuant to any HCRC option plans or any other employee benefit plan of HCRC.
(c) Authority. HCRC has the requisite corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement and, subject only to approval of this Agreement by the holders of
a majority of each class of the outstanding HCRC Shares, to consummate the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of HCRC enforceable against HCRC in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors rights
and to general equitable principles.
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(d) Governmental Filings; No Violations.
-----------------------------------
(i) Other than the filing of a certificate of
merger under DGCL, filings under the Act and filings required to be made
pursuant to the Securities and Exchange Act of 1934, as amended (together, the
"HCRC Regulatory Filings"), no notices, reports or other filings are required to
be made by HCRC or any of its Subsidiaries with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
HCRC or any of its Subsidiaries from, any Governmental Entity, in connection
with the execution and delivery of this Agreement by HCRC and the consummation
by HCRC of the transactions contemplated hereby, the failure to make or obtain
any or all of which could reasonably be expected to have a Material Adverse
Effect on HCRC or could prevent or materially delay the transactions
contemplated by this Agreement, and
(ii) The execution and delivery of this Agreement
by HCRC do not, and the consummation by HCRC of the transactions contemplated by
this Agreement will not, constitute or result in (A) a breach or violation of,
or a default under the Certificate of Incorporation or Bylaws of HCRC or the
comparable governing instruments of any of its Subsidiaries, (B) except as
provided in Schedule 6.2(d), a breach or violation of, a default under or the
triggering of any payment or other material obligations pursuant to, any of
HCRC's existing employee benefit plans or any grant or award made under any of
the foregoing, (C) except as provided in Schedule 6.2(d), a breach or violation
of, or a default under, the acceleration of or the creation of a lien, pledge,
security interest or other encumbrance on assets (with or without the giving of
notice or the lapse of time) pursuant to, any provision of any Contracts of HCRC
or any of its Subsidiaries or any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or non-governmental permit or
license to which HCRC or any of its Subsidiaries is subject or (D) any change in
the rights or obligations of any party under any of the Contracts, except, in
the case of clause (C) or (D) above, for those items provided in Schedule 6.2(d)
and such breaches, violations, defaults, accelerations or changes that, alone or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on HCRC or that could not prevent or materially delay the transactions
contemplated by this Agreement. Schedule 6.2(d) sets forth, to the best
knowledge of the officers of HCRC, a list of any consents required under any
Contracts to be obtained prior to consummation of the transactions contemplated
by this Agreement (whether or not subject to the exception set forth with
respect to clause (C) above). HCRC will use its best efforts to obtain the
consents referred to on Schedule 6.2(d).
(e) Corporation Reports; Financial Statements. HCRC has made
available to representatives of Hallwood Energy, HEP and HEPGP each registration
statement, schedule, report, proxy statement or information statement prepared
by it since December 31, 1997 and filed with the SEC (the "HCRC Audit Date"),
including, without limitation, (i) HCRC's Annual Report on Form 10-K for the
year ended December 31, 1997 and (ii) HCRC's Quarterly Reports on Form 10-Q for
the periods ended March 31, 1998, June 30, 1998, and September 30, 1998, each in
the form (including exhibits and any amendments thereto) filed with the SEC
(collectively, the "HCRC Reports"). As of their respective dates, the HCRC
Reports did not, and any HCRC Reports filed with the SEC subsequent to the date
hereof will not, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the HCRC Reports (including the related notes and
schedules) fairly presents the consolidated financial position of HCRC and its
Subsidiaries as of its date and each of the consolidated statements of income
and of changes in financial position included in or incorporated by reference
into the HCRC Reports (including any related notes and schedules) fairly
presents the results of operations, earnings and changes in financial position,
as the case may be, of HCRC and its Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end
adjustments that will not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Other than the HCRC
Reports, HCRC has not filed any other reports or statements with the SEC since
the HCRC Audit Date.
(f) Absence of Certain Changes. Except as disclosed in the
HCRC Reports filed with the SEC prior to the date hereof, since the HCRC Audit
Date, HCRC and its Subsidiaries have conducted their respective businesses only
in, and have not engaged in any material transaction other than according to,
the ordinary and usual course of such businesses and there has not been: (i) any
material adverse change (including, without limitation, any change arising out
of or related to any natural disaster) in the condition (financial or
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otherwise), properties, assets, liabilities, business or results of operations
of HCRC or any of its Subsidiaries or any development or combination of
developments of which HCRC or any of its Subsidiaries has knowledge which is
reasonably likely to result in any such change; (ii) any declaration, setting
aside or payment of any dividend or other distribution with respect to the
equity interests of HCRC, other than in the ordinary course of business
consistent with past practice; or (iii) any change by HCRC in accounting
principles, practices or methods.
(g) Compliance with Laws Since December 31, 1997, the
businesses of HCRC and its Subsidiaries have not and are not being conducted in
violation of, nor were they conducted in violation of, any law, ordinance or
regulation of any Governmental Entity (provided that no representation or
warranty is made in this section with respect to Environmental Laws), except as
disclosed in any of the HCRC Reports and except for such violations as would
not, individually or in the aggregate, have a Material Adverse Effect on HCRC.
(h) Brokers and Finders. Neither HCRC nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders fees in connection with
the transactions contemplated herein, except that Dain Rauscher Wessells, a
division of Dain Rauscher Incorporated (the "HCRC Financial Advisor") has been
employed as financial advisor to the Board of Directors of HCRC and the
arrangements with the HCRC Financial Advisor have been disclosed in writing to
Hallwood Energy prior to the date hereof.
(i) Litigation. As of the date of this Agreement, except as
disclosed in any of the HCRC Reports, there is no (i) class action litigation
pending or, to the best knowledge of HCRC, threatened against or affecting HCRC
or any of its Subsidiaries, (ii) other suit, action or proceeding pending (or
any known basis therefor) or, to the best knowledge of HCRC, threatened against
or affecting HCRC or any of its Subsidiaries or any of their respective
properties that could reasonably be expected to have a Material Adverse Effect
on HCRC or that in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the HCRC Merger or any of the other transactions contemplated
hereby, or (iii) judgment, decree, injunction, rule or order of any court,
Governmental Entity or arbitrator outstanding against HCRC or any of its
Subsidiaries, which if determined adversely to HCRC, is reasonably likely to
have a Material Adverse Effect on HCRC or that in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the HCRC Merger or any of the
other transactions contemplated hereby.
(j) Permits. HCRC and its Subsidiaries have such Permits as
are necessary to own, lease or operate their properties and to conduct their
businesses in the manner described in the HCRC Reports and as currently owned or
leased and conducted, and all such Permits are valid and in full force and
effect, except for such Permits the failure of which to have or to be in full
force and effect, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on HCRC. Neither HCRC nor any of its
Subsidiaries has received any written notice that any violations are being or
have been alleged in respect of any such Permit and no proceeding is pending or,
to the best of HCRC's knowledge, after due inquiry, threatened, to suspend,
revoke or limit any such Permit. To the best of HCRC's knowledge, after due
inquiry, HCRC and its Subsidiaries are in compliance in all material respects
with their respective obligations under such Permits, with such exceptions as
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect on HCRC, and no event has occurred that allows, or after
notice or lapse of time would allow, revocation, suspension, limitation or
termination of such Permits, except such events as could not reasonably be
expected to have a Material Adverse Effect on HCRC.
(k) Fairness Opinion. The Board of Directors of HCRC has
received an opinion of the HCRC Financial Advisor dated the date hereof, to the
effect that the HCRC Merger is fair, from a financial point of view, to the
holders of HCRC Shares (other than HEP).
(l) Reserve Report. With respect to the reserve report dated
July 1, 1998 (the "HCRC Reserve Report"), relating to certain of HCRC's oil and
gas properties, a copy of which has been delivered to representatives of
Hallwood Energy, HEP and HEPGP (i) the information furnished by HCRC to the
reserve engineers in connection with the preparation of the HCRC Reserve Report
was true and correct in all material respects; (ii) the estimates of proved
reserves of oil and natural gas set forth in the HCRC Reserve Report are
reasonable at the date of the HCRC Reserve Report in light of the properties
involved; (iii) the calculations and
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<PAGE>
other methodology utilized in the preparation of the HCRC Reserve Report are
consistent with generally accepted standards of petroleum reservoir engineering;
(iv) the estimates of proved reserves of oil and natural gas set forth in the
HCRC Reserve Report are reasonable under the assumptions utilized in the HCRC
Reserve Report; and (v) the information used in connection with the preparation
of the HCRC Reserve Report was true and correct in all material respects as of
July 1, 1998, and no new information has come to the attention of HCRC that
would result in a material change to the estimated reserves of HCRC as of July
1, 1998. Williamson has reviewed properties containing approximately 80% in
value of the reserves reported in the HCRC Reserve Report (the "HCRC Specified
Properties"). A copy of Williamson's report regarding their review has been
provided to Hallwood Energy.
(m) Physical Condition of Facilities. The surface physical
facilities on the HCRC Specified Properties have been maintained in accordance
with normal industry maintenance practices and are in a state of repair (normal
wear and tear excepted) that HCRC believes to be adequate for the normal use of
such facilities in the ordinary conduct of the business of HCRC. Without
limiting the foregoing, but subject to ordinary wear and tear, such facilities
are not in need of maintenance or improvements except for maintenance and
improvements in the ordinary course in accordance with normal industry practice.
(n) Environmental Matters. Except as previously described in
the HCRC Reports, (i) each of HCRC and its Subsidiaries is in material
compliance with all applicable Environmental Laws, except for such
non-compliance as could not, individually or in the aggregate reasonably be
expected to have a Material Adverse Effect on HCRC, and, to the best knowledge
of HCRC, there are no circumstances that are reasonably likely to materially
prevent or interfere with such compliance in the next three years, and (ii)
neither HCRC nor any of its Subsidiaries has received written notice of or, to
the best knowledge of HCRC, is the subject of, any actions, causes of action,
claims, investigations, demands, notices, requests for information, complaints,
suits or proceedings by any Person alleging liability under or non-compliance
with any Environmental Law that are reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on HCRC.
(o) Revenues; Expenses. HCRC has not made any transfer or
conveyance, entered into any contract or agreement, or taken any action that has
caused, or will cause, it to be entitled to less than the net revenue interests,
or to be subject to more than the expense interests, set forth in the HCRC
Reserve Report that would constitute a Material Adverse Effect on HCRC, other
than as disclosed in the HCRC Reports.
(p) Operating Contracts. No party to any operating contract is
in dispute with any other party to such contract or is in breach or default with
respect to any of its obligations under such contract that would constitute a
Material Adverse Effect on HCRC, and there has not occurred any event, fact, or
circumstances that, with the lapse of time or giving of notice, or both, would
constitute a breach or default under such contract that would constitute a
Material Adverse Effect on HCRC.
(q) Production Data. HCRC has provided to representatives of
Hallwood Energy, HEP and HEPGP aggregate production data on the HCRC Specified
Properties and data on lease operating expenses incurred on the HCRC Specified
Properties. All of such data is accurate and complete as of the date provided.
Since the date of the HCRC Reserve Report, none of the HCRC Specified Properties
has experienced any reduction in the average rate of production of oil, gas, or
other substances as compared with the average for the period from January 1,
1998, through the date of the HCRC Reserve Report (except such as may be
occasioned by depletion due to normal operations) that would constitute a
Material Adverse Effect on HCRC.
(r) Ordinary Course Operations. Except as disclosed on
Schedule 6.2(r), since the date of the HCRC Reserve Report, HCRC has not
operated or in any manner dealt with, incurred obligations with respect to, or
undertaken any transactions relating to, the HCRC Specified Properties other
than in the ordinary course of business consistent with past practice and none
of the HCRC Specified Properties has suffered any material destruction, damage,
or loss (except depreciation of equipment through ordinary wear and tear) or
been subjected by HCRC to any mortgage, lien, encumbrance, claim, or security
interest that has not previously been disclosed to representatives of Hallwood
Energy or that would constitute a Material Adverse Effect on HCRC.
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<PAGE>
(s) Sale of Production. All contracts to which HCRC is or will
be, after giving effect to the HCRC Merger, a party, or to which the HCRC
Specified Properties are subject, with respect to the sale of production from
the HCRC Specified Properties have been made available by HCRC to Hallwood
Energy. Such contracts have not been amended in any material respect and remain
in full force and effect in accordance with their respective terms. There has
been no payment to HCRC, and no accrual of liability for payments under, such
contracts for production not yet taken by or delivered to the purchaser under
such contracts. Any imbalance that exists between HCRC and any other owner of an
interest in any of the HCRC Specified Properties with respect to the share of
hydrocarbons produced from a HCRC Specified Property, since the date of first
production, for the account of HCRC and such other owners when compared to the
net revenue interest of HCRC and such other owners in any such property has been
disclosed to Hallwood Energy in writing.
6.3 Representations and Warranties of HEPGP. HEPGP hereby represents
and warrants to Hallwood Energy, HEP and HCRC that:
(a) Organization and Qualification. Each of HEPGP and its
Subsidiaries is a corporation or partnership, as applicable, duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation or organization and is qualified to do business
and in good standing as a foreign corporation or partnership, as applicable, in
each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except for where such
failure to so qualify or be in such good standing, which, when taken together
with all other such failures, could not reasonably be expected to have a
Material Adverse Effect on HEPGP. Each of HEPGP and its Subsidiaries has the
requisite corporate power and authority to carry on its respective businesses as
they are now being conducted, except where the failure to have such power or
authority could not reasonably be expected to have a Material Adverse Effect on
HEPGP.
(b) Authority. HEPGP has the requisite partnership power and
authority and has taken all partnership action necessary to execute and deliver
this Agreement and, subject only to approval of this Agreement by the holders of
a majority of each class of the outstanding partnership interest, to consummate
the transactions contemplated hereby. This Agreement is a valid and binding
agreement of HEPGP enforceable against HEPGP in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors rights and to general equitable principles.
(c) Governmental Filings; No Violations.
-----------------------------------
(i) Other than filings under the Act (the "HEPGP
Filings"), no notices, reports or other filings are required to be made by HEPGP
or any of its Subsidiaries with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by HEPGP or any of its
Subsidiaries from, any Governmental Entity, in connection with the execution and
delivery of this Agreement by HEPGP and the consummation by HEPGP of the
transactions contemplated hereby, the failure to make or obtain any or all of
which could reasonably be expected to have a Material Adverse Effect on HEPGP or
could prevent or materially delay the transactions contemplated by this
Agreement, and
(ii) The execution and delivery of this Agreement
by HEPGP do not, and the consummation by HEPGP of the transactions contemplated
by this Agreement will not, constitute or result in (A) a breach or violation
of, or a default under the partnership agreement of HEPGP or the comparable
governing instruments of any of its Subsidiaries, (B) except as provided in
Schedule 6.3(c), a breach or violation of, a default under or the triggering of
any payment or other material obligations pursuant to, any of HEPGP's existing
employee benefit plans or any grant or award made under any of the foregoing,
(C) except as provided in Schedule 6.3(c), a breach or violation of, or a
default under, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of notice or
the lapse of time) pursuant to, any provision of any Contracts of HEPGP or any
of its Subsidiaries or any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or non-governmental permit or license to
which HEPGP or any of its Subsidiaries is subject or (D) any change in the
rights or obligations of any party under any of the Contracts, except, in the
case of clause (C) or (D) above, for those items provided in Schedule 6.3(c) and
such breaches, violations, defaults, accelerations or changes that, alone or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect on HEPGP or that could not prevent or materially delay the transactions
16
<PAGE>
contemplated by this Agreement. Schedule 6.3(c) sets forth, to the best
knowledge of the officers of the general partner of HEPGP, a list of any
consents required under any Contracts to be obtained prior to consummation of
the transactions contemplated by this Agreement (whether or not subject to the
exception set forth with respect to clause (C) above). HEPGP will use its best
efforts to obtain the consents referred to on Schedule 6.3(c).
(d) Partnership Reports; Financial Statements. HEPGP has made
available to representatives of Hallwood Energy, HEP and HCRC each schedule,
report, proxy statement or information statement prepared by it since December
31, 1997 and delivered to its general and limited partners (the "HEPGP Balance
Sheet Date"), including, without limitation, (i) HEPGP's unaudited financial
statements for the year ended December 31, 1997 and (ii) HEPGP's unaudited
financial statements for the periods ended March 31, 1998, June 30, 1998, and
September 30, 1998 each in the form (including exhibits and any amendments
thereto) delivered to HEPGP's general or limited partners (collectively, the
"HEPGP Reports"). As of their respective dates, the HEPGP Reports did not, and
any HEPGP Reports delivered to HEPGP's general or limited partners subsequent to
the date hereof will not, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances in which they were
made, not misleading. Each of the consolidated balance sheets included in the
HEPGP Reports (including the related notes and schedules) fairly presents the
consolidated financial position of HEPGP and its Subsidiaries as of its date and
each of the consolidated statements of income and of changes in financial
position included in the HEPGP Reports (including any related notes and
schedules) fairly presents the results of operations, earnings and changes in
financial position, as the case may be, of HEPGP and its Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
normal year-end adjustments that will not be material in amount or effect), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein. Other than the HEPGP Reports, HEPGP has not filed any other reports or
statements with the SEC since the HEPGP Balance Sheet Date.
(e) Absence of Certain Changes. Except as disclosed in the
HEPGP Reports delivered to HEPGP's general or limited partners prior to the date
hereof, since the HEPGP Balance Sheet Date, HEPGP and its Subsidiaries have
conducted their respective businesses only in, and have not engaged in any
material transaction other than according to, the ordinary and usual course of
such businesses and there has not been: (i) any material adverse change
(including, without limitation, any change arising out of or related to any
natural disaster) in the condition (financial or otherwise), properties, assets,
liabilities, business or results of operations of HEPGP or any of its
Subsidiaries or any development or combination of developments of which HEPGP or
any of its Subsidiaries has knowledge which is reasonably likely to result in
any such change; (ii) any declaration, setting aside or payment of any dividend
or other distribution with respect to the equity interests of HEPGP, other than
in the ordinary course of business consistent with past practice; or (iii) any
change by HEPGP in accounting principles, practices or methods.
(f) Compliance with Laws. Since December 31, 1997, the
businesses of HEPGP and its Subsidiaries have not and are not being conducted in
violation of, nor were they conducted in violation of, any law, ordinance or
regulation of any Governmental Entity (provided that no representation or
warranty is made in this section with respect to Environmental Laws (as defined
herein)), except as disclosed in any of the HEPGP Reports and except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect on HEPGP.
(g) Brokers and Finders. Neither HEPGP nor any of its
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders fees in connection
with the transactions contemplated herein, except that Prudential Securities
Incorporated (the "HEPGP Financial Advisor") has been employed as financial
advisor to the Board of Directors of Hallwood Group, on behalf of HEPGP, and the
arrangements with the HEPGP Financial Advisor have been disclosed in writing to
Hallwood Energy prior to the date hereof.
(h) Litigation. As of the date of this Agreement, except as
disclosed in any of the HEPGP Reports, there is no (i) class action litigation
pending or, to the best knowledge of HEPGP, threatened against or affecting
HEPGP or any of its Subsidiaries, (ii) other suit, action or proceeding pending
(or any known basis therefor) or, to the best knowledge of HEPGP, threatened
against or affecting HEPGP or any of its Subsidiaries or
17
<PAGE>
any of their respective properties that could reasonably be expected to have a
Material Adverse Effect on HEPGP or that in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the Asset Contribution or any of the
other transactions contemplated hereby, or (iii) judgment, decree, injunction,
rule or order of any court, Governmental Entity or arbitrator outstanding
against HEPGP or any of its Subsidiaries, which if determined adversely to
HEPGP, is reasonably likely to have a Material Adverse Effect on HEPGP or that
in any manner challenges or seeks to prevent, enjoin, alter or materially delay
the Asset Contribution or any of the other transactions contemplated hereby.
(i) Permits. HEPGP and its Subsidiaries have such Permits as
are necessary to own, lease or operate their properties and to conduct their
businesses in the manner described in the HEPGP Reports and as currently owned
or leased and conducted, and all such Permits are valid and in full force and
effect, except for such Permits the failure of which to have or to be in full
force and effect, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on HEPGP. Neither HEPGP nor any of
its Subsidiaries has received any written notice that any violations are being
or have been alleged in respect of any such Permit and no proceeding is pending
or, to the best of HEPGP's knowledge, after due inquiry, threatened, to suspend,
revoke or limit any such Permit. To the best of HEPGP's knowledge, after due
inquiry, HEPGP and its Subsidiaries are in compliance in all material respects
with their respective obligations under such Permits, with such exceptions as
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect on HEPGP, and no event has occurred that allows, or
after notice or lapse of time would allow, revocation, suspension, limitation or
termination of such Permits, except such events as could not reasonably be
expected to have a Material Adverse Effect on HEPGP.
(j) Reserve Report. With respect to the reserve report dated
July 1, 1998 (the "HEPGP Reserve Report"), relating to certain of HEPGP's oil
and gas properties, a copy of which has been delivered to representatives of
Hallwood Energy, HEP and HCRC (i) the information furnished by HEPGP to the
reserve engineers in connection with the preparation of the HEPGP Reserve Report
was true and correct in all material respects; (ii) the estimates of proved
reserves of oil and natural gas set forth in the HEPGP Reserve Report are
reasonable at the date of the HEPGP Reserve Report in light of the properties
involved; (iii) the calculations and other methodology utilized in the
preparation of the HEPGP Reserve Report are consistent with generally accepted
standards of petroleum reservoir engineering; (iv) the estimates of proved
reserves of oil and natural gas set forth in the HEPGP Reserve Report are
reasonable under the assumptions utilized in the HEPGP Reserve Report; and (v)
the information used in connection with the preparation of the HEPGP Reserve
Report was true and correct in all material respects as of July 1, 1998, and no
new information has come to the attention of HEPGP that would result in a
material change to the estimated reserves of HEPGP as of July 1, 1998.
Williamson Petroleum Consultants ("Williamson") which are independent
engineering consultants have reviewed properties containing approximately 80% in
value of the reserves reported in the HEPGP Reserve Report (the "HEPGP Specified
Properties"). A copy of Williamson's report regarding their review has been
provided to Hallwood Energy.
(k) Physical Condition of Facilities. The surface physical
facilities on the HEPGP Specified Properties have been maintained in accordance
with normal industry maintenance practices and are in a state of repair (normal
wear and tear excepted) that HEPGP believes to be adequate for the normal use of
such facilities in the ordinary conduct of the business of HEPGP. Without
limiting the foregoing, but subject to ordinary wear and tear, such facilities
are not in need of maintenance or improvements except for maintenance and
improvements in the ordinary course in accordance with normal industry practice.
(l) Environmental Matters. Except as previously described in
the HEPGP Reports, (i) each of HEPGP and its Subsidiaries is in material
compliance with all applicable Environmental Laws, except for such
non-compliance as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on HEPGP, and, to the best knowledge
of HEPGP, there are no circumstances that are reasonably likely to materially
prevent or interfere with such compliance in the next three years, and (ii)
neither HEPGP nor any of its Subsidiaries has received written notice of or, to
the best knowledge of HEPGP, is the subject of, any actions, causes of action,
claims, investigations, demands, notices, requests for information, complaints,
suits or proceedings by any Person alleging liability under or non-compliance
with any Environmental Law that are reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on HEPGP.
18
<PAGE>
(m) Revenues; Expenses. HEPGP has not made any transfer or
conveyance, entered into any contract or agreement, or taken any action that has
caused, or will cause, it to be entitled to less than the net revenue interests,
or to be subject to more than the expense interests, set forth in the HEPGP
Reserve Report that would constitute a Material Adverse Effect on HEPGP, other
than as disclosed in the HEPGP Reports.
(n) Operating Contracts. No party to any operating contract is
in dispute with any other party to such contract or is in breach or default with
respect to any of its obligations under such contract that would constitute a
Material Adverse Effect on HEPGP, and there has not occurred any event, fact, or
circumstances that, with the lapse of time or giving of notice, or both, would
constitute a breach or default under such contract that would constitute a
Material Adverse Effect on HEPGP.
(o) Production Data. HEPGP has provided to representatives of
Hallwood Energy, HEP and HCRC aggregate production data on the HEPGP Specified
Properties and data on lease operating expenses incurred on the HEPGP Specified
Properties. All of such data is accurate and complete as of the date provided.
Since the date of the HEPGP Reserve Report, none of the HEPGP Specified
Properties has experienced any reduction in the average rate of production of
oil, gas, or other substances as compared with the average for the period from
January 1, 1998, through the date of the HEPGP Reserve Report (except such as
may be occasioned by depletion due to normal operations) that would constitute a
Material Adverse Effect on HEPGP.
(p) Ordinary Course Operations. Since the date of the HEPGP
Reserve Report, HEPGP has not operated or in any manner dealt with, incurred
obligations with respect to, or undertaken any transactions relating to, the
HEPGP Specified Properties other than in the ordinary course of business
consistent with past practice and none of the HEPGP Specified Properties has
suffered any material destruction, damage, or loss (except depreciation of
equipment through ordinary wear and tear) or been subjected by HEPGP to any
mortgage, lien, encumbrance, claim, or security interest that has not previously
been disclosed to representatives of Hallwood Energy or that would constitute a
Material Adverse Effect on HEPGP.
(q) Sale of Production. All contracts to which the HEPGP
Specified Properties are subject, with respect to the sale of production from
the HEPGP Specified Properties have been made available by HEPGP to Hallwood
Energy. Such contracts have not been amended in any material respect and remain
in full force and effect in accordance with their respective terms. There has
been no payment to HEPGP, and no accrual of liability for payments under, such
contracts for production not yet taken by or delivered to the purchaser under
such contracts. Any imbalance that exists between HEPGP and any other owner of
an interest in any of the HEPGP Specified Properties with respect to the share
of hydrocarbons produced from a HEPGP Specified Property, since the date of
first production, for the account of HEPGP and such other owners when compared
to the net revenue interest of HEPGP and such other owners in any such property
has been disclosed to Hallwood Energy in writing.
(r) Contributed Assets. HEPGP is, or on or prior to the
Effective Time will be, the true and lawful owner of the Contributed Assets with
sufficient title to transfer the Contributed Assets to Hallwood Energy pursuant
to the terms of this Agreement.
6.4 Representations and Warranties of Hallwood Energy, HEC Acqui-
sition Partnership and HEC Acquisition Corp. Hallwood Energy, HEC Acquisition
Partnership and HEC Acquisition Corp. represent and warrant to HEP that:
(a) Organization and Qualification. Hallwood Energy and HEC
Acquisition Corp. are corporations duly organized, validly existing and in good
standing under the laws of Delaware. HEC Acquisition Partnership is a limited
partnership duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Hallwood Energy and HEC Acquisition Corp.
are in good standing as foreign corporations and HEC Acquisition Partnership is
in good standing as a foreign partnership in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by them require
such qualification, except for where such failure to so qualify or to be in such
good standing, which, when taken together with all other such failures, could
not reasonably be expected to have a Material Adverse Effect on Hallwood Energy.
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(b) Authorized Capital. The total number of authorized shares
of Hallwood Energy consists of 30,000,000 shares, of which 25,000,000 shares are
common stock, par value $0.01 per share, of which 100 are issued and
outstanding, and 5,000,000 shares are preferred stock, par value $0.01 per
share, of which 2,750,000 will be designated as Series A Redeemable Preferred
Stock, of which none are issued and outstanding. All of the outstanding shares
of Hallwood Energy Common Stock and Hallwood Energy Preferred Stock have been
duly authorized and are validly issued, fully paid, and nonassessable. All of
the partnership interests of HEC Acquisition Partnership have been duly
authorized and are validly issued, fully paid and nonassessable (subject to the
obligation of a limited partner to repay the amount of any distribution wrongly
received from HEC Acquisition Partnership for a period of three years from the
date of the distribution). Each of the outstanding shares of capital stock or
partnership interests, as applicable, of each of Hallwood Energy's Subsidiaries,
including HEC Acquisition Corp., is duly authorized, validly issued, fully paid
and nonassessable and owned, either directly or indirectly, by Hallwood Energy
free and clear of all liens, pledges, security interests, claims or other
encumbrances. Except as set forth above, there are no shares of Hallwood Energy
Common Stock, Hallwood Energy Preferred Stock or partnership interests of HEC
Acquisition Partnership authorized, issued or outstanding and there are no
preemptive rights nor any outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of Hallwood
Energy, HEC Acquisition Partnership or any of Hallwood Energy's Subsidiaries.
(c) Authority. Each of Hallwood Energy, HEC Acquisition Corp.
and HEC Acquisition Partnership has the requisite corporate or partnership power
and authority and has taken all corporate or partnership action necessary in
order to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and binding agreement of Hallwood
Energy, HEC Acquisition Corp. and HEC Acquisition Partnership enforceable
against Hallwood Energy, HEC Acquisition Corp. and HEC Acquisition Partnership,
as applicable, in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors rights and to general equitable
principles.
(d) Governmental Filings; No Violations.
-----------------------------------
(i) Other than the filing of a certificate of
merger under DRULPA, filings under the Act and filings required to be made
pursuant to the Securities and Exchange Act of 1934, as amended (together, the
"Hallwood Energy Regulatory Filings"), no notices, reports or other filings are
required to be made by Hallwood Energy, HEC Acquisition Corp. or HEC Acquisition
Partnership with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Hallwood Energy, HEC Acquisition Corp.
or HEC Acquisition Partnership from, any Governmental Entity in connection with
the execution and delivery of this Agreement by Hallwood Energy, HEC Acquisition
Corp. or HEC Acquisition Partnership and the consummation of the transactions
contemplated hereby by Hallwood Energy, HEC Acquisition Corp. or HEC Acquisition
Partnership, the failure to make or obtain any or all of which could reasonably
be expected to have a Material Adverse Effect on Hallwood Energy or could
prevent or materially delay the transactions contemplated by this Agreement, and
(ii) The execution and delivery of this Agreement by
Hallwood Energy, HEC Acquisition Corp. and HEC Acquisition Partnership do not,
and the consummation by Hallwood Energy, HEC Acquisition Corp. and HEC
Acquisition Partnership of the transactions contemplated by this Agreement will
not, constitute or result in (A) a breach or violation of, or a default under
the Certificate of Incorporation or Bylaws of Hallwood Energy or the partnership
agreement of HEC Acquisition Partnership or the comparable governing instruments
of any of Hallwood Energy's Subsidiaries, (B) except as provided in Schedule
6.4(d), a breach or violation of, a default under or the triggering of any
payment or other material obligations pursuant to, any of Hallwood Energy's
existing employee benefit plans or any grant or award made under any of the
foregoing, (C) a breach or violation of, or a default under, the acceleration of
or the creation of a lien, pledge, security interest or other encumbrance on
assets (with or without the giving of notice or the lapse of time) pursuant to
any Contracts of Hallwood Energy, HEC Acquisition Partnership or any of Hallwood
Energy's Subsidiaries or any law, rule, ordinance or regulation or judgment,
decree, order, award or governmental or non-governmental permit or license to
which Hallwood Energy, HEC Acquisition Partnership or any of Hallwood Energy's
Subsidiaries is subject or (D) any change in the rights or obligations of any
party under any of the Contracts, except, in the case of clause
20
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(C) or (D) above, for such breaches, violations, defaults, accelerations or
changes that, alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Hallwood Energy or that could not prevent or
materially delay the transactions contemplated by this Agreement.
(e) Financial Statements. Hallwood Energy has made available
to HEP the balance sheet of Hallwood Energy as of December ___, 1998 (the
"Hallwood Energy Balance Sheet"). The Hallwood Energy Balance Sheet fairly
presents the consolidated financial position of Hallwood Energy and its
Subsidiaries as of its date and has been prepared in accordance with generally
accepted accounting principles (subject to normal year end adjustments that will
not be material in amount or effect), except as may be noted therein.
(f) Absence of Certain Changes. Since the date of the Hallwood
Energy Balance Sheet (the "Hallwood Energy Balance Sheet Date"), none of
Hallwood Energy, HEC Acquisition Partnership and Hallwood Energy's Subsidiaries
have conducted any business other than entering into this Agreement and actions
contemplated by this Agreement. There has not been: (i) any material adverse
change (including, without limitation, any change arising out of or related to
any natural disaster) in the condition (financial or otherwise), properties,
assets, liabilities, business or results of operations of Hallwood Energy, HEC
Acquisition Corp. or any of Hallwood Energy's Subsidiaries or any development or
combination of developments of which Hallwood Energy, HEC Acquisition Corp. or
any of Hallwood Energy's Subsidiaries has knowledge which is reasonably likely
to result in any such change; (ii) any declaration, setting aside or payment of
any dividend or other distribution with respect to the capital stock of Hallwood
Energy or the partnership interests of HEC Acquisition Partnership; or (iii) any
change by Hallwood Energy in accounting principles, practices or methods.
(g) Compliance with Laws. Since December 31, 1997, the
businesses of Hallwood Energy, HEC Acquisition Partnership and Hallwood Energy's
Subsidiaries have not and are not being conducted in violation of, nor were they
conducted in violation of, any law, ordinance or regulation of any Governmental
Entity (provided that no representation or warranty is made in this section with
respect to Environmental Laws), except as disclosed in any of the Hallwood
Energy Regulatory Filings and except for such violations as would not,
individually or in the aggregate, have a Material Adverse Effect on Hallwood
Energy.
(h) Brokers and Finders. Neither Hallwood Energy, HEC
Acquisition Partnership nor any of their officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the transactions contemplated
herein.
(i) Litigation. As of the date of this Agreement, except as
disclosed in any of the Hallwood Energy Regulatory Filings, there is no (i)
class action litigation pending or, to the best knowledge of Hallwood Energy and
any Hallwood Energy Subsidiary, threatened against or affecting the forenamed
parties, (ii) other suit, action or proceeding pending (or any known basis
therefor) or, to the best knowledge of Hallwood Energy and any Hallwood Energy
Subsidiary, threatened against or affecting the forenamed parties or any of
their respective properties that could reasonably be expected to have a Material
Adverse Effect on Hallwood Energy or any Hallwood Energy Subsidiary or that in
any manner challenges or seeks to prevent, enjoin, alter or materially delay the
HEP Merger or any of the other transactions contemplated hereby, or (iii)
judgment, decree, injunction, rule or order of any court, Governmental Entity or
arbitrator outstanding against Hallwood Energy or any Hallwood Energy Subsidiary
if determined adversely to Hallwood Energy or any Hallwood Energy Subsidiary
that is reasonably likely to have a Material Adverse Effect on Hallwood Energy
or that in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the HEP Merger or any of the other transactions contemplated
hereby.
6.5 Representations and Warranties of Hallwood Energy and HCRC
Acquisition Corp. Hallwood Energy and HCRC Acquisition Corp. represent and
warrant to HCRC that:
(a) Organization and Qualification. Hallwood Energy and HCRC
Acquisition Corp. are corporations duly organized, validly existing and in good
standing under the laws of Delaware. Hallwood Energy and HCRC Acquisition Corp.
are in good standing as foreign corporations in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by them require
such qualification, except for where such failure to so qualify or to be in such
good standing, which, when taken together with all other such failures, could
not reasonably be expected to have a Material Adverse Effect on Hallwood Energy.
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<PAGE>
(b) Authorized Capital. The total number of authorized shares
of Hallwood Energy consists of 30,000,000 shares, of which 25,000,000 shares are
common stock, par value $0.01 per share, of which 100 are issued and
outstanding, and 5,000,000 shares are preferred stock, par value $0.01 per
share, of which 2,750,000 will be designated as Series A Redeemable Preferred
Stock, of which none are issued and outstanding. All of the outstanding shares
of Hallwood Energy Common Stock and Hallwood Energy Preferred Stock have been
duly authorized and are validly issued, fully paid, and nonassessable. Each of
the outstanding shares of capital stock or partnership interests, as applicable,
of each of Hallwood Energy's Subsidiaries, including HCRC Acquisition Corp., is
duly authorized, validly issued, fully paid and nonassessable and owned, either
directly or indirectly, by Hallwood Energy free and clear of all liens, pledges,
security interests, claims or other encumbrances. Except as set forth above,
there are no shares of Hallwood Energy Common Stock or Hallwood Energy Preferred
Stock authorized, issued or outstanding and there are no preemptive rights nor
any outstanding subscriptions, options, warrants, rights, convertible securities
or other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of Hallwood Energy or any of Hallwood
Energy's Subsidiaries.
(c) Authority. Each of Hallwood Energy and HCRC Acquisition
Corp. has the requisite corporate power and authority and has taken all
corporate action necessary in order to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement is a valid and
binding agreement of Hallwood Energy and HCRC Acquisition Corp. enforceable
against Hallwood Energy and HCRC Acquisition Corp., as applicable, in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors rights and to general equitable principles.
(d) Governmental Filings; No Violations.
-----------------------------------
(i) Other than the filings of a certificate of
merger under the DGCL and the Hallwood Energy Regulatory Filings, no notices,
reports or other filings are required to be made by Hallwood Energy or HCRC
Acquisition Corp. with, nor are any consents, registrations, approvals, permits
or authorizations required to be obtained by Hallwood Energy or HCRC Acquisition
Corp. from, any Governmental Entity in connection with the execution and
delivery of this Agreement by Hallwood Energy or HCRC Acquisition Corp. and the
consummation of the transactions contemplated hereby by Hallwood Energy or HCRC
Acquisition Corp., the failure to make or obtain any or all of which could
reasonably be expected to have a Material Adverse Effect on Hallwood Energy or
could prevent or materially delay the transactions contemplated by this
Agreement, and
(ii) The execution and delivery of this Agreement by
Hallwood Energy and HCRC Acquisition Corp. do not, and the consummation by
Hallwood Energy and HCRC Acquisition Corp. of the transactions contemplated by
this Agreement will not, constitute or result in (A) a breach or violation of,
or a default under the Certificate of Incorporation or Bylaws of Hallwood Energy
or the comparable governing instruments of any of Hallwood Energy's
Subsidiaries, (B) except as provided in Schedule 6.5(d), a breach or violation
of, a default under or the triggering of any payment or other material
obligations pursuant to, any of Hallwood Energy's existing employee benefit
plans or any grant or award made under any of the foregoing, (C) a breach or
violation of, or a default under, the acceleration of or the creation of a lien,
pledge, security interest or other encumbrance on assets (with or without the
giving of notice or the lapse of time) pursuant to any Contracts of Hallwood
Energy or any of Hallwood Energy's Subsidiaries or any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or non-governmental
permit or license to which Hallwood Energy or any of Hallwood Energy's
Subsidiaries is subject or (D) any change in the rights or obligations of any
party under any of the Contracts, except, in the case of clause (C) or (D)
above, for such breaches, violations, defaults, accelerations or changes that,
alone or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect on Hallwood Energy or that could not prevent or materially delay
the transactions contemplated by this Agreement.
(e) Financial Statements. Hallwood Energy has made available
to HCRC the Hallwood Energy Balance Sheet. The Hallwood Energy Balance Sheet
fairly presents the consolidated financial position of Hallwood Energy and its
Subsidiaries as of its date and has been prepared in accordance with generally
22
<PAGE>
accepted accounting principles (subject to normal year end adjustments that will
not be material in amount or effect), except as may be noted therein.
(f) Absence of Certain Changes. Since the Hallwood Energy
Balance Sheet Date, none of Hallwood Energy and Hallwood Energy's Subsidiaries
have conducted any business other than entering into this Agreement and actions
contemplated by this Agreement. There has not been: (i) any material adverse
change (including, without limitation, any change arising out of or related to
any natural disaster) in the condition (financial or otherwise), properties,
assets, liabilities, business or results of operations of Hallwood Energy, HCRC
Acquisition Corp. or any of Hallwood Energy's Subsidiaries or any development or
combination of developments of which Hallwood Energy, HCRC Acquisition Corp. or
any of Hallwood Energy's Subsidiaries has knowledge which is reasonably likely
to result in any such change; (ii) any declaration, setting aside or payment of
any dividend or other distribution with respect to the capital stock of Hallwood
Energy; or (iii) any change by Hallwood Energy in accounting principles,
practices or methods.
(g) Compliance with Laws. Since December 31, 1997, the
businesses of Hallwood Energy and Hallwood Energy's Subsidiaries have not and
are not being conducted in violation of, nor were they conducted in violation
of, any law, ordinance or regulation or any Governmental Entity (provided that
no representation or warranty is made in this section with respect to
Environmental Laws), except as disclosed in any of the Hallwood Energy
Regulatory Filings and except for such violations as would not, individually or
in the aggregate, have a Material Adverse Effect on Hallwood Energy.
(h) Brokers and Finders. Neither Hallwood Energy, HCRC
Acquisition Corp. nor any of their officers, directors or employees has employed
any broker or finder or incurred any liability for any brokerage fees,
commissions or finders fees in connection with the transactions contemplated
herein.
(i) Litigation. As of the date of this Agreement, except as
disclosed in any of the Hallwood Energy Regulatory Filings, there is no (i)
class action litigation pending or, to the best knowledge of Hallwood Energy and
any Hallwood Energy Subsidiary, threatened against or affecting the forenamed
parties, (ii) other suit, action or proceeding pending (or any known basis
therefor) or, to the best knowledge of Hallwood Energy and any Hallwood Energy
Subsidiary, threatened against or affecting the forenamed parties or any of
their respective properties that could reasonably be expected to have a Material
Adverse Effect on Hallwood Energy or that in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the HCRC Merger or any of the other
transactions contemplated hereby, or (iii) judgment, decree, injunction, rule or
order of any court, Governmental Entity or arbitrator outstanding against
Hallwood Energy or any Hallwood Energy Subsidiary if determined adversely to
Hallwood Energy or any Hallwood Energy Subsidiary that is reasonably likely to
have a Material Adverse Effect on Hallwood Energy or that in any manner
challenges or seeks to prevent, enjoin, alter or materially delay the HCRC
Merger or any of the other transactions contemplated hereby.
6.6 Representations and Warranties of Hallwood Energy. Hallwood
Energy represents and warrants to HEPGP that:
(a) Organization and Qualification. Hallwood Energy is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware. Hallwood Energy is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification, except for where such
failure to so qualify or to be in such good standing, which, when taken together
with all other such failures, could not reasonably be expected to have a
Material Adverse Effect on Hallwood Energy.
(b) Authorized Capital. The total number of authorized shares
of Hallwood Energy consists of 30,000,000 shares, of which 25,000,000 shares are
common stock, par value $0.01 per share, of which 100 are issued and
outstanding, and 5,000,000 shares are preferred stock, par value $0.01 per
share, of which 2,750,000 will be designated as Series A Redeemable Preferred
Stock, of which none are issued and outstanding. All of the outstanding shares
of Hallwood Energy Common Stock and Hallwood Energy Preferred Stock have been
duly authorized and are validly issued, fully paid, and nonassessable. Each of
the outstanding shares of capital stock or partnership interests, as applicable,
of each of Hallwood Energy's Subsidiaries is duly authorized, validly issued,
23
<PAGE>
fully paid and nonassessable and owned, either directly or indirectly, by
Hallwood Energy free and clear of all liens, pledges, security interests, claims
or other encumbrances. Except as set forth above, there are no shares of
Hallwood Energy Common Stock or Hallwood Energy Preferred Stock authorized,
issued or outstanding and there are no preemptive rights nor any outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of Hallwood Energy or any of Hallwood Energy's
Subsidiaries.
(c) Authority. Hallwood Energy has the requisite corporate
power and authority and has taken all corporate action necessary in order to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and binding agreement of Hallwood
Energy enforceable against Hallwood Energy in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors rights
and to general equitable principles.
(d) Governmental Filings; No Violations.
-----------------------------------
(i)Other than the Hallwood Energy Regulatory Filings,
no notices, reports or other filings are required to be made by Hallwood Energy
with, nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by Hallwood Energy from, any Governmental Entity in
connection with the execution and delivery of this Agreement by Hallwood Energy
and the consummation of the transactions contemplated hereby by Hallwood Energy
the failure to make or obtain any or all of which could reasonably be expected
to have a Material Adverse Effect on Hallwood Energy or could prevent or
materially delay the transactions contemplated by this Agreement, and
(ii) The execution and delivery of this Agreement by
Hallwood Energy do not, and the consummation by Hallwood Energy of the
transactions contemplated by this Agreement will not, constitute or result in
(A) a breach or violation of, or a default under the Certificate of
Incorporation or Bylaws of Hallwood Energy or the comparable governing
instruments of any of Hallwood Energy's Subsidiaries, (B) except as provided in
Schedule 6.6(d), a breach or violation of, a default under or the triggering of
any payment or other material obligations pursuant to, any of Hallwood Energy's
existing employee benefit plans or any grant or award made under any of the
foregoing, (C) a breach or violation of, or a default under, the acceleration of
or the creation of a lien, pledge, security interest or other encumbrance on
assets (with or without the giving of notice or the lapse of time) pursuant to
any Contracts of Hallwood Energy or any of Hallwood Energy's Subsidiaries or any
law, rule, ordinance or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which Hallwood Energy or
any of Hallwood Energy's Subsidiaries is subject or (D) any change in the rights
or obligations of any party under any of the Contracts, except, in the case of
clause (C) or (D) above, for such breaches, violations, defaults, accelerations
or changes that, alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Hallwood Energy or that could not prevent or
materially delay the transactions contemplated by this Agreement.
(e) Financial Statements. Hallwood Energy has made available
to HEPGP the Hallwood Energy Balance Sheet. The Hallwood Energy Balance Sheet
fairly presents the consolidated financial position of Hallwood Energy and its
Subsidiaries as of its date and has been prepared in accordance with generally
accepted accounting principles (subject to normal year end adjustments that will
not be material in amount or effect), except as may be noted therein.
(f) Absence of Certain Changes. Since the Hallwood Energy
Balance Sheet Date, none of Hallwood Energy and Hallwood Energy's Subsidiaries
have conducted any business other than entering into this Agreement and actions
contemplated by this Agreement. There has not been: (i) any material adverse
change (including, without limitation, any change arising out of or related to
any natural disaster) in the condition (financial or otherwise), properties,
assets, liabilities, business or results of operations of Hallwood Energy or any
of Hallwood Energy's Subsidiaries or any development or combination of
developments of which Hallwood Energy or any of Hallwood Energy's Subsidiaries
has knowledge which is reasonably likely to result in any such change; (ii) any
declaration, setting aside or payment of any dividend or other distribution with
respect to the
24
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capital stock of Hallwood Energy; or (iii) any change by Hallwood Energy in
accounting principles, practices or methods.
(g) Compliance with Laws. Since December 31, 1997, the
businesses of Hallwood Energy and Hallwood Energy's Subsidiaries have not and
are not being conducted in violation of, nor were they conducted in violation
of, any law, ordinance or regulation or any Governmental Entity (provided that
no representation or warranty is made in this section with respect to
Environmental Laws), except as disclosed in any of the Hallwood Energy
Regulatory Filings and except for such violations as would not, individually or
in the aggregate, have a Material Adverse Effect on Hallwood Energy.
(h) Brokers and Finders. Neither Hallwood Energy, nor any of
its officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders fees in
connection with the transactions contemplated herein.
(i) Litigation. As of the date of this Agreement, except as
disclosed in any of the Hallwood Energy Regulatory Filings, there is no (i)
class action litigation pending or, to the best knowledge of Hallwood Energy and
any Hallwood Energy Subsidiary, threatened against or affecting the forenamed
parties, (ii) other suit, action or proceeding pending (or any known basis
therefor) or, to the best knowledge of Hallwood Energy and any Hallwood Energy
Subsidiary, threatened against or affecting the forenamed parties or any of
their respective properties that could reasonably be expected to have a Material
Adverse Effect on Hallwood Energy or that in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the Asset Contribution or any of the
other transactions contemplated hereby, or (iii) judgment, decree, injunction,
rule or order of any court, Governmental Entity or arbitrator outstanding
against Hallwood Energy or any Hallwood Energy Subsidiary if determined
adversely to Hallwood Energy or any Hallwood Energy Subsidiary that is
reasonably likely to have a Material Adverse Effect on Hallwood Energy or that
in any manner challenges or seeks to prevent, enjoin, alter or materially delay
the Asset Contribution or any of the other transactions contemplated hereby.
ARTICLE VII
Covenants
7.1 Conduct of HEP's, HCRC's, Hallwood Energy's and HEPGP's Business
Pending Transactions. Prior to the Effective Time, except as contemplated by
this Agreement or with the written consent of the other parties hereto, each of
HEP, HEC Acquisition Partnership, HEC Acquisition Corp., HCRC, HCRC Acquisition
Corp., HEPGP and Hallwood Energy will:
(a) conduct its business only in the usual, regular and ordi-
nary course and in substantially the same manner as heretofore conducted;
(b) use reasonable efforts to preserve intact its business
organization and goodwill and keep available the services of its officers and
key employees;
(c) confer on a regular basis with one or more representatives
of the other parties to report material operational matters and any proposals to
engage in material transactions;
(d) promptly notify the other parties of any material
emergency or other material change in its business, financial condition, results
of operations or prospects;
(e) promptly deliver to the other party true and correct
copies of any report, statement or schedule filed with the SEC by such party
subsequent to the date of this Agreement;
(f) maintain its books and records in accordance with GAAP,
consistently applied, and not change in any material manner any of its methods,
principles or practices of accounting in effect at the applicable Audit Date or
Balance Sheet Date, except as may be required by applicable law or GAAP;
25
<PAGE>
(g) duly and timely file all reports, tax returns and other
documents required to be filed with federal, state, local and other authorities,
subject to extensions permitted by law;
(h) except as provided in Schedule 7.1(h), not (i) acquire
(other than pursuant to an existing agreement), sell, lease, enter into any
option to acquire, sell or lease, or exercise an option or contract to acquire,
sell or lease, additional real property having a value greater than $2,000,000,
(ii) make any loans, or advances to any other Person (as defined in Section
10.14), except loans or advances to employees in the ordinary course of business
not in excess of $25,000, (iii) incur additional indebtedness for borrowed money
other than under existing agreements or as permitted or contemplated by this
Agreement, or (iv) encumber or subject to any lien any of its properties or
assets, in any case having a value in excess of $1,000,000;
(i) except as provided in Schedule 7.1(i), not amend its
partnership agreement, articles or certificate of incorporation, bylaws or
comparable charter or organizational documents or the certificate or articles of
incorporation, bylaws, operating agreement, joint venture agreement or
comparable charter or organizational documents of any Subsidiary, without the
other parties' prior written consent, which consent will not be unreasonably
withheld, delayed or conditioned;
(j) not amend any material terms of any Contract of such party
in a manner adverse to the Surviving Partnership or the Surviving Corporation,
as applicable, in order to obtain the consent of the other party or parties to
such contract to any of the transactions contemplated by this Agreement without
obtaining the prior written consent of the other parties hereto, which consent
will not be unreasonably withheld, delayed or conditioned;
(k) make no change in the number of shares of capital stock,
membership interests or units of general or limited partnership interest issued
and outstanding, except pursuant to the exercise of outstanding options;
(l) grant no options or other right or commitment relating to
its capital stock, membership interests or units of general or limited
partnership interest or any security convertible into its capital stock,
membership interests or units of limited partnership interest, or any security
the value of which is measured by shares of capital stock, or any security
subordinated to the claim of its general creditors other than as contemplated by
this Agreement;
(m) not (i) authorize, declare, set aside or pay any dividend
or make any other distribution or payment with respect to any shares of its
capital stock or change such party's normal record date for the payment of any
permitted dividend or distribution, other than distributions of no more than
$0.52 per annum, payable quarterly, on the Class A Units and distributions of no
more than $1.00 per annum, payable quarterly, on the Class C Units, in the
ordinary course of business consistent with past practice, and (ii) directly or
indirectly redeem, purchase or otherwise acquire any shares of capital stock or
units of partnership interest or any option, warrant or right to acquire, or
security convertible into, shares of capital stock or units of partnership
interest, other than the conversion of the Units or options for the issuance of
Units or the conversion of the HCRC Shares or options for issuance of the HCRC
Shares pursuant to the terms of this Agreement;
(n) not adopt any new employee benefit plan or amend any
existing plans or rights, except for the adoption of a stock option plan
reserving for issuance approximately twelve percent (12%) of each class of the
shares of Hallwood Energy Common Stock and Hallwood Energy Preferred Stock
issued and outstanding immediately after the Effective Time, and for the
adoption of employee benefit plans and employee incentive plans substantially
similar to those of HEP, HCRC and HEPGP as of the date hereof and except for
changes that are required by law or changes which are not more favorable to
participants than provisions presently in effect;
(o) not settle any stockholder or unitholder derivative or
class action claims arising out of or in connection with any of the transactions
contemplated by this Agreement;
(p) not change the ownership of any of its Subsidiaries;
26
<PAGE>
(q) not take any action that would cause the HEP Merger, HCRC
Merger or the Asset Contribution, as applicable, not to qualify as tax-free
transactions under the Code;
(r) promptly notify the other parties of any action, suit,
proceeding, claim or audit pending against or with respect to such party or its
Subsidiaries in respect of any taxes where there is a reasonable possibility of
a determination or decision which would materially increase the tax liabilities
of such party, and not change any of the tax elections, accounting methods,
conventions or principles which relate to such party or its Subsidiaries that
could reasonably be expected to increase such party's liabilities; or
(s) continue to maintain and repair all of its assets and
properties in a manner consistent with past practices.
7.2 Other Actions. Each of HEP, HEC Acquisition Partnership, HEC
Acquisition Corp., HCRC, HCRC Acquisition Corp, HEPGP and Hallwood Energy will
not, and will use commercially reasonable efforts to cause its respective
Subsidiaries not to, take any action that would result in (a) any of the
representations and warranties of such party set forth in this Agreement
becoming untrue, or (b) any of the conditions to the HEP Merger, HCRC Merger or
the Asset Contribution, as applicable, set forth in Article VIII not being
satisfied.
7.3 Preparation of the Registration Statement and the Proxy Statement;
HEP Unitholders Meeting; HCRC Stockholders Meeting.
(a) As soon as practicable following the date of this
Agreement, HEP, HCRC, HEPGP and Hallwood Energy, will prepare and file with the
SEC a preliminary Joint Proxy Statement/Prospectus in form and substance
satisfactory to each of Hallwood Energy, HCRC, HEP and HEPGP and such other
registration statements, including a registration statement on Form S-4
(together with any supplements or amendments thereto, the "Registration
Statement"), as may be required to effect the Transactions. To the extent
practicable, the parties will utilize one document for transmittal to their
respective stockholders and unitholders to meet applicable legal requirements.
Each of HEP, HCRC, HEPGP and Hallwood Energy will use its reasonable best
efforts to (i) prepare and provide the other parties as promptly as practicable
the financial information required to be disclosed in the Joint Proxy
Statement/Prospectus, (ii) respond to any comments of the SEC, and (iii) have
the Registration Statement declared effective under the Act and the rules and
regulations promulgated thereunder as promptly as practicable after such filing
and to keep the Registration Statement effective as long as is necessary to
consummate the Transactions. Each of HEP, HCRC, HEPGP and Hallwood Energy will
use its reasonable best efforts to cause the Joint Proxy Statement/Prospectus to
be mailed to HEP's unitholders and HCRC's stockholders, as applicable, as
promptly as practicable after the Registration Statement is declared effective
under the Act. Each party will notify the others promptly of the receipt of any
comments from the SEC and of any request by the SEC for amendments or
supplements to the Registration Statement or the Joint Proxy
Statement/Prospectus or for additional information and will supply the others
with copies of all correspondence between such party or any of its
representatives and the SEC with respect to the Registration Statement or the
Joint Proxy Statement/Prospectus. The Registration Statement and the Joint Proxy
Statement/Prospectus will comply in all material respects with all applicable
requirements of law, including the filing of all appropriate exhibits. Whenever
any event occurs which is required to be set forth in an amendment or supplement
to the Registration Statement or the Joint Proxy Statement/Prospectus, as the
case may be, each party will promptly inform the others of such occurrences and
cooperate in filing with the SEC and/or mailing to the unitholders of HEP or
stockholders of HCRC, as applicable, such amendment or supplement to the
Registration Statement or the Joint Proxy Statement/Prospectus.
(b) None of the information supplied by any of HEP, HCRC,
HEPGP or Hallwood Energy for inclusion in the Registration Statement at the
respective times the Registration Statement or any amendments or supplements
thereto are filed with the SEC, will contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each of HEP, HCRC,
HEPGP and Hallwood Energy agrees to correct promptly any information in the
Registration Statement or Joint Proxy Statement/Prospectus if and to the extent
that such information shall have become false or misleading in any material
respect; and each of HEP, HCRC, HEPGP and Hallwood Energy further agrees to take
all steps necessary to cause the Joint Proxy
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Statement/Prospectus as so corrected to be filed with the SEC and disseminated
to the holders of Units and HCRC Shares, in each case as and to the extent
required by applicable federal securities laws.
(c) (i) HEP will, as soon as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of its
unitholders (the "HEP Meeting") for the purpose of obtaining the approval of the
HEP unitholders of the Transactions. HEP will, through the Hallwood G.P. Board
of Directors and the special committee of the Hallwood G.P. Board of Directors
(the "HEP Special Committee"), recommend to its unitholders adoption of this
Agreement; and (ii) if, on the date for the HEP Meeting, HEP has not received a
sufficient number of proxies to approve the adoption of this Agreement, then
HEP, to the extent permitted by law, will adjourn its meeting until the date on
which the requisite number of proxies approving the HEP Merger has been
obtained.
(d) (i) HCRC will, as soon as practicable following the date
of this Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "HCRC Meeting") for the purpose of obtaining the approval of
the HCRC stockholders of the Transactions. HCRC will, through its Board of
Directors and the special committee of the HCRC Board of Directors (the "HCRC
Special Committee"), recommend to its stockholders adoption of this Agreement;
and (ii) if, on the date for the HCRC Meeting, HCRC has not received a
sufficient number of proxies to approve the adoption of this Agreement, then
HCRC, to the extent permitted by law, will adjourn its meeting until the date on
which the requisite number of proxies approving the HCRC Merger has been
obtained.
7.4 Access to Information; Confidentiality. Subject to the requirements
of confidentiality agreements with third parties, each of HEP, HCRC, HEPGP and
Hallwood Energy will, and will cause each of its Subsidiaries to, afford to the
other parties and Hallwood G.P., and to the officers, employees, accountants,
counsel, financial advisors and other representatives of such other parties, and
Hallwood G.P., reasonable access during normal business hours prior to the
Effective Time to all their respective properties, books, Contracts,
commitments, personnel and records and, during such period, each of HEP, HCRC,
HEPGP and Hallwood Energy will, and will cause each of its Subsidiaries to,
furnish promptly to the other parties, and Hallwood G.P., (i) a copy of each
report, schedule, registration statement and other document filed by it during
such period pursuant to the requirements of federal or state securities laws and
(ii) all other information concerning its business, properties, Contracts and
personnel as such other parties, and Hallwood G.P., may reasonably request. Each
of HEP, HCRC, HEPGP and Hallwood Energy will, and will cause its Subsidiaries
to, and will use commercially reasonable efforts to cause its officers,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to, hold any nonpublic information in confidence.
7.5 Comfort Letters.
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(a) Hallwood Energy, HCRC and HEP shall each use its
reasonable best efforts to cause to be delivered to each other party "comfort"
letters of Deloitte & Touche LLP, their independent public accountants, dated on
or prior to the date on which the Joint Proxy Statement/Prospectus shall first
be mailed to the unitholders and shareholders, respectively, in a form
reasonably satisfactory to each and reasonably customary in scope and substance
for letters delivered by independent public accountants in connection with proxy
statements similar to the Joint Proxy Statement/Prospectus and transactions such
as those contemplated by this Agreement.
(b) Hallwood Energy, HCRC and HEP shall each use its
reasonable best efforts to cause to be delivered to each other party "comfort"
letters of Williamson Petroleum Consultants, their independent engineering
consultants, dated on or prior to the date on which the Joint Proxy
Statement/Prospectus shall first be mailed to the unitholders and shareholders,
respectively, in a form reasonably satisfactory to each and reasonably customary
in scope and substance for letters delivered by independent engineering
consultants in connection with proxy statements similar to the Joint Proxy
Statement/Prospectus and transactions such as those contemplated by this
Agreement.
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7.6 Consents; Notifications; Other Actions.
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(a) Subject to the terms and conditions herein provided, HEP,
HCRC, HEPGP and Hallwood Energy will (i) use all reasonable best efforts to
cooperate with one another in (A) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, Permits or
authorizations are required to be obtained prior to the Effective Time from, any
Governmental Entity and any third parties in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and (B) timely making all such filings and timely seeking all such
consents, approvals, Permits and authorizations, (ii) use all reasonable best
efforts to obtain in writing any consents required from third parties to
effectuate the HEP Merger, the HCRC Merger and the Asset Contribution, as
applicable, such consents to be in such form and substance as may be reasonably
satisfactory to Hallwood G.P., HCRC and Hallwood Energy, as applicable, and
(iii) use all reasonable best efforts to take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
this Agreement. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and directors of Hallwood G.P., HCRC and Hallwood Energy will take all
such necessary action.
(b) Each of HEP, HCRC, HEPGP and Hallwood Energy will give
prompt notice to the other (i) if any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becomes untrue
or inaccurate in any material respect or any such representation or warranty
that is not so qualified becomes untrue or inaccurate in any material respect or
(ii) of the failure by it to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification will affect the
representations, warranties or covenants of the parties or the conditions to the
obligations of the parties under this Agreement.
7.7 Tax Treatment. Each of HEP, HCRC, HEPGP and Hallwood Energy will
use its reasonable best efforts to cause the Transactions to qualify as tax-free
transactions under the Code and to obtain the opinions referred to in Sections
8.1(f).
7.8 Public Announcements. HEP, HCRC, HEPGP and Hallwood Energy will
consult with each other before issuing, and provide each other the opportunity
to review and comment upon, any press release or other written public statements
with respect to the transactions contemplated by this Agreement and will not
issue any such press release or make any such written public statement prior to
such consultation except to the extent it may be advised by counsel that it is
required by applicable law or legal process. The parties agree that the initial
press releases to be issued with respect to the transactions contemplated by
this Agreement will be in the form agreed to by the parties hereto prior to the
execution of this Agreement.
7.9 Listing. Prior to the Effective Time, Hallwood Energy will use its
best efforts to have The Nasdaq National Market approve for inclusion, upon
official notice of issuance, the Hallwood Energy Common Stock and the Hallwood
Energy Preferred Stock to be issued in the Transactions.
7.10 Affiliates; Etc. (a) Prior to the Closing Date, HEP will deliver
to Hallwood Energy a letter identifying all Persons who are, at the time this
Agreement is submitted for adoption by to the unitholders of HEP, "affiliates"
of HEP for purposes of Rule 145 under the Act. HEP will use reasonable efforts
to cause such Persons to deliver to Hallwood Energy on or prior to the Closing
Date a written agreement substantially in the form attached as Exhibit A. (b)
Prior to the Closing Date, HCRC will deliver to Hallwood Energy a letter
identifying all Persons who are, at the time this Agreement is submitted for
adoption by the stockholders of HCRC, "affiliates" of HCRC for purposes of Rule
145 under the Act. HCRC will use reasonable efforts to cause such Persons to
deliver to Hallwood Energy on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit A.
7.11 Filings; Other Action. Subject to the terms and conditions herein
provided, HEP, HCRC, HEPGP and Hallwood Energy shall: (a) promptly make their
respective Regulatory Filings and thereafter make any other required submissions
with respect to the Transactions; and (b) use their respective best efforts to
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take promptly, or cause to be taken promptly, all other actions and do, or cause
to be done, all other things necessary, proper or appropriate under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as soon as practicable.
7.12 Indemnification; Directors' and Officers Insurance.
(a) From and after the Effective Time, Hallwood Energy agrees
that it will indemnify and hold harmless (i) each present or former director
and/or officer of Hallwood G.P., HEP and HEP's Subsidiaries, determined as of
the Effective Time, (ii) each present or former director and/or officer of HCRC
and HCRC's Subsidiaries, determined as of the Effective Time, and (iii) each
present or former director and/or officer of HEPGP and HEPGP's Subsidiaries,
determined as of the Effective Time (collectively, the "Indemnified Parties"),
that is made a party or threatened to be made a party to any threatened, pending
or completed, action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she was a
director or officer of Hallwood G.P., HEPGP, any Subsidiary of HEP, HCRC or any
Subsidiary of HCRC prior to the Effective Time and arising out of actions or
omissions of the Indemnified Party in any such capacity occurring at or prior to
the Effective Time (a "Claim") against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, amounts paid in settlement
pursuant to this Section 7.12, losses, claims, damages or liabilities
(collectively, "Costs") reasonably incurred in connection with any Claim,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent that HEP, HCRC or HEPGP, as applicable, would have been permitted
under Delaware law. Hallwood Energy shall also advance expenses (including
attorneys' fees) as incurred by the Indemnified Party to the fullest extent
permitted under applicable law, provided such Indemnified Party provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification.
(b) Any Indemnified Party wishing to claim indemnification
under paragraph (a) of this Section 7.12, upon learning of any such Claim, shall
promptly notify Hallwood Energy thereof, but the failure to so notify shall not
relieve Hallwood Energy of any liability it may have to such Indemnified Party
if such failure does not materially prejudice Hallwood Energy. In the event of
any such Claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) Hallwood Energy shall have the right to
assume the defense thereof and Hallwood Energy shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Hallwood Energy elects not to assume such
defense or counsel or the Indemnified Parties advise Hallwood Energy that there
are issues which raise conflicts of interest between Hallwood Energy and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
them, and Hallwood Energy shall pay all reasonable fees and expenses of such
counsel (plus one firm or local counsel, if necessary) for the Indemnified
Parties promptly as statements therefor are received; provided, however, that
Hallwood Energy shall be obligated pursuant to this paragraph (b) to pay for
only one firm or counsel for all Indemnified Parties (plus one firm or local
counsel, if necessary) in any jurisdiction unless the use of one counsel for
such Indemnified Parties would present such counsel with a conflict of interest,
(ii) the Indemnified Parties will cooperate in the defense of any such matter
and (iii) Hallwood Energy shall not be liable for any settlement effected
without its prior written consent, which consent will not be unreasonably
withheld; and provided, further, however, that Hallwood Energy shall not have
any obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and non-appealable, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law. If such indemnity is not available with respect to any Indemnified Party,
then Hallwood Energy and the Indemnified Party shall contribute to the amount
payable in such proportion as is appropriate to reflect relative faults and
benefits, with any aspect of "fault" otherwise allocable to HEP, HCRC or HEPGP,
as applicable, being allocated to Hallwood Energy.
(c) If a claim for indemnification or advancement under this
Section 7.12 is not paid in full by Hallwood Energy within thirty (30) days
after a written claim therefor has been received by Hallwood Energy, the
Indemnified Party may any time thereafter bring suit against Hallwood Energy to
recover the unpaid amount of the claim and, if successful in whole or in part,
the Indemnified Party shall be entitled to be paid also the expense of
prosecuting such claims.
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(d) Neither the failure of Hallwood Energy (including its
Board of Directors, independent legal counsel or shareholders) to have made a
determination prior to the commencement of such suit that indemnification of the
Indemnified Party is proper in the circumstances because he or she has met the
applicable standard of conduct, nor an actual determination by Hallwood Energy
(including its Board of Directors, independent legal counsel or shareholders)
that the Indemnified Party has not met such applicable standard of conduct,
shall be a defense to the suit or create a presumption that the Indemnified
Party has not met the applicable standard of conduct.
(e) For a period of six years after the Effective Time,
Hallwood Energy shall maintain directors and officers liability insurance
equivalent to the average liability insurance currently applicable to the
directors and officers of Hallwood G.P., HEP, HEP's Subsidiaries, HCRC, HCRC's
Subsidiaries and HEPGP ("D&O Insurance"), which will provide coverage for those
persons who are directors and officers of HEP, HCRC or HEPGP as of the Effective
Time, so long as the annual premium therefor is not in excess of 150% of the
last average annual premium allocated to and paid by HEP, HCRC and HEPGP prior
to the date hereof (the "Current Premium"). If Hallwood Energy determines that
it is unable to maintain the existing or equivalent D&O Insurance that includes
coverage for those persons who are directors and officers of Hallwood G.P., HEP,
HEP's Subsidiaries, HCRC, HCRC's Subsidiaries and HEPGP as of the Effective Time
for a premium not in excess of 150% of the Current Premium, but maintains D&O
Insurance for persons who are directors and officers of Hallwood Energy then,
for the six-year period after the Effective Time, Hallwood Energy will provide
D&O Insurance for those persons who are directors and officers of Hallwood G.P.,
HEP, HEP's Subsidiaries, HCRC, HCRC's Subsidiaries and HEPGP as of the Effective
Time on the same basis as Hallwood Energy maintains D&O Insurance for persons
who are then directors and officers of Hallwood Energy. If the D&O Insurance
expires, is terminated or canceled during the six-year period after the
Effective Time and Hallwood Energy does not then maintain D&O Insurance for
persons who are directors and officers of Hallwood Energy, Hallwood Energy will
use its reasonable best efforts to obtain D&O Insurance for such period
providing at least $5,000,000 of coverage for those persons who are directors
and officers of Hallwood G.P., HEP, HEP's Subsidiaries, HCRC, HCRC's
Subsidiaries and HEPGP at the Effective Time.
(f) In lieu of the insurance arrangements referred to in
clause (e) of this Section 7.12, the Surviving Partnership or the Surviving
Corporation, as applicable, may, on or before the Effective Time, enter into
alternative insurance arrangements, provided that such arrangements are approved
by each of the individuals who are Independent Directors (as defined in Section
10.5) at any time from the date of this Agreement through the Effective Time.
(g) Hallwood Energy agrees that no amendment to the
partnership agreement of the Surviving Partnership or the certificate of
incorporation of the Surviving Corporation, as applicable, shall reduce in any
way the elimination of any personal liability of the directors of Hallwood G.P.,
HEP and HEP's Subsidiaries, on the one hand, or HCRC and HCRC's Subsidiaries, on
the other hand, contained therein or adversely affect any then existing right of
any director or officer (or former director or officer) to be indemnified with
respect to acts, omissions or events occurring prior to the Effective Time.
7.13 Other Agreements.
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(a) Takeover Statute. If any state takeover law shall become
applicable to the Mergers or the other transactions contemplated hereby, HEP and
the members of the Board of Directors of Hallwood G.P. or HCRC and the members
of the Board of Directors of HCRC, as applicable, shall grant such approvals and
take such actions as are necessary so that the transactions contemplated hereby
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated hereby.
(b) Best Efforts and Cooperation. HEP, HEC Acquisition
Partnership, HEC Acquisition Corp., HCRC, HCRC Acquisition Corp., HEPGP and
Hallwood Energy each shall use (and shall cause its Subsidiaries to use) its
commercially reasonable best efforts to cause the conditions set forth in
Article VIII, which are applicable to them to be satisfied and to consummate the
Transactions and the other transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, each of HEP, HCRC and HEPGP shall use
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(and shall cause its respective Subsidiaries to use) its commercially reasonable
best efforts (including providing information and communication) to obtain each
of the consents or waivers identified pursuant to Section 6.1(d)(ii), Section
6.2(d)(ii) and Section 6.3(c)(ii), respectively, and to obtain as promptly as
practicable all necessary approvals, authorizations and consents of Governmental
Entities required to be obtained in order to consummate the transactions
contemplated hereby, and each of the parties hereto shall cooperate with the
others in obtaining all such consents, waivers, approvals and authorizations.
(c) Voting of Units and HCRC Shares.
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(i) HEP will vote, or will cause to be voted, all of
the HCRC Shares held by HEP, or a Subsidiary of HEP (other than 455,454 HCRC
Shares that are subject to a certain contractual restriction), in favor of the
HCRC Merger; and
(ii) HCRC will vote, or will cause to be voted, all
of the Units held by HCRC, or a Subsidiary of HCRC, in favor of the HEP Merger.
ARTICLE VIII
Conditions
8.1 Conditions to Obligations of Parties. The respective obligations of
the parties to consummate the Transactions are subject to the fulfillment of
each of the following conditions:
(a) Approvals. This Agreement shall have been duly approved by
(i) the holders of a majority of each class of the Units, in accordance with
applicable law and the partnership agreement of HEP, (ii) the holders of a
majority of the HCRC Common Stock, in accordance with applicable law and the
certificate of incorporation of HCRC and (iii) Hallwood Group, in accordance
with applicable law and the partnership agreement of HEPGP;
(b) Listing of Shares. The Nasdaq National Market shall have
approved for inclusion the Hallwood Energy Common Stock and the Hallwood Energy
Preferred Stock to be issued in the Transactions, subject to official notice of
issuance;
(c) Registration Statement. The Registration Statement shall
have become effective under the Act and shall not be the subject of any stop
order or proceedings by the SEC seeking a stop order;
(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
completion of the Transactions or any of the other transactions contemplated
hereby shall be in effect;
(e) Litigation. No court or other Governmental Entity of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) that is in effect and
prohibits consummation of the Transactions;
(f) Tax Opinion. The parties shall have received from
PricewaterhouseCoopers LLP a written opinion, to the effect that the
Transactions, when effected in accordance with this Agreement, should qualify as
tax-free transactions under the Code;
(g) Consents. All consents, authorizations, orders and
approvals of, or filings or registrations with, any Governmental Entity required
in connection with the execution, delivery and performance of this Agreement
shall have been obtained or made, except for filings required under DRULPA and
DGCL in connection with the Mergers, and the parties shall have obtained all
consents, authorizations, waivers and approvals required from third parties
required under all Contracts by reason of the Transactions and the
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consummation of the transactions contemplated hereby, except for such consents,
authorizations, waivers and approvals where the failure to obtain such could not
reasonably be expected to result in a Material Adverse Effect on Hallwood
Energy.
(h) Burdensome Condition. There shall not be any action taken,
or any statute, rule, regulation, order or decree enacted, enforced or deemed
applicable to the Transactions or the other transactions contemplated hereby by
any Governmental Entity which imposes any condition or restriction (a
"Burdensome Condition") upon the Surviving Partnership, the Surviving
Corporation or Hallwood Energy, as applicable, which would reasonably be
expected to either (i) have a Material Adverse Effect after the Effective Time
on the Surviving Partnership, the Surviving Corporation or Hallwood Energy, as
applicable, or (ii) prevent the parties from realizing the major portion of the
economic benefits of the Transactions and the other transactions contemplated
hereby that they currently anticipate obtaining therefrom.
8.2 Conditions to Obligations of Hallwood Energy. The obligations of
Hallwood Energy to effect the Transactions and to consummate the other
transactions contemplated to occur on the Closing Date is further subject to the
following conditions, any one or more of which may be waived by Hallwood Energy:
(a) Representations and Warranties of HEP, HCRC and HEPGP. The
representations and warranties of HEP, HCRC and HEPGP set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and Hallwood Energy shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as the
representations and warranties of HEP, HCRC and HEPGP contained herein are so
qualified) signed on behalf of HEP by the general partner of HEP, on behalf of
HCRC by the President of HCRC, in such capacity, and on behalf of HEPGP, by the
general partner of HEPGP, to such effect. For the purposes of this Section
8.2(a), the representations and warranties of HEP, HCRC and HEPGP will be deemed
true and correct unless the breach of such representations and warranties, in
the aggregate, could reasonably be expected to have a Material Adverse Effect on
HEP, HCRC or HEPGP, as applicable.
(b) Performance of Covenants of HEP, HCRC and HEPGP. Each of
HEP, HCRC and HEPGP shall have performed in all material respects all covenants
required to be performed by it under this Agreement at or prior to the Effective
Time, and Hallwood Energy shall have received a certificate signed on behalf of
HEP by the general partner of HEP, on behalf of HCRC by the President of HCRC,
in such capacity, and on behalf of HEPGP by the general partner of HEPGP, in
such capacity, to such effect.
(c) No Material Adverse Effect. Since the date of this
Agreement, there shall have been no event that has resulted or could reasonably
be expected to result in a Material Adverse Effect on HEP, HCRC or HEPGP, as
applicable; and Hallwood Energy shall have received a certificate signed on
behalf of HEP by the general partner of HEP, on behalf of HCRC by the President
of HCRC, in such capacity, and on behalf of HEPGP by the general partner of
HEPGP, in such capacity, and to their knowledge, to such effect.
8.3 Conditions To Obligations of HEP. The obligations of HEP to effect
the HEP Merger and to consummate the other transactions contemplated to occur on
the Closing Date is further subject to the following conditions, any one or more
of which may be waived by HEP:
(a) Representations and Warranties of Hallwood Energy, HCRC,
HCRC Acquisition Corp., HEC Acquisition Partnership, HEC Acquisition Corp. and
HEPGP. The representations and warranties of Hallwood Energy, HCRC, HCRC
Acquisition Corp., HEC Acquisition Partnership, HEC Acquisition Corp. and HEPGP
set forth in this Agreement shall be true and correct as of the date of this
Agreement and as of the Closing Date, as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly limited
by its terms to another date, and HEP shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as the
representations and warranties of each entity contained herein are so qualified)
signed on behalf of each entity by the President or general partner of each
entity, in such capacity, to such effect. For the purposes of this Section
8.3(a), the representations and warranties of the parties set forth in
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this Section will be deemed true and correct unless the breach of such
representations and warranties, in the aggregate, could reasonably be expected
to have a Material Adverse Effect on any such party.
(b) Performance of Covenants of Hallwood Energy , HCRC, HCRC
Acquisition Corp., HEC Acquisition Partnership, HEC Acquisition Corp. and HEPGP.
Hallwood Energy, HCRC, HCRC Acquisition Corp., HEC Acquisition Partnership, HEC
Acquisition Corp. and HEPGP shall have performed in all material respects all
covenants required to be performed by it under this Agreement at or prior to the
Effective Time, and HEP shall have received a certificate signed on behalf of
each entity by the President or general partner of each, in such capacity, and,
to their knowledge, to such effect.
(c) No Material Adverse Effect. Since the date of this
Agreement, there shall have been no event that has resulted or could reasonably
be expected to result in a Material Adverse Effect on Hallwood Energy, HCRC or
HEPGP; and HEP shall have received a certificate signed on behalf of Hallwood
Energy by the President of Hallwood Energy, in such capacity, on behalf of HCRC
by the President of HCRC, in such capacity, and on behalf of HEPGP by the
general partner of HEPGP, in such capacity, and, to their knowledge, to such
effect.
8.4 Conditions To Obligations of HCRC. The obligations of HCRC to
effect the HCRC Merger and to consummate the other transactions contemplated to
occur on the Closing Date is further subject to the following conditions, any
one or more of which may be waived by HCRC:
(a) Representations and Warranties of Hallwood Energy , HCRC
Acquisition Corp., HEP, HEC Acquisition Partnership, HEC Acquisition Corp. and
HEPGP. The representations and warranties of Hallwood Energy, HCRC Acquisition
Corp., HEP, HEC Acquisition Partnership, HEC Acquisition Corp. and HEPGP set
forth in this Agreement shall be true and correct as of the date of this
Agreement and as of the Closing Date, as though made on and as of the Closing
Date, except to the extent the representation or warranty is expressly limited
by its terms to another date, and HCRC shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as the
representations and warranties of each entity contained herein are so qualified)
signed on behalf of each entity by the President or general partner of each, in
such capacity, to such effect. For the purposes of this Section 8.4(a), the
representations and warranties of the parties set forth in this Section will be
deemed true and correct unless the breach of such representations and
warranties, in the aggregate, could reasonably be expected to have a Material
Adverse Effect on any such party.
(b) Performance of Covenants of Hallwood Energy , HCRC
Acquisition Corp., HEP, HEC Acquisition Partnership, HEC Acquisition Corp. and
HEPGP. Hallwood Energy, HCRC Acquisition Corp., HEP, HEC Acquisition
Partnership, HEC Acquisition Corp. and HEPGP shall have performed in all
material respects all covenants required to be performed by it under this
Agreement at or prior to the Effective Time, and HCRC shall have received a
certificate signed on behalf of each entity by the President or general partner
of each, in such capacity, and, to their knowledge, to such effect.
(c) No Material Adverse Effect. Since the date of this
Agreement, there shall have been no event that has resulted or could reasonably
be expected to result in a Material Adverse Effect on Hallwood Energy, HEP or
HEPGP; and HCRC shall have received a certificate signed on behalf of Hallwood
Energy by the President of Hallwood Energy, in such capacity, on behalf of HEP
by the general partner of HEP, in such capacity, and on behalf of HEPGP by the
general partner of HEPGP, in such capacity, and, to their knowledge, to such
effect.
8.5 Conditions To Obligations of HEPGP. The obligations of HEPGP to
effect the Asset Contribution and to consummate the other transactions
contemplated to occur on the Closing Date is further subject to the following
conditions, any one or more of which may be waived by HEPGP.
(a) Representations and Warranties of Hallwood Energy, HEP,
HEC Acquisition Partnership, HEC Acquisition Corp., HCRC and HCRC Acquisition
Corp. The representations and warranties of Hallwood Energy, HEP, HEC
Acquisition Partnership, HEC Acquisition Corp., HCRC and HCRC Acquisition Corp.
set forth in this Agreement shall be true and correct as of the date of this
Agreement and as of the Closing
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Date, as though made on and as of the Closing Date, except to the extent the
representation or warranty is expressly limited by its terms to another date,
and HEPGP shall have received a certificate (which certificate may be qualified
by knowledge to the same extent as the representations and warranties of each
entity contained herein are so qualified) signed on behalf of each by the
President or general partner of each entity, in such capacity, to such effect.
For the purposes of this Section 8.5(a), the representations and warranties of
the parties set forth in this Section will be deemed true and correct unless the
breach of such representations and warranties, in the aggregate, could
reasonably be expected to have a Material Adverse Effect on any such party.
(b) Performance of Covenants of Hallwood Energy, HEP, HEC
Acquisition Partnership, HEC Acquisition Corp., HCRC and HCRC Acquisition Corp.
Hallwood Energy, HEP, HEC Acquisition Partnership, HEC Acquisition Corp., HCRC
and HCRC Acquisition Corp. shall have performed in all material respects all
covenants required to be performed by it under this Agreement at or prior to the
Effective Time, and HEPGP shall have received a certificate signed on behalf of
each entity by the President or general partner of each entity, in such
capacity, and, to their knowledge to such effect.
(c) No Material Adverse Effect. Since the date of this
Agreement, there shall have been no event that has resulted or could reasonably
be expected to result in a Material Adverse Effect on Hallwood Energy, HEP or
HCRC; and HEPGP shall have received a certificate signed on behalf of Hallwood
Energy by the President of Hallwood Energy, in such capacity, on behalf of HEP,
by the general partner of HEP, and on behalf of HCRC, by the President of HCRC,
in such capacity and, to their knowledge, to such effect.
ARTICLE IX
Termination
9.1 Termination by Mutual Consent. This Agreement may be terminated and
the Transactions may be abandoned at any time prior to the Effective Time,
before or after the approval by holders of Units or HCRC Shares, by the mutual
consent of Hallwood Energy, HEC Acquisition Partnership, HEC Acquisition Corp.,
HEP, HCRC, HCRC Acquisition Corp., and HEPGP by action of their or their general
partner's respective Boards of Directors.
9.2 Termination by Either Hallwood Energy, HEC Acquisition Partnership,
HEC Acquisition Corp, HEP, HCRC Acquisition Corp., HCRC or HEPGP. This Agreement
may be terminated and the Transactions may be abandoned by action of the Board
of Directors of Hallwood Energy, on behalf of Hallwood Energy, HEC Acquisition
Partnership, HEC Acquisition Corp. or HCRC Acquisition Corp. or by HEP, HCRC or
HEPGP if, (a) without fault of the terminating party, the Transactions shall not
have been consummated by September 30, 1999, whether or not such date is before
or after the approval by holders of Units or HCRC Shares; or (b) a United States
federal or state court of competent jurisdiction or a United States federal or
state governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement on substantially the terms contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
non-appealable; provided that the party seeking to terminate this Agreement
pursuant to this Section 9.2(b) shall have used its reasonable best efforts to
remove such restraint, injunction or prohibition.
9.3 Termination by Hallwood Energy, HEC Acquisition Partnership, HEC
Acquisition Corp. or HCRC Acquisition Corp.. This Agreement may be terminated
and the Transactions may be abandoned at any time prior to the Effective Time,
before or after the approval by holders of Units or HCRC Shares, by action of
the Board of Directors of Hallwood Energy on behalf of Hallwood Energy, HEC
Acquisition Partnership, HEC Acquisition Corp. and HCRC Acquisition Corp., if:
(a) HEP, HCRC or HEPGP shall have failed to comply in any material respect with
any of the covenants or agreements contained in this Agreement to be complied
with or performed by HEP, HCRC or HEPGP at or prior to such date of termination;
or (b) the Board of Directors of Hallwood G.P. or HCRC or the Independent
Directors of either, shall have withdrawn or modified in a manner adverse to
Hallwood Energy, HEC Acquisition Partnership, HEC Acquisition Corp. or HCRC
Acquisition Corp. its approval or recommendation of this Agreement or the
Mergers or the Board of Directors of Hallwood G.P. or HCRC or the Independent
Directors of either, upon request by Hallwood Energy, HEC Acquisition
Partnership,
35
<PAGE>
HEC Acquisition Corp., or HCRC Acquisition Corp., shall fail to reaffirm such
approval or recommendation, or shall have resolved to do any of the foregoing.
9.4 Termination by HEP, HCRC or HEPGP. This Agreement may be terminated
and the Transactions may be abandoned at any time prior to the Effective Time,
before or after the approval by holders of Units or HCRC Shares by action of the
Board of Directors of Hallwood Energy, Hallwood G.P. or HCRC or by HEPGP, if any
Constituent Entity (other than the party terminating this Agreement) shall have
failed to comply in any material respect with any of the covenants or agreements
contained in this Agreement to be complied with or performed by such Constituent
Entity at or prior to such date of termination; provided, however, that such
Constituent Entity, upon receipt of written notice of such failure from the
party seeking to terminate this Agreement shall have ten (10) business days from
the receipt of such notice to cure such failure.
9.5 Termination by HEP or HCRC. This Agreement may be terminated by HEP
or HCRC upon ten business days' prior notice to the other Constituent Entities,
if as a result of a Takeover Proposal with respect to HEP or HCRC that the Board
of Directors of the terminating party has determined to be a Superior Takeover
Proposal, and the Board of Directors of the terminating party determines in good
faith (after consultation with and based on the advice of its outside counsel)
that the acceptance of such Superior Takeover Proposal could reasonably be
required by the fiduciary obligations of such directors under applicable law;
provided, however, that prior to any such termination, the terminating party
shall advise the other Constituent Entities in writing of the determination of
the Board of Directors of the terminating party that the Board of Directors of
the terminating party has determined that such Takeover Proposal is a Superior
Takeover Proposal, which notice will include a summary of such Takeover
Proposal. During such ten business day period, the other Constituent Entities
may propose to the terminating party an alternative transaction, and the
terminating party shall, and shall cause its respective financial and legal
advisors to, negotiate with the other Constituent Entities in good faith with
respect to such adjustments in the terms and conditions of this Agreement so
that such Takeover Proposal would not constitute a Superior Takeover Proposal
and thereby enable the terminating party to proceed with the transactions
contemplated herein. "Takeover Proposal" shall mean (a) any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving the terminating party, (b) any proposal or offer to acquire from the
terminating party in any manner, directly or indirectly, any equity or voting
securities of the terminating party in excess of 15% of the equity voting
securities of the terminating parties thereof or a material amount of the assets
of the terminating party, taken as a whole, or (c) any proposal or offer to
acquire from the stockholders of the terminating party by tender offer, exchange
offer or otherwise more than 15% of the outstanding common stock of the
terminating party. "Superior Takeover Proposal" means any bona fide Takeover
Proposal to acquire, directly or indirectly, for consideration consisting of
cash, securities or a combination thereof, all of the common stock of the
terminating party then outstanding or all or substantially all of the assets of
the terminating party on terms that the Board of Directors of the terminating
party determines in its good faith reasonable judgment (after consultation with
a financial advisor of nationally recognized reputation) to be more favorable to
the terminating party's stockholders or unitholders than the Transactions.
9.6 Effect of Termination and Abandonment.
-------------------------------------
(a) In the event of termination of this Agreement and
abandonment of the Transactions pursuant to this Sections 9.1, 9.2, 9.3 or 9.4,
no party hereto (or any of its directors or officers) shall have any liability
or further obligation to any other party to this Agreement, except that nothing
herein will relieve any party from any liability or damages for any breach of
this Agreement.
(b) In the event of termination of this Agreement or
abandonment of the transactions pursuant to Section 9.5, the party terminating
or abandoning this Agreement pursuant to Section 9.5 shall be liable to each of
the other Constituent Entities for all costs and expenses, including, without
limitation, attorney's fees and expenses, of the other Constituent Entities
incurred in connection with the preparation and negotiation of this Agreement
and the contemplated consummation of the Transactions.
9.7 Extension of Time. At any time prior to the Effective Time, a party
to the Agreement may, to the extent legally allowed, extend the time of
performance of any obligations or other acts of another party. Any agreement on
the part of a party hereto to any such extension shall be valid only if set
forth in a written instrument signed on behalf of such party, but such extension
shall not operate as a waiver of any obligation or action.
36
<PAGE>
ARTICLE X
Miscellaneous and General
10.1 Payment of Expenses. If the Transactions are not consummated, each
party hereto shall pay its own expenses incident to preparing for, entering into
and carrying out this Agreement. If the Transactions are consummated, Hallwood
Energy shall pay the expenses of all parties incident to preparing for, entering
into and carrying out this Agreement and the consummation of the Transactions.
10.2 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement confirming the representations and warranties in this
Agreement will survive the Effective Time. This Section 10.2 will not limit any
covenant or agreement of the parties that by its terms contemplates performance
after the Effective Time.
10.3 Modification or Amendment. Subject to the applicable provisions of
DRULPA and the DGCL at any time prior to The Effective Time, the parties hereto
may modify or amend this Agreement, by written agreement executed and delivered
by duly authorized officers of the respective parties; provided, however, that
after any approval of the transactions contemplated by this Agreement by the
unitholders of HEP or the shareholders of HCRC, there may not be, without
further approval of the affected unitholders or shareholders, any amendment
which reduces the amount or changes the form of the applicable Merger
Consideration to be delivered to such unitholders or shareholders other than as
contemplated by this Agreement.
10.4 Waiver of Conditions. The conditions to each of the parties
obligations to consummate the Transactions are for the sole benefit of such
party and may be waived by such party in whole or in part to the extent
permitted by applicable law. Any agreement on the part of a party hereto to any
such extension shall be valid only if set forth in a written instrument signed
on behalf of such party, but such waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
10.5 Actions by Directors. No action taken by the Board of Directors of
Hallwood G.P. or HCRC, prior to the Mergers with respect to Sections 9.3 and
9.4, shall be effective unless such action is approved by the affirmative vote
of at least a majority of the directors of Hallwood G.P. or HCRC, as applicable,
who are not directors or officers of Hallwood Group (the "Independent
Directors").
10.6 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
10.7 GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
---------------------------------------------
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. The parties hereby irrevocably submit to the jurisdiction of
the courts of the State of Delaware and the Federal courts of the United States
of America located in the State of Delaware solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action, suit or
proceeding shall be heard and determined in such a state or Federal court. The
parties hereby consent to and grant any such court jurisdiction over The person
of such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the
37
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manner provided in Section 10.8 or in such other manner as may be permitted by
law, shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH
SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III)
EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH SUCH PARTY HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 10.7.
10.8 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid:
if to Hallwood Energy, HEC Acquisition Partnership, HEC Acquisition
Corp. or HCRC Acquisition Corp.:
The Hallwood Group Incorporated
3710 Rawlins
Suite 1500
Dallas, Texas 75219
Attention: Melvin J. Melle
with a copy to:
Jenkens & Gilchrist, A Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Attention: W. Alan Kailer, Esq.
if to HEP or HCRC:
Hallwood Energy Partners, L.P.
4582 South Ulster Street Parkway
Suite 1700
Denver, Colorado 80237
Attention: Cathleen M. Osborn, Esq.
with a copy to:
Jenkens & Gilchrist, A Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Attention: W. Alan Kailer, Esq.
if to the HEP Special Committee:
Hallwood Energy Partners, L.P.
4582 South Ulster Street Parkway, Suite 1700
Denver, Colorado 80237
Attention: Cathleen M. Osborn, Esq.
38
<PAGE>
with a copy to:
Donohoe Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, TX 75270-2120
Attention: Warren M.S. Ernst, Esq.
if to the HCRC Special Committee:
Hallwood Energy Partners, L.P.
4582 South Ulster Street Parkway, Suite 1700
Denver, Colorado 80237
Attention: Cathleen M. Osborn, Esq.
with a copy to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Jay Hebert, Esq.
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
10.9 Entire Agreement. This Agreement (including any annexes, exhibits
or schedules hereto) constitutes the entire agreement, and supersedes all other
prior agreements, understandings, representations and warranties both written
and oral, among the parties, with respect to the subject matter hereof.
10.10 Obligations of Hallwood Energy, HEC Acquisition Partnership, HEC
Acquisition Corp., HCRC Acquisition Corp. or HEP, HCRC and HEPGP. Whenever this
Agreement requires HEC Acquisition Partnership or HCRC Acquisition Corp. or,
after the Effective Time, the Surviving Partnership or the Surviving
Corporation, to take any action, such requirement shall be deemed to include an
undertaking on the part of Hallwood Energy to cause the Surviving Partnership or
the Surviving Corporation, as applicable, to take such action, including
providing the requisite funds to purchase Units or shares of HCRC Shares or make
any other payment obligation. Whenever this Agreement requires a Subsidiary of
HEP, HCRC or HEPGP to take any action, such requirement shall be deemed to
include an undertaking on the part of Hallwood G.P. on behalf of HEP and HEPGP
and of HCRC on behalf of HCRC to cause such Subsidiary to take such action and,
after the Effective Time, on the part of the Surviving Partnership or the
Surviving Corporation, as applicable, to cause such Subsidiary to take such
action.
10.11 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
10.12 Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions
39
<PAGE>
hereof. Where a reference in this Agreement is made to a Section or Annex or
Schedule, such reference shall be to a Section of or Annex or Schedule to this
Agreement unless otherwise indicated. Whenever the words "include," "includes"
or "including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation."
10.13 Assignment. This Agreement shall not be assignable by operation
of law or otherwise; provided, however, that Hallwood Energy may designate, by
written notice to HEP, HCRC and/or HEPGP, another wholly-owned direct or
indirect Subsidiary to be a Constituent Entity in lieu of HEC Acquisition
Partnership or HCRC Acquisition Corp., in the event of which, all references
herein to HEC Acquisition Partnership or HCRC Acquisition Corp. shall be deemed
references to such other Subsidiary, where applicable, except that all
representations and warranties made herein with respect to HEC Acquisition
Partnership or HCRC Acquisition Corp. as of the date of this Agreement shall be
deemed representations and warranties made with respect to such other Subsidiary
as of the date of such designation.
10.14 Definition of "Subsidiary" and "Person". When a reference is made
in this Agreement to a Subsidiary of a party, the word "Subsidiary" means any
corporation or other organization whether incorporated or unincorporated of
which at least a majority of the securities or interests having by the terms
thereof ordinary voting power to elect at least a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. When a reference is made in this Agreement to a
person, the word "person" means and includes any natural person, corporation,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental or political subdivision, regulatory
body or other entity.
40
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto on the date first
hereinabove written.
Hallwood Energy Corporation
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
HEC Acquisition Partnership
By: HEC Acquisition Corp., general partner
By:/s/ William L. Guzzetti
-----------------------------------
William L. Guzzetti, President
HEC Acquisition Corp.
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
Hallwood Energy Partners, L.P.
By: HEPGP Ltd., general partner
By: Hallwood G.P., Inc., general partner
By: /s/ William L. Guzzetti
----------------------------------
William L. Guzzetti, President
HCRC Acquisition Corp.
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
Hallwood Consolidated Resources Corporation
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
HEPGP Ltd.
By: Hallwood G.P., Inc., general partner
By:/s/ William L. Guzzetti
---------------------------------------
William L. Guzzetti, President
<PAGE>
Exhibit 2
FIRST AMENDMENT TO
MERGER AND ASSET
CONTRIBUTION AGREEMENT
------------------------------------
THIS AMENDMENT (the "Amendment") to that certain Merger and Asset
Contribution Agreement (the "Merger Agreement"), dated as of December 15, 1998,
by and among Hallwood Energy Corporation, a Delaware corporation ("Hallwood
Energy"); HEC Acquisition Partnership, L.P., a Delaware limited partnership
("HEC Acquisition Partnership"); HEC Acquisition Corp., a Delaware corporation
and wholly-owned subsidiary of Hallwood Energy ("HEC Acquisition Corp.") in its
capacity as general partner of HEC Acquisition Partnership; Hallwood Energy
Partners, L.P., a Delaware limited partnership ("HEP"); HCRC Acquisition Corp.,
a Delaware corporation and wholly-owned subsidiary of Hallwood Energy ("HCRC
Acquisition Corp."); Hallwood Consolidated Resources Corporation, a Delaware
corporation ("HCRC"); and HEPGP Ltd., a Colorado limited partnership ("HEPGP").
Hallwood Energy, HEC Acquisition Partnership, HEC Acquisition Corp., HEP, HCRC ,
HCRC Acquisition Corp. and HEPGP are referred to collectively as the
"Constituent Entities."
WHEREAS, the Constituent Entities desire to amend (the "Amendment") the
Merger Agreement in accordance with Section 10.3 of the Merger Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the undersigned parties hereby agree
as follows:
1. Capitalized terms used in this Amendment and not otherwise defined
have the meanings given in the Merger Agreement.
2. The Constituent Parties acknowledge that the Certificate of
Designations of the Series A Cumulative Preferred Stock of Hallwood Energy has
been revised to provide that the Series A Preferred Stock shall not be
redeemable prior to December 31, 2003, and the Constituent Parties hereby
consent to such revision pursuant to Section 7.1(i) of the Merger Agreement.
3. The eleventh recital of the Merger Agreement is hereby amended to
delete the reference to HEPGP Acquisition Corp. and to read as follows:
"WHEREAS, upon the terms and subject to the conditions of this
Agreement, HEPGP will contribute certain oil and gas related assets
(the "Asset Contribution" and, with the Mergers, sometimes referred to
herein as the "Transactions") to Hallwood Energy;"
4. Section 1.1(c) of the Merger Agreement is hereby amended to delete
the reference to HEPGP Acquisition Corp. and to read as follows:
"(c) Asset Contribution. Subject to the terms and conditions
of this Agreement, immediately prior to the Effective Time, HEPGP shall
contribute those certain oil and gas related assets and assign those
certain liabilities set forth on Schedule 1.1(c) attached hereto (the
"Contributed Assets") to Hallwood Energy."
5. Section 3.3 of the Merger Agreement is hereby amended to read as
follows:
"3.3 HEP Options. All options outstanding at the
Effective Time to purchase Common Units shall be canceled and
the holder of each option shall receive in consideration an
amount in cash equal to the product of (i) the difference
between the exercise price per Common Unit of the option to
purchase Common Units held by the holder and the average
closing price of a Common Unit on the American Stock Exchange
("AMEX") for the 30 calendar days preceding
<PAGE>
the date of the Closing; and (ii) the total number of Common
Units subject to the option held by the holder. All options
outstanding at the Effective Time to purchase Class C Units
shall be canceled and the holder of each option shall receive
in consideration an amount in cash equal to the product of (x)
the difference between the exercise price per Class C Unit of
the option to purchase Class C Units held by the holder and
the average closing price of a Class C Unit on AMEX for the 30
calendar days preceding the date of the Closing; and (y) the
total numbers of Class C Units subject to the Option held by
the holder."
6. Section 4.3 of the Merger Agreement is hereby amended as
follows:
"4.3 HCRC Options and Warrants. All options and
warrants outstanding at the Effective Time to purchase HCRC
Common Stock shall be canceled and the holder of each option
shall receive in consideration an amount in cash equal to the
product of (i) the difference between the exercise per share
of HCRC Common Stock price of the option to purchase HCRC
Common Stock held by the holder and the average closing price
of a share of HCRC Common Stock on The Nasdaq National Market
for the 30 calendar days preceding the date of the Closing;
and (ii) the total number of shares of HCRC Common Stock
subject to the Option held by the holder.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
as of the date first written above.
Hallwood Energy Corporation
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
HEC Acquisition Partnership
By: HEC Acquisition Corp., general partner
By:/s/ William L. Guzzetti
-----------------------------------
William L. Guzzetti, President
HEC Acquisition Corp.
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
Hallwood Energy Partners, L.P.
By: HEPGP Ltd., general partner
By: Hallwood G.P., Inc., general partner
By: /s/ William L. Guzzetti
----------------------------------
William L. Guzzetti, President
HCRC Acquisition Corp.
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
Hallwood Consolidated Resources Corporation
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
HEPGP Ltd.
By: Hallwood G.P., Inc., general partner
By:/s/ William L. Guzzetti
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William L. Guzzetti, President
<PAGE>
Exhibit 3
SECOND AMENDMENT TO
MERGER AND ASSET
CONTRIBUTION AGREEMENT
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THIS SECOND AMENDMENT (the "Second Amendment"), dated April 29, 1999 to
that certain Merger and Asset Contribution Agreement (the "Merger Agreement"),
dated as of December 15, 1998, as amended by that certain First Amendment to
Merger and Asset Contribution Agreement, dated as of March 9, 1999, by and among
Hallwood Energy Corporation, a Delaware corporation ("Hallwood Energy"); HEC
Acquisition Partnership, L.P., a Delaware limited partnership ("HEC Acquisition
Partnership"); HEC Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Hallwood Energy ("HEC Acquisition Corp.") in its capacity as
general partner of HEC Acquisition Partnership; Hallwood Energy Partners, L.P.,
a Delaware limited partnership ("HEP"); HCRC Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Hallwood Energy ("HCRC Acquisition
Corp."); Hallwood Consolidated Resources Corporation, a Delaware corporation
("HCRC"); and HEPGP Ltd., a Colorado limited partnership ("HEPGP"). Hallwood
Energy, HEC Acquisition Partnership, HEC Acquisition Corp., HEP, HCRC , HCRC
Acquisition Corp. and HEPGP are referred to collectively as the "Constituent
Entities."
WHEREAS, the Constituent Entities desire to amend (the "Second
Amendment") the Merger Agreement in accordance with Section 10.3 of the Merger
Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the undersigned parties hereby agree
as follows:
1. Capitalized terms used in this Second Amendment and not otherwise
defined have the meanings given in the Merger Agreement.
2. A new Section 8.1(i) is hereby added in its entirety as follows:
"(i) On or before the Effective Time (1) that certain
Financial Consulting Agreement, dated as of December 31, 1996 between Hallwood
Petroleum, Inc. and The Hallwood Group Incorporated shall be terminated; (2) the
payment of the quarterly administrative fee to The Hallwood Group Incorporated
shall be terminated; and (3) the reimbursement of administrative expenses to HSC
Financial, Inc. shall be terminated."
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
as of the date first written above.
Hallwood Energy Corporation
By:/s/ William L. Guzzetti
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William L. Guzzetti, President
HEC Acquisition Partnership
By: HEC Acquisition Corp., general partner
By:/s/ William L. Guzzetti
-----------------------------------
William L. Guzzetti, President
HEC Acquisition Corp.
By:/s/ William L. Guzzetti
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William L. Guzzetti, President
Hallwood Energy Partners, L.P.
By: HEPGP Ltd., general partner
By: Hallwood G.P., Inc., general partner
By: /s/ William L. Guzzetti
----------------------------------
William L. Guzzetti, President
HCRC Acquisition Corp.
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
Hallwood Consolidated Resources Corporation
By:/s/ William L. Guzzetti
--------------------------------------------
William L. Guzzetti, President
HEPGP Ltd.
By: Hallwood G.P., Inc., general partner
By:/s/ William L. Guzzetti
---------------------------------------
William L. Guzzetti, President
<PAGE>
Exhibit 4
Company Press Release
Hallwood Energy Corporation Announces Completion of Consolidation
DENVER--(BUSINESS WIRE)--June 8, 1999--Hallwood Energy Corporation (NASDAQ:
HECO; HECOP) announced today that it has completed its previously announced
consolidation, pursuant to which Hallwood Energy Partners, L.P. and Hallwood
Consolidated Resources Corporation have been consolidated and the energy
interests of The Hallwood Group Incorporated (NYSE: HWG news) have been
acquired. The common and preferred shares of Hallwood Energy Corporation will
begin trading regular way on NASDAQ on Wednesday, June 9, 1999. Information
regarding the delivery of certificates representing the newly issued shares will
be sent to all registered shareholders within 14 days.
The consolidation creates an exploration and production company with estimated
pro forma 1998 year-end reserves of approximately 213 billion cubic feet of
natural gas equivalent (bcfe). Combined pro forma production for the first
quarter of 1999 is estimated to be approximately 8.0 bcfe, 75% of which is
natural gas. After completing the transaction, Hallwood Energy Corporation has,
at December 31, 1998, on a pro forma basis, total assets of approximately
$205,000,000, subject to total debt of approximately $98,000,000. The
transaction will be accounted for using the purchase method.
As a result of the consolidation, Hallwood Energy Corporation will be larger
than Hallwood Energy Partners or Hallwood Consolidated Resources Corporation and
will have a greater number of stockholders and greater equity capitalization.
The consolidation will also simplify the structure of the entity and reduce
ongoing expenses.
Anthony J. Gumbiner will be Chairman and Chief Executive Officer and William L.
Guzzetti will be President and Chief Operating Officer of Hallwood Energy
Corporation.
Hallwood Energy Corporation's principal objectives are to explore for, develop,
acquire and produce oil and gas properties. Hallwood Energy Corporation is based
in Denver, Colorado with properties primarily located in South Louisiana, the
San Juan Basin in New Mexico and Colorado, West Texas and the Rocky Mountain
Region.
This press release may contain projections and other forward-looking statements
within the meaning of federal securities laws. Any such projections or
statements reflect the Company's current views with respect to future events and
financial performance. No assurances can be given, however, that these events
will occur or that such projections will be achieved and actual results could
differ materially from those projected. A discussion of important factors that
could cause actual results to differ materially from those projected is included
in the Company's periodic reports filed with the Securities and Exchange
Commission. Such factors include, among others, risks inherent in exploration
activities generally, and uncertainties regarding future oil and gas prices and
the availability of capital.
