<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/ / Definitive Information Statement
SUMMIT PETROLEUM CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Its Charter)
Deas H. Warley III
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/X/ Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01
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(2) Aggregate number of securities to which transaction applies:
443,632
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$0.70
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(4) Proposed maximum aggregate value of transaction:
$310,542
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(5) Total fee paid:
$62
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/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$378
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(2) Form, Schedule or Registration Statement No.:
Schedule 14D-1
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(3) Filing Party:
Midland Resources, Inc. and MRI Acquisition Corp.
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(4) Date Filed:
July 18, 1996
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<PAGE>
SUMMIT PETROLEUM CORPORATION
16701 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held December [*], 1996
To the stockholders of
Summit Petroleum Corporation:
Notice is hereby given that a special meeting of stockholders of Summit
Petroleum Corporation (the "Company") will be held at [the Company's corporate
offices, 16701 Greenspoint Park Drive, Suite 200, Houston, Texas 77060, at 10:00
a.m. Houston, Texas] time, for the following purposes:
(1) To vote upon a Plan of Merger between the Company and MRI Acquisition
Corp. pursuant to which the Company will become a wholly owned
subsidiary of Midland Resources, Inc. and existing stockholders of the
Company, other than MRI Acquisition Corp., will receive cash in the
amount of $0.70 per share in lieu of any continued interest in the
Company.
(2) To transact such other business as may properly come before the
meeting.
The board of directors has fixed the close of business on November [*],
1996 as the record date for determination of stockholders entitled to notice of
and to vote at such meeting.
You are cordially invited to attend the meeting; however, proxies are
not being solicited for the meeting. If you wish to vote your shares, you or
your representative must be present in person at the meeting.
NEITHER THE COMPANY NOR ITS MANAGEMENT IS SOLICITING YOUR PROXY.
By the order of the Board of Directors,
MARILYN D. WADE,
SECRETARY
HOUSTON, TEXAS
DATE: NOVEMBER [*], 1996
<PAGE>
PRELIMINARY INFORMATION STATEMENT
SUMMIT PETROLEUM CORPORATION
16701 GREENSPOINT PARK DRIVE, SUITE 200
HOUSTON, TEXAS 77060
INFORMATION STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
DECEMBER [*], 1996
NO SOLICITATION OF PROXIES
Summit Petroleum Corporation (the "Company") is not soliciting proxies for use
in connection with the special meeting of stockholders of the Company to be held
at [the Company's offices, 16701 Greenspoint Park Drive, Suite 200, Houston
Texas 77060 at 10:00 a.m., Houston, Texas] time.
- --------------------------------------------------------------------------------
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
- --------------------------------------------------------------------------------
Stockholders are welcome to attend the Special Meeting; however, proxies are
not being solicited for the meeting. If you wish to vote your shares, you or
your representative must be present in person at the Special Meeting.
This Information Statement is expected to be mailed or delivered to stockholders
on or about November [*], 1996.
VOTING AT THE MEETING
The record date for the determination of stockholders entitled to notice of and
to vote at the meeting was the close of business on November [*], 1996, at which
time there were outstanding 2,400,184 shares of Common Stock, $.01 par value
("Common Stock"). Each share of Common Stock is entitled to one vote. The
presence in person or by proxy of the holders of a majority of the outstanding
Common Stock will be necessary to constitute a quorum for the transaction of
business at the meeting. The affirmative vote of a majority of shares present
in person or by proxy will be necessary to approve of the proposal for the
merger ("Merger") of the Company with MRI Acquisition Corp.("MRIAcq.") pursuant
to the Agreement and Plan of Merger dated as of July 17, 1996 ("Merger
Agreement") between the Company, MRIAcq. and Midland Resources, Inc. ("MRI").
VOTE BY MRIACQ. ASSURES APPROVAL OF MERGER.
MRIAcq. owns 1,956,552 Company shares (81.5% of the outstanding) and intends to
vote all such shares for the Merger. Such a vote by MRIAcq. is sufficient to
approve the Merger regardless of any vote by the remaining shareholders.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of November [*], 1996, certain information
regarding beneficial ownership of Common Stock by (a) each person known by
the Company to own beneficially more than 5% of its outstanding Common Stock,
(b) each director of the Company, and (c) all directors and officers as a
group. Each person listed below is a director. Each person listed below has
sole voting and dispositive power over the shares indicated.
<TABLE>
AMOUNT & NATURE PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER OWNERSHIP SHARES
- ------------------- --------------- -----------
<S> <C> <C>
MRI Acquisition Corp.(1)................................ 1,956,552 81.5
16701 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
Midland Resources, Inc.(2).............................. 1,956,552 81.5
16701 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
Deas H. Warley III(3)................................... -0- -0-
16701 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
Darrell M. Dillard(3)................................... -0- -0-
415 West Wall, Suite 1510,
Midland, Texas 79701
Wayne M. Whitaker(3).................................... -0- -0-
3500 City Center Tower II, 301 Commerce Street
Fort Worth, Texas 761021,400,000
All officers and directors as a group(3)................ -0- -0-
(5 persons)
</TABLE>
- ------------------------------
(1) Owns directly.
(2) Owns beneficially through ownership of 100% of the stock of MRIAcq.
(3) Director.
Pursuant to the Merger Agreement, the Company will as a result of the
merger of the Company with MRIAcq. become a wholly owned subsidiary of MRI.
PRICE RANGE OF COMMON STOCK; DIVIDENDS. There is no established public trading
market for the Company's shares. There is only limited, sporadic and infrequent
trades of the shares in the over-the-counter market, consequently there are no
reliable quotations of trading prices during the fiscal years ended July 31,1994
and 1995 and the period from August 1, 1995 to the date hereof. The Company's
shares have been quoted on the NASDAQ Bulletin Board. Based upon information
supplied to NASDAQ by the reporting brokers, NASDAQ Trading Market Services
reported the following trading history since January 1, 1995 through November
11, 1996 (canceled trades are omitted):
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Date Buy/Sell Price Date Buy/Sell Price
06/08/95 Buy $0.625 01/29/96 Buy $0.125
Sell $0.10 Sell $0.125
08/25/95 Sell $0.125 02/15/96 Buy $0.125
09/13/95 Buy $0.10 04/01/96 Sell $0.375
10/04/95 Buy $0.10 04/17/96 Buy $0.125
11/29/95 Buy $0.11 04/22/96 Buy $0.125
12/11/95 Buy $0.125 04/29/96 Buy $0.125
12/19/95 Sell $0.125 05/08/96 Buy $0.125
Buy $0.125 07/11/96 Buy $0.125
12/21/95 Buy $0.0001 07/18/96 Sell $0.25
12/22/95 Buy $0.125 10/07/96 Buy $0.39
01/15/96 Buy $0.125 Buy $0.65
For at least the past five years, the Company has not paid or declared cash or
other dividends on its shares.
MERGER PROPOSAL
THE PROPOSAL. The Board of Directors of the Company recommends the approval
and adoption of the Plan of Merger by the shareholders of the Company and has
called the Special Meeting of Stockholders for that purpose.
INTRODUCTION. Pursuant to the Merger Agreement, MRIAcq. conducted a tender
offer ("Offer") for all of the outstanding Common Stock at $0.70 per share from
July 18, 1996 through September 18, 1996 and acquired 1,956,552 shares (81.5% of
the outstanding). The Merger Agreement provides that as promptly as practicable
following the later of the consummation of the Offer and the satisfaction or
waiver of certain conditions, MRIAcq. will be merged with and into the Company
(the "Merger"). Following the consummation of the Merger, the Company will be
the surviving corporation (the "Surviving Corporation") and the Company will
become a wholly owned subsidiary of MRI, the parent of MRIAcq. In the Merger,
each outstanding share of Common Stock (other than shares held by the Company or
owned by MRIAcq. or MRI and other than shares held by stockholders, if any, who
perfect their appraisal rights under Colorado law) will be converted into the
right to receive $0.70 CASH, WITHOUT INTEREST THEREON (THE "MERGER
CONSIDERATION").
DISTRIBUTION OF MERGER CONSIDERATION. Promptly after the Effective Time of the
Merger, MRI will cause the transfer agent for the Company's Common Stock to send
a transmittal letter to each stockholder of record as of the Effective Time with
instructions on sending in their stock certificates in exchange for Merger
Consideration. Such transmittal letter will state that risk of loss and title
shall pass, only upon deliver of the certificates to the transfer agent. The
transfer agent will promptly mail the Merger Consideration upon receipt of
properly submitted certificates and a transmittal letter. No interest will be
paid upon any Merger Consideration. From and after the Effective Time, there
will be no transfers of Company shares by the transfer agent or the Company.
From and after the Effective Time, the shares of the Company's Common Stock will
represent only the right to receive the Merger Consideration, or if dissenter's
rights are properly asserted, such amount as determined in accordance with such
rights.
DESCRIPTION OF MRI AND MRIACQ. MRI is an independent oil and gas company
engaged primarily in the exploration and development of domestic oil and gas.
MRI is subject to the reporting requirements of the Securities Exchange Act of
1934 and, in accordance therewith, is required to file reports and other
information with the Securities and Exchange Commission relating to its
business, financial condition and other matters. Information as of particular
dates concerning MRI's directors and officers, their remuneration, options
granted
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to them, the principal holders of MRI's securities and any material interests
of such persons in transactions with MRI is required to be disclosed in proxy
statements distributed to MRI's stockholders and filed with the Securities
and Exchange Commission. MRI owns all the outstanding capital stock of
MRIAcq. It is not anticipated that, prior to the consummation of the Offer
and the Merger, MRIAcq. will have any significant assets or liabilities or
will engage in any activities other than those incident to the Offer and the
Merger and the financing thereof. The address and telephone number for MRI
and MRIAcq. is 16701 Greenspoint Park Drive, Suite 200, Houston, Texas 77060,
(713) 873-4828.
PURPOSE OF THE MERGER. The purpose of the Merger is for MRIAcq. to acquire all
of the outstanding Common Stock not purchased by it pursuant to the Offer. In
the Merger, each outstanding share of Common Stock (other than shares held by
the Company as treasury stock, or owned by MRIAcq. or MRI and other than shares
held by stockholders who perfect dissenters rights under Colorado Law), will be
converted into the right to receive the Merger Consideration, without interest,
and the Company will become a wholly owned subsidiary of MRI. Under Colorado
Law and the Company's Certificate of Incorporation, the affirmative vote of the
holders of a majority of the outstanding shares is required to approve the
Merger.
SUMMARY OF MERGER AGREEMENT. The following is a summary of material terms of
the Merger Agreement.
THE OFFER. The Merger Agreement provided that MRIAcq. conduct the Offer.
CONSIDERATION TO BE PAID IN THE MERGER. The Merger Agreement provides that upon
the terms (but subject to the conditions) set forth in the Merger Agreement,
MRIAcq. will be merged with and into the Company and the separate existence of
MRIAcq. will cease, and the Company will be the surviving corporation and shall
be a wholly owned subsidiary of MRI. In the Merger, each share of common stock,
$.01 par value per share, of MRIAcq. outstanding immediately prior to the time
of filing of a certificate of merger with the Secretary of State of Colorado,
(the "Effective Time"), shall be converted into and exchanged for one validly
issued, fully paid and non-assessable share of Common Stock of the Company. In
the Merger, each Company share issued and outstanding immediately prior to the
Effective Time (other than shares owned by MRI or MRIAcq. or held by the
Company, all of which shall be canceled, and shares held by stockholders who
perfect dissenters rights under Colorado law) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive the Merger Consideration, without interest. The Merger
Consideration is $0.70 cash per share of Company Common Stock. The Merger
Agreement provides that (subject to the provisions of the Merger Agreement) the
closing of the Merger shall occur as soon as practicable following the
satisfaction or, to the extent permitted under the Merger Agreement, waiver of,
the conditions to the Merger set forth in the Merger Agreement.
TREATMENT OF STOCK OPTIONS. The Merger Agreement provides that all stock
options (individually, an "Option" and collectively, the "Options") be
canceled and each holder of an Option will be entitled to receive for each share
subject to an Option, an amount in cash equal to the excess, if any, of the
Merger Consideration over the per share exercise price of such Option, without
interest.
BOARD REPRESENTATION. The Merger Agreement provides that, promptly upon the
purchase of shares pursuant to the Offer, MRI shall be entitled to designate
certain directors to the Company's board. MRI has indicated it will not
exercise this right prior to the Effective Time.
STOCKHOLDER MEETING. The Merger Agreement provides that the Company, acting
through the Board of Directors, (i) call a meeting of its stockholders (the
"Stockholder Meeting") for the purpose of voting on the Merger, (ii) hold the
Stockholder Meeting as soon as practicable after the purchase of the shares
pursuant to the Offer and (iii) subject to its fiduciary duties under applicable
law as advised by outside counsel, recommend to its stockholders the approval of
the Merger. MRI has waived the requirement that the Company make such
recommendation.
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At the Stockholder Meeting, MRI will cause all the shares then owned by
MRIAcq., MRI and any of their subsidiaries or affiliates to be voted in favor
of the Merger.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to (i) the due
incorporation, existence, qualification, good standing, corporate power and
authority of the Company; (ii) the due authorization, execution, and delivery of
the Merger Agreement and the validity and enforceability thereof; (iii) the
compliance by the Company with all applicable federal, state laws; (iv) the
capitalization of the Company, including the number of shares of capital stock
of the Company outstanding, the number of shares reserved for issuance on the
exercise of options and similar rights to purchase shares; (v) the absence of
consents and approvals necessary for consummation by the Company of the Merger
and the absence of any violations, breaches or defaults which would result from
compliance by the Company with any provision of the Merger Agreement; (vi)
compliance reports filed pursuant to the securities laws and the financial
statements included therein (vii) the absence of pending or threatened claims,
suits, investigations or audits or violation of any law by the Company which
would have a material adverse effect on the Company; (viii) certain tax matters;
(ix) the possession by the Company of title to assets; and (x) material
contracts of the Company. MRI and MRIAcq. also made certain representations and
warranties, including with respect to (i) their due incorporation, existence,
good standing and corporate power and authority; (ii) the due authorization,
execution and delivery of the Merger Agreement and the validity and
enforceability thereof; (iii) the accuracy and the adequacy of the information
contained in the Schedule 14D-1 and the documents therein pursuant to which the
Offer was made, any Schedule required to be filed with the Securities and
Exchange Commission; (iv) the absence of consents and approvals necessary for
consummation of the Merger, and the absence of any violations, breaches or
defaults which would result from compliance with the Merger Agreement; and (v)
the sufficiency of funds available to consummate the Offer and the Merger.
CONDUCT OF BUSINESS PENDING MERGER. The Company agreed that from the date of the
Merger Agreement to the Effective Time, it will (i) conduct its operations
according to its usual, regular and ordinary course of business consistent with
past practice; (ii) use its reasonable best efforts to preserve intact its
business organization and goodwill; (iii) promptly upon the discovery thereof
notify MRI of the existence of any breach of any representation or warranty
contained in the Merger Agreement or the occurrence of any event that would
cause any representation or warranty contained in the Merger Agreement no longer
to be true and correct; and (iv) promptly deliver to MRIAcq. copies of any
report, statement or schedule filed with the Securities and Exchange Commission
subsequent to the date of the Merger Agreement. The Company has agreed that
from the date of the Merger Agreement to the Effective Time, it will not (i)
amend its Certificate of Incorporation or Bylaws; (ii) issue, sell or pledge any
shares of its capital stock or other ownership interest in the Company; (iii)
effect any stock split or otherwise change its capitalization as it exists on
the date of the Merger Agreement; (iv) grant any option, warrant, convertible
security or other right to acquire any shares of its capital stock; (v) declare,
set aside or pay any dividend or make any other distribution or payment with
respect to any shares of its capital stock; (vi) sell, lease or otherwise
dispose of any of its assets, except in the ordinary course of business; (vii)
settle or compromise any pending or threatened litigation, other than
settlements which involve solely the payment of money (without admission of
liability) not to exceed $5,000 in any one case; (viii) acquire by merger,
purchase or any other manner, any business or entity or otherwise acquire any
assets that are material, individually or in the aggregate to the Company; (ix)
incur or assume any long-term or short-term debt, except for working capital
purposes in the ordinary course of business under the Company's existing credit
agreement; (x) assume, guarantee or otherwise become liable or responsible for
the obligations of any other person; (xi) make or forgive any loans, advances or
capital continuations to, or investments in, any other person; (xii) settle any
tax liability other than settlements involving solely the payment of money not
to exceed $5,000; (xiii) grant any stock related or performance awards; (xiv)
enter into any new employment agreements with any officers, directors or
employees or grant any increases in compensation or benefits to employees;
(xv) adopt, amend in any material
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respect or terminate any employee benefit plan or arrangement; and (xvi)
permit any insurance policy to be canceled or terminated other than in the
ordinary course of business.
CONDITIONS TO THE MERGER. The respective obligations of each party to effect
the Merger are subject to the satisfaction or waiver prior to the Effective
Time, of the following conditions: (i) approval of the Merger by the holders
of Company shares as required by applicable law; and (ii) there shall not have
been issued any injunction or issued or enacted any law which prohibits or has
the effect of prohibiting the consummation of the Merger or making such
consummation illegal.
ACCESS TO INFORMATION. Under the Merger Agreement, from the date of the Merger
Agreement to the Merger closing date, the Company shall (i) give MRI and its
authorized representatives and lender banks full access to all books, records,
personnel and properties of the Company and its accountants and accountants'
work papers, (ii) furnish MRI with such financial and operating data and other
information with respect to the business and properties of the Company as it may
from time to time reasonably request.
NO SOLICITATION. The Company has agreed that it will not encourage, solicit,
initiate or, except as is required in the exercise of the fiduciary duties of
the Company's directors, participate in any way in any discussions or
negotiations with, or provide any information to, or afford any access to the
properties, books or records of the Company or any of its subsidiaries to, or
otherwise assist, facilitate or encourage, any corporation, partnership, person
or other entity or group concerning any merger, reorganization, sale of
substantial assets, sale of shares of capital stock or similar transactions
involving the Company (an "Alternative Proposal"), and shall immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted theretofore with respect to any of the foregoing;
provided, however, that nothing contained in the Merger Agreement shall prohibit
the Company or its Board of Directors from complying with Rule 14e-2(a) under
the Securities Exchange Act of 1934 or taking such action promulgated thereunder
or from making such disclosure to the Company's stockholders or taking such
action which, in the judgment of the Board of Directors with the advice of
outside counsel, may be required under applicable law. The Company has agreed
promptly to notify MRI if any such information is requested from it or any such
negotiations or discussions are sought to be initiated with the Company.
FEES AND EXPENSES. Except as provided in the Merger Agreement, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
the transactions contemplated by the Merger Agreement shall be paid by the party
incurring such expenses. The Merger Agreement provides that, under certain
circumstances, the Company will pay to MRI the amount of the costs and expenses
related to the Offer and the Merger and for its foregoing of the opportunity to
invest in the Company. The Company is obligated to pay the costs and expenses of
MRI under the following circumstances: (i) the Company terminates the Merger
Agreement because of an Alternative Proposal which the Board of Directors in
good faith determines is more favorable from a financial point of view to the
stockholders of the Company as compared to the Offer and the Merger and the
Board of Directors determines, after consultation with its counsel that failure
to terminate the Merger Agreement would be inconsistent with the compliance by
the Board of Directors with its fiduciary duties; or (ii) MRI terminates the
Merger Agreement (x) because the Board of Directors recommended acceptance of
any Alternative Proposal, or (y) after December 31, 1996 if MRIAcq. has not
purchased any shares by that date because of the Company's willful breach or
willful failure to comply in any material respect with any of its material
obligations under the Merger Agreement.
OTHER AGREEMENTS. The Merger Agreement provides that, subject to the terms and
conditions provided in the Merger Agreement, the Company, MRI, and MRIAcq.
shall: (a) use their best efforts to cooperate with one another in (i)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits, authorizations or waivers are
required to be obtained prior to the Effective Time in connection with the
execution and delivery of the Merger Agreement and certain other ancillary
documents and
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the consummation of the transactions contemplated thereby and (ii) timely
making all such filings and timely seeking all such consents, approvals,
permits, authorizations and waivers; and (b) use their 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 the Merger Agreement.
TERMINATION. The Merger Agreement may be terminated and the Merger contemplated
thereby may be abandoned at any time notwithstanding approval thereof by the
stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of the Board of Directors of MRI and the Company;
(b)by the Parent or the Company:
(i) if the Effective Time shall not have occurred on or before December 31,
1996 (provided that the right to terminate the Merger Agreement pursuant to
this clause shall not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the cause of or resulted
in the failure of the Effective Time to occur on or before such date);
(ii) if there shall be any statute, law, rule or regulation that makes
consummation of the Offer or the Merger illegal or prohibited or if any
court of competent jurisdiction in the United States or other governmental
entity shall have issued an order, judgment, decree or ruling, or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and
such order, judgment, decree, ruling or other action shall have become
final and non-appealable.
(c) by the Company if there is an Alternative Proposal which the Board of
Directors in good faith determines is more favorable from a financial point of
view to the stockholders of the Company as compared to the Offer and the
Merger, and the Board of Directors determines, after consultation with its
counsel that failure to terminate the Merger Agreement would be inconsistent
with the compliance by the Board of Directors with its fiduciary duties to
stockholders imposed by law; provided, however, that the right to terminate the
Merger Agreement in such event shall not be available:
(i) if the Company has breached in any material respect its obligations
not to solicit Alternative Proposals, or
(ii) if the Alternative Proposal (x) is subject to a financing condition or
(y) involves consideration that is not entirely cash or does not permit
stockholders to receive the payment of the offered consideration in respect
of all Shares at the same time, unless the Board of Directors has been
furnished with a written opinion of an investment banking firm to the
effect that (in the case of clause (x)) the Alternative Proposal is
readily financeable and (in the case of clause (y)) that such offer
provides a higher value per share than the consideration per share
pursuant to the Offer or the Merger, or
(iii) if the Company has not provided MRI and MRIAcq. with prior written
notice of its intent to so terminate the Merger Agreement and delivered to
them a copy of the written agreement embodying the Alternative Proposal in
its then most definitive form concurrently with the earlier of (x) the
public announcement of, or (y) filing with the Commission of any documents
relating to, the Alternative Proposal; and
INDEMNIFICATION. MRIAcq. has agreed to cause the Company to keep in effect in
its By-Laws a provision for a period of not less than three years from the
Effective Time (or, in the case of matters occurring prior to the Effective Time
which have not been resolved prior to the third anniversary of the Effective
Time, until such matters are finally resolved) which provides for
indemnification of the past and present officers and directors of the Company to
the fullest extent permitted by Colorado Law. The Merger Agreement provides
that from and after the Effective Time, MRI shall indemnify and hold harmless,
to the fullest extent permitted under applicable law, each person who is, or has
been at any time prior to the date of the Merger Agreement or who becomes prior
to the Effective Time, an officer or director of the Company or any subsidiary
against all losses, claims, damages, liabilities, costs or expenses (including
attorneys' fees), judgments, fines, penalties and amounts paid in
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settlement (collectively, "Losses") in connection with any Litigation arising
out of or pertaining to acts or omissions, or alleged acts or omissions, by
them in their capacities as such, which acts or omissions existed or occurred
prior to the Effective Time, whether commenced, asserted or claimed before or
after the Effective Time, including, without limitation, liabilities arising
under the Securities Act of 1933, the Securities Exchange Act of 1934 and
state corporation laws in connection with the transactions contemplated
hereby. The Company and, after the Effective Time, MRI shall periodically
advance expenses as incurred with respect to the foregoing to the fullest
extent permitted under applicable law provided that the person to whom the
expenses are advanced provides an undertaking to repay such advance if it is
ultimately determined that such person is not entitled to indemnification.
If the Merger is consummated, the Company shall, to the fullest extent
permitted under applicable law, indemnify and hold harmless Parent and any
person or entity who was a stockholder, officer, director or affiliate of MRI
prior to the Effective Time against any losses in connection with any
litigation arising out of or pertaining to any of the transactions
contemplated by the Merger Agreement or certain ancillary documents relating
thereto. MRI is required to periodically advance expenses as incurred with
respect to the foregoing to the fullest extent permitted under applicable law
provided that the person to whom the expenses are advanced provides an
undertaking to repay such advance if it is ultimately determined that such
person is not entitled to indemnification. The Company will control the
defense, through its counsel, of any action brought against any person
seeking indemnification pursuant to the preceding two paragraphs (an
"Indemnified Party"). Counsel for the Indemnified Party shall be selected by
the Indemnified Party and will be permitted to participate in the defense of
such action at the Company's expense.
AMENDMENT. To the extent permitted by applicable law, the Merger Agreement
may be amended by action taken by or on behalf of the Board of Directors of the
Company and MRI at any time before or after adoption of the Merger Agreement by
the stockholders of the Company but, after any such stockholder approval, no
amendment shall be made which decreases the Merger Consideration or which
adversely affects the rights of the Company's stockholders hereunder without the
approval of such stockholders.
REGULATORY REQUIREMENTS AND ACCOUNTING TREATMENT. No federal or state
regulatory requirements must be complied with or approvals obtained in
connection with the Merger, other that the filing of articles of merger with
the Secretary of State of Colorado. MRI will account for the acquisition of
the Company under the purchase method of accounting.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER TO COMPANY STOCKHOLDERS WHOSE SHARES ARE CONVERTED INTO THE RIGHT TO
RECEIVE CASH IN THE MERGER (INCLUDING PURSUANT TO THE EXERCISE OF DISSENTERS
RIGHTS). THE DISCUSSION APPLIES ONLY TO HOLDERS OF SHARES IN WHOSE HANDS SHARES
ARE CAPITAL ASSETS, AND MAY NOT APPLY TO SHARES RECEIVED UPON CONVERSION OF
SECURITIES OR EXERCISE OF WARRANTS OR OTHER RIGHTS TO ACQUIRE SHARES OR PURSUANT
TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, OR TO
HOLDERS OF SHARES WHO ARE IN SPECIAL TAX SITUATIONS (SUCH AS INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS OR NON-U.S. PERSONS). THE FEDERAL INCOME
TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL INFORMATIONAL PURPOSES
ONLY AND ARE BASED UPON CURRENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY
DIFFER, EACH HOLDER OF SHARES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO
DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH STOCKHOLDER AND
THE PARTICULAR TAX EFFECTS OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT
OF STATE, LOCAL AND OTHER INCOME TAX LAWS.
The receipt of cash for shares pursuant to the Merger (including pursuant to the
exercise of dissenters rights) will be a taxable transaction for federal income
tax purposes under the Internal Revenue Code of 1986, as amended (and also may
be a taxable transaction under applicable state, local and other income tax
laws). In general, for federal income tax purposes, a holder of shares will
recognize gain or loss equal to the difference between his
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adjusted tax basis in the shares converted into the right to receive cash in
the Merger and the amount of cash received therefor. Gain or loss must be
determined separately for each block of shares (i.e., shares acquired at the
same cost in a single transaction) converted to cash in the Merger. Such
gain or loss will be capital gain or loss (other than, with respect to the
exercise of dissenters rights, amounts, if any, which are or are deemed to be
interest for federal income tax purposes, which amounts will be taxed as
ordinary income) and will be long-term gain or loss if, on the date of the
Merger, the shares were held for more than one year. In the case of an
individual, net long-term capital gain may be subject to a reduced rate of
tax and net capital losses may be subject to limits on deductibility.
Payments in connection with the Merger may be subject to "backup withholding".
RELATED PARTY TRANSACTIONS. The Company and Midland Resources Operating
Company ("MRO"), a wholly owned subsidiary of MRI, entered into a management
agreement on August 28, 1989 which provides that MRO will provide day-to-day
management, administrative, bookkeeping and accounting services to the Company.
Legal, auditing, income tax advice and other third party provided services,
including well operation charges for those wells MRO operated under written
operating agreements with all of the working interest owners, were either paid
directly by the Company or reimbursed to MRO. The management agreement was
extended and amended on December 31, 1993 whereby the Company paid MRO a fee
equal of $8,500 per month during 1995, and was to pay $8,000 per month during
1996, and $7,500 per month during 1997 and thereafter, if it was then further
extended without amendment. However, effective January 1, 1996 the management
agreement was further amended whereby the Company will pay a reduced fee equal
to $5,000 per month during 1996, $4,500 per month during 1997 and $4,000 per
month during 1998. As a result of the management agreement the Company does not
maintain offices separate from those of MRI and MRO, nor does it employ a
separate staff of administrative employees or compensate its officers or
directors. Management fees incurred under this agreement for the years ended
July 31, 1993, 1994, 1995 and 1996 were $120,000, $113,000, $104,500 and
$77,500 respectively. This agreement may be terminated by either party at any
time.
MRO acts as operator of a substantial portion of the Company's oil and gas
properties. For all services performed as operator of those properties, MRO is
entitled to receive the compensation and reimbursements provided the operator
under the applicable operating agreement. However, any charges by MRO under an
operating agreement in such a situation for the use of its personnel, properties
and equipment, as well as the prices of materials sold by it, must be at rates
equal to the competitive charges of unaffiliated third parties for comparable
services or materials in the same geographic area. Further, those services can
be provided only pursuant to a written agreement which precisely describes the
services to be rendered and the compensation to be paid. The Company's share of
operation and supervision charges incurred on these properties for the years
ended July 31, 1993, 1994, 1995 and 1996 was $13,854, $18,852, $28,106 and
$47,803 respectively. Until May, 1995, the Company leased a truck for use by its
field personnel, and at times prior thereto, the Company had leased two trucks
for such purpose, from MRO. In May, 1995 the Company purchased, at trade in
value, the two trucks formerly being leased. Lease expenses incurred under
these agreements for the years ended July 31, 1993, 1994 and 1995 were $13,326,
$8,283, and $4,200, respectively. Terms of the lease agreement were determined
from and are less than competitive market leases in the area.
Effective January 1, 1994 the Company purchased a 10% working interest with an
approximate 8.75% revenue interest in certain oil and gas properties in Ward
County, Texas from MRI for $85,696, which was MRI's actual cost adjusted for
revenues and expenses through December 31, 1993.
Effective August 1, 1994 the Company acquired 10% of MRI's working interest in
certain oil and gas properties in Coke and Howard Counties, Texas for $201,596,
which was MRI's actual cost adjusted for revenues and expenses from August 1,
1994 through August 15, 1994, the closing date, and transaction costs.
Effective May 26, 1995, the Company, in participation with MRI, acquired a five
percent working interest in certain oil and gas leases and seismic options in
the Sunburst Project, Terry County, Texas, and the Latigo Project,
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Hockley County, Texas in exchange for a commitment to expend certain monies
in connection with certain oil and gas leases, seismic options, conducting
3-D geophysical surveys, interpretation of 3-D seismic data and the drilling
of two or more test wells. MRO will operate the projects. Closing occurred
on July 14, 1995.
Effective July 11, 1995, the Company acquired a five percent working interest
in certain oil and gas leases and seismic options in the Lakota Project,
Hockley County, Texas in exchange for a commitment to expend certain monies
in connection with certain oil and gas leases, seismic options, conducting
3-D geophysical surveys, interpretation of 3-D seismic data and the drilling
of one or more test wells. MRO will operate the project.
Effective September 1 ,1995, the Company participated with MRI in the
acquisition of working interests in certain Redfish Bay properties in Nueces
County, Texas. The Company acquired approximately a 4% working interest (on
the same basis as MRI) for approximately $82,000.
CONFLICTS OF INTEREST. There were numerous conflicts of interest inherent in
the Offer and Merger. With respect to evaluating and adopting the Merger
Agreement and recommending the Offer, the Company's Board was not
independent. The Company did not engage an independent representative to
represent the stockholders of the Company that were unaffiliated with MRI.
The Company's Board determined that the Offer was fair despite the fact that:
(1) all of the directors reviewing the transaction had conflicts of interest
in connection with the transaction, (2) there had been no auction of the
Company, (3) the transaction had not been structured to require the approval
of a majority of unaffiliated Company security holders; and (4) the Company's
Board had not retained an unaffiliated representative to act solely on behalf
of security holders for the purposes of negotiating the terms of the
transaction and/or preparing an analysis concerning the fairness of the
transaction. Deas H. Warley III, is the President and Chairman of the Company
and prior to his sale pursuant to the Offer owned directly and beneficially
approximately 37.50% of the Company shares through direct ownership of
806,250 shares and options granted June 1, 1995 to acquire 150,000 shares at
$0.0625 per share. The options were canceled under the Offer upon payment of
a net price of $0.6375 per share. Mr. Warley is the President and Chairman of
MRIAcq. and MRI and owns directly and beneficially approximately 37% of MRI.
Prior to the acquisition of MRO by MRI in December 1993 for common stock, Mr.
Warley owned 80% of MRO. MRO has managed the Company under a management
agreement since 1989. The two other members of the Company's board of
directors are Messrs. Darrell Dillard and Wayne Whitaker. Mr. Dillard was
the Company's independent auditor for fiscal years 1991 through 1993, was the
auditor MRI for fiscal years 1989 through 1993, was the auditor of MRO from
1989 through 1993, has been a director of MRI since 1994 and been a director,
vice president and Chief Financial Officer of MRI since 1995. During fiscal
years 1991 through 1993 the Company paid Mr. Dillard $46,890, $14,600 and
$14,000, respectively for auditing and related accounting and tax advice, and
for fiscal years 1994 through 1996 the Company paid Mr. Dillard $14,600,
$18,485 and $4,000, respectively, for accounting and tax advice. Mr. Dillard
was granted on June 1, 1995 options to acquire 50,000 shares (2.04% of the
outstanding shares after exercise) at $0.0625 per share that were canceled
upon a net payment of $0.6375 per option share pursuant to the Offer. Mr.
Dillard owns less than 1% of MRI's outstanding common stock. Mr. Whitaker
and the law firm of which he is a partner has represented the Company since
1989, MRI since 1990, MRO since 1990, and represents MRIAcq. Mr. Whitaker has
been a director of the Company since 1995 and MRI since 1996. The Company
has paid Mr. Whitaker's law firm $2,116, $12,964, $11,859 and $7,986 during
1993, 1994, 1995 and through July 31, 1996, respectively, for legal services.
Mr. Whitaker owned prior to his sale pursuant to the Offer, directly and
beneficially 120,000 shares (4.9% of the outstanding shares after exercises)
through his direct ownership of 25,000 shares, options (granted June 1,1995)
to acquire 50,000 shares at $0.0625 per share that were be canceled upon a
net payment of $0.6375 per option share pursuant to the Offer, and as trustee
of two trusts for Mr. Warley's children that each owned prior to their sale
pursuant to the Offer 22,500 shares. Mr. Whitaker beneficially owns less
than 1% of MRI's common stock.
BACKGROUND OF MERGER AGREEMENT. As previously discussed, each of Messrs.
Warley, Whitaker and Dillard are members of both the Board of Directors of
the Company and MRI. At a Board of Directors meeting
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of MRI held on May 31, 1996 an agenda item was the discussion of an
acquisition of an unrelated publicly held oil and gas company. During this
meeting, which was attended by the full board of MRI, Mr. Warley brought up
for discussion whether or not MRI should consider the acquisition of the
Company in light of MRI's prior public announcement of its intention to
consider acquisitions of oil and gas companies. Mr. Warley indicated that
acquiring the Company would be beneficial to MRI for several reasons. First,
it would remove a concern that had been expressed to him by members of the
investment community regarding the appearance of a conflict of interest and
dealings among related parties between MRI and the Company. Second, given the
nature of MRI's involvement in the Company's overall operations resulting
from the management contract, as well as the overlapping members on the
boards of directors, MRI was familiar with the Company, its properties and
operations. After a general discussion among the board, MRI's board agreed
that an acquisition of the Company might be beneficial to MRI. MRI's board
acknowledged the fact that the members of the Company's entire board were
also members of MRI's board and any potential offer to the Company would
require a fairness opinion that would independently arrive at a fair price.
Further at this meeting, MRI's board discussed whether or not to consider an
offer that included MRI's stock or cash or some combination of stock and
cash. After a discussion of the relative cost and length of time to pursue an
offer using MRI stock, the board concluded a cash offer was more appropriate.
MRI's board then agreed to pursue the matter by authorizing MRI to engage an
investment banking firm to arrive at a fair price to offer for the Company.
Messrs. Warley, Whitaker and Dillard informed MRI's board at that meeting
that, given the fact of their being the entire board of directors of the
Company they would entertain a proposal for MRI to acquire the Company,
provided MRI would share the fairness opinion with the Company and make the
investment banking firm available to meet with them separately to discuss
their opinion. MRI's board agreed to this request.
On June 3, 1996 MRI engaged Southwest Merchant Group ("SMG") to analyze the
Company and provide an opinion as to a fair price to offer. SMG is a small
investment banking firm, whose principals have a combined 40 years investment
banking experience that included advising companies on the value and fairness
of transactions similar to the offer by MRI. MRI chose SMG based upon their
experience and willingness to provide the opinion in a timely manner. SMG
has an investment banking agreement entered into on June 3, 1996 with MRI
relating to representing MRI in securing new financing sources, as well as
seeking potential acquisition targets. SMG did not receive any finder's or
other fee in connection with the Offer by MRI other than for the rendering of
it fairness opinion. SMG was requested to independently determine a fair
price to offer for the shares of the Company. MRI did not place any
limitations on SMG in making its determination.
On July 3,1996, a representative of SMG met with the entire board of MRI and
presented their oral opinion that a cash offer of $0.70 per share for all of
the Company's common stock, including outstanding options, was fair to MRI
from a financial point of view. MRI's board inquired regarding the nature of
certain of the assumptions regarding oil and gas prices, oil and gas reserve
estimates, as well as the availability of comparable transactions involving
entire companies, and transactions that involved only the purchase of oil and
gas properties both with and without related well operations. The members of
MRI's board, other than Messrs. Warley, Whitaker and Dillard, then discussed
whether or not MRI should request certain lock up provisions with the Company
such as an option to acquire Company shares, a termination fee if the Merger
did not occur due to a competing offer, and reimbursement of transaction
costs. Messrs. Warley, Whitaker and Dillard, in their capacity as Company
board members indicated that the Company would only consider reimbursing MRI
for transaction costs in the event a competing offer resulted in the proposed
transaction not being consummated. Following this discussion MRI's board
unanimously agreed to proceed to make the offer to the Company acquire for
cash all of the Company's outstanding common stock, including stock options,
at $0.70 per share pursuant to a merger agreement. SMG delivered their
written opinion to MRI on July 14,1996.
Also on July 3, 1996, and following the meeting of MRI's board, the board of
the Company met. At this meeting Mr. Warley informed the board that he has
made prior attempts to locate potential purchasers for the Company, but that
he was unsuccessful in locating anyone who would agree to acquire the entire
Company. The Company'
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board then met with the representative of SMG and further inquired as to
certain of their assumptions, including the value of the Company's $800,000
net operating loss carry forward for income tax purposes and whether some
value had been given to efficiencies that may be realized as a result of the
fact MRO currently operated the Company. The Board further discussed that
MRI's willingness to continue to offer to include the Company in future
acquisitions might be restricted or eliminated due to the appearance of a
conflict and MRI may not be willing in the future to permit the Company to
owe amounts to MRI for well operations. Mr. Warley also indicated that due to
increasing demands on his and MRI's staff to focus on MRI's operations, it
could result in a restriction on the Company's ability to grow or replace
existing production. The Board also discussed the relative cost of employing
a separate staff to provide those services currently provided by MRO,
including administrative, geological and engineering, together with
associated costs such as a separate office lease and equipment and utility
costs and concluded that such action would likely result in administrative
costs greater than those being charged by MRO. The Board concluded that the
value of the Company's operations was more likely to be worth more to MRI
than anyone else for a number of reasons the most significant of which
related to the fact that the two companies owned interests in the same
properties and MRI already had, by virtue of the MRO management agreement,
all of the accounting and production records of the Company's wells on its
accounting systems and was familiar with each of the Company's well
operations that were separate from those of MRI. The Board felt the price
per share value reached by SMG appeared to take this fact into account.
Further, since the SMG value was in part based upon oil and gas reserve and
production information provided it by MRI, the Board felt this information
was accurate since it was prepared by the same personnel of MRI that prepared
the Company's production and oil and gas reserve reports. After these
discussions, the Company's board agreed to recommend acceptance of MRI's
offer and to proceed with the necessary documentation.
On July 3, 1996 the boards of MRI, MRIAcq. and the Company approved the
preparation and execution of a merger agreement and the immediate commencing
of the Offer. Following the meetings on July 3, 1996, MRI began preparing
the documentation to make the Offer, including the Merger Agreement that was
executed on July 17, 1996.
DISCUSSION OF SMG OPINION. As referenced above, after discussions with the
representative of SMG regarding the analysis, methods and assumptions
utilized in arriving its opinion as to a fair per share value, the Board of
the Company, including Mr. Warley, adopted the conclusion and analysis of SMG
and agreed with the Share value of $.70. Although SMG was retained by MRI
solely for its benefit, inasmuch as the Company's Board and Mr. Warley
adopted its conclusion and analysis, a further discussion of the SMG opinion
is given below. On July 14, 1996 SMG delivered to MRI's Board it written
opinion to the effect that a cash offer of $0.70 per share for the Company's
common stock and for each share subject to a stock option less the exercise
price thereof, was fair, from a financial point of view to the stockholders
of MRI.
The SMG opinion was prepared for MRI's Board and was directed only to the
fairness, from a financial point of view, of the offer price of $.70 per
Share to the stockholders of MRI. The SMG opinion does not constitute a
recommendation to any stockholder of the Company as to whether to vote for
the Merger. SMG was not requested by MRI's Board to make, not did it make
any recommendation as to the form of consideration to be given in the Merger.
No restrictions or limitations were imposed by MRI's Board upon SMG with
respect to the investigation made or the procedures followed by SMG in
rendering its opinion. SMG was not requested to nor did SMG, solicit the
interest of any other party in acquiring the Company. SMG was apprised, and
did agree to permit its opinion to be examined by the Board of the Company
and to discuss its opinion with the Board of the Company. SMG was aware of
the high degree of affiliation between the Company and MRI. SMG did not have
any obligation to update its opinion past the date it was given on July 14,
1996.
As part of its procedures in arriving at its opinion of a fair price to offer
for the Company's shares, SMG discussed current prices for oil and gas
properties with industry executives it believes have current knowledge with
respect to market transactions involving the general type properties owned by
the Company. In rendering its opinion SMG
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relied upon and assumed, without independent verification, the accuracy,
completeness and fairness of all of the financial, operational and petroleum
reserve and other information that was available to it from public sources,
that was provided to it by MRI and the Company or their representatives, or
that was otherwise reviewed by it. In addition SMG relied upon MRI's
estimates and assumed operating synergies achievable by MRI after acquiring
the Company.
Prices paid for oil and gas properties can vary significantly. There are
numerous factors that impact pricing variables for oil and gas reserves,
including those that are or a technical nature, such as those that relate the
particulars of the applicable geology and related engineering factors, as
well as those that relate to prevailing market prices for the sale of oil and
gas production in the open market. Further with respect to both the technical
factors as well as market issues, numerous assumptions were made that are
often based upon the particular evaluators experiences. Two significant
assumptions utilized by SMG relate to (i) the estimated escalation of the
cost to produce and the future selling prices of the oil and gas, and (ii) a
risk factor of future recoverability inherently associated with the future
production of oil and gas.
Based on information it obtained and certain assumptions it made, SMG created
certain pricing matrices for the petroleum reserves owned by the Company
which it believes reflects accepted methods of valuing oil and gas
properties.
One set of assumptions was based upon oil and gas reserves that included
proved developed producing properties ("PDP"), proved developed non-producing
properties ("PDNP"), and proved undeveloped properties ("PUD"). The reserve
prices utilized in the calculations ranged from $3.00 to $4.50 per barrel of
oil, and from $.40 to $.70 per MCF of gas. The result of these assumptions
yielded a Share price range, net of $165,118 of Company debt, of from $.50 to
$.76. A second set of assumptions, also using PDP, PDNP and PUD was based
upon estimated future revenues and expenses being escalated at 3% per year
and the PDNP reserves being discounted by 20% and the PUD reserves being
discounted by 50% for the recoverability risks. SMG believed that the
percentages for both the escalations and the risks were within the normal
ranges currently utilized within the industry. The result of these
assumptions yielded a share price, net of Company debt, of between $.46 and
$.70. A third set of assumptions, that used only PDP reserves at $6.00 per
barrel and PDNP reserves at $3.00 per barrel and gas reserves at $1.00 and
$.50 per MCF, respectively yielded a Share price, net of Company debt, of
$.50. A fourth set of assumptions, that used the values of the third
assumption but with 3% price and revenue escalations and risk discounts on
PDNP and PUD of 20% and 50%, respectively, yielded a share price, net of
Company debt, of $.56. A fifth set of assumptions utilized the Company's
reserve reports for PDP, PDNP and PUD that were neither escalated nor risked,
but applied time value of money discounts of 10%, 12% and 15%. These
calculations yielded share prices, net of Company debt, of $.51, $.46 and
$.39, respectively. A sixth set of assumptions, that used the values of the
fifth assumptions but with 3% escalations and 20% and 50% risk discounts
applied to PDNP and PUD respectively, yielded share prices, again discounted
for the time value of money at the 10%, 12% and 15% rates, of $.54, $.48 and
$.40, respectively.
As one means of testing the reasonableness of its assumptions SMG made a
calculation as to what the price per equivalent barrel of oil would be based
upon an assumed Share price being paid. The assumed Share price was $.50,
which was then multiplied times the number of fully diluted Shares to arrive
at a gross purchase price, which amount was then divided by the Company's
reserves of equivalent barrels based upon PDP, PDNP and PUD with expenses and
revenues escalated at 3% and risk discounts of 20% and 50% applied to PDNP
and PUD, respectively. This calculation resulted in a per equivalent barrel
price of $3.39, which is in the range of assumed per barrel prices. A similar
calculation was made using only PDP and PDNP, also with the same expenses and
revenues escalations and risk discounts applied. This calculation resulted
in a per equivalent barrel price of $4.88, which is also in the range of
assumed per barrel prices.
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The Company receives revenues from acting as operator of wells pursuant to
operating agreements with the working interest owners. SMG valued this
stream of revenue based upon representations from MRI that it would realize,
on an incremental basis, a pre tax profit margin of 75%. In assigning a value
to operating revenues, SMG assumed that the revenues for the nine month
period of $143,283 would approximate the pre tax amount for the entire fiscal
1996 period. Since well operations depends upon the economic life of a well
which can vary depending upon a number of factors, SMG assumed level
operations for a period of between three and six years at the fiscal 1996
rate. SMG then calculated the present value of these various streams of
revenue using discount factors of 10%, 15% and 20%. The resulting Share
value ranged from $.11 based upon a three year period and a discount factor
of 15%, to $.19. based upon a five year period and a discount factor of 10%.
The Company also has a net operating loss carry forward for income tax
purposes of approximately $800,000 which SMG assumed would result in a tax
benefit of approximately $200,000. Since the ability of any purchaser to
utilize any such benefit varies, SMG made a share value calculation assuming
a 100%, 75% and 50% utilization. On a share basis this resulted in a value of
$.07, $.06 and $.04, respectively.
Another value examined by SMG was the adjusted book value, generally referred
to as break up value in the oil industry. Adjusted book value is equivalent
to liquidation value. Book value generally is not relevant for asset based
companies, such as oil and gas exploration and production companies because
the value assigned to assets for accounting purposes is based on the cost of
acquiring the assets, rather than the actual value which could be received in
the marketplace for those assets. Nevertheless SMG did examine the most
recent audited balance sheet which was for fiscal 1995. Based upon this
balance sheet information and the oil and gas reserve numbers contained
therein, a share break up value was calculated as $0.325.
Valuation of the Company as a separate, fully staffed operating entity was
considered, but was discarded due to the fact that operating costs that would
be incurred (which would include an administrative staff not currently
maintained by the Company due to the management agreement) would be higher
than they would be on an incremental basis if the Company were acquired and
operated by someone with a pre existing staff with similar operations.
Stock market prices are also indications of value where active share trading
exists since these prices reflect actual trades where an exchange of cash has
occurred, rather than an academic valuation. The Company is listed on the OTC
Bulletin Board sponsored by NASDAQ under the symbol SMMP. Based upon
information supplied by NASDAQ, SMG concluded that due to very limited
trading, shareholders of the Company effectively owned stock in a semi
privately held company, and that the infrequent market trades do not reflect
actual values which would be realized upon liquidation. Low market prices
are not surprising, because minority shares of a small closely held company
generally sell at discounts to the overall value of the enterprise.
Other considerations taken into account in arriving at SMG's opinion of a
fair per share price included:
1. A third party, non operator of the Company's properties would likely incur
overhead in excess of that incurred by MRI.
2. A sale to a single purchaser eliminates the cost of separate SEC and
regulatory filings.
3. An unrelated third party may place higher risk factors on the non producing
reserves due to not having as much familiarity with the properties as MRI.
4. Many of the Company's properties are operated by MRI and a third party may
give little or no value to future development since it would not operate or
control the properties.
5. MRI has been loaning money to the Company in the form of carrying a
receivable due from the Company relating to funding the Company's share of
property development costs.
6. Other parties may have different pricing assumptions.
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7. Well operation revenues would incrementally represent significantly higher
profit margins to MRI than to another purchaser who had not historically
provided services under a similar management agreement.
In determining a fair share value the definition utilized by SMG was "fair
market value" defined as "the price at which willing buyers and sellers, each
cognizant of all relevant information, would pay for all of the shares of the
Company in a transaction where neither was obligated to participate." No pure
mechanical determination of value was made. All factors deemed relevant were
taken into consideration, including reserve values based on present value,
estimated selling prices for similar reserves in the marketplace utilizing
reasonable assumptions relating to escalations and risks, values of the
estimated cash flows from well operations, and value of the tax loss carry
forward. Share values resulting from each of these items was ranged, and
incorporated into a final estimate, based on the judgment of SMG. No
particular valuation method or calculation was weighed more heavily than
another. SMG's opinion that a price of $.70 per share for all shares took
into account that any of the three elements of value.... oil and gas
reserves, revenues from well operations, and the estimated value of the tax
loss carry forward each may be slightly higher or lower, but that in
combining all of the factors, a price of $.70 per share was realistic, and
produced fair value from a financial point of view to the stockholders of
MRI.
SUMMARY OF DISSENTER'S RIGHTS. Stockholders who do not wish to vote for the
Merger and who do not believe the Merger Consideration of $0.70 per share is
fair may exercise dissenter's rights as provided under the laws of Colorado,
the state under whose law the Company is incorporated. Such dissenter's
rights are set forth in Article 113 of the Colorado Corporation Code
("Code"), at Title 7 of the Colorado Revised Statutes, a copy of which is
attached hereto as Attachment A. The following is a summary of such rights
and is qualified in its entirely by referenced to Attachment A.
A "Dissenter" means a shareholder who is entitled to dissent from the Merger
and who exercises that right at the time and in the manner required by law.
The "Fair value", with respect to a Dissenter's shares, means the value of
the such shares immediately before the effective date of the Merger,
excluding any appreciation or depreciation in anticipation of the Merger.
A Company shareholder is entitled to dissent and obtain payment of the fair
value of his or her shares as a result of the Merger if the shareholder does
not believe the Merger Consideration of $0.70 per share represents Fair
value. Such right to dissent does not include the right to challenge the
Merger unless the shareholder believes the Merger is unlawful or fraudulent
with respect to the shareholder or the corporation.
If a shareholder is the beneficial owner of shares held in some other name,
the shareholder may assert dissenters' rights as to such shares if the
beneficial shareholder causes the Company to receive the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and the beneficial shareholder
dissents with respect to all owned by the beneficial shareholder. Since the
Merger is being submitted to a vote at a shareholders' meeting, the notice of
the meeting must be given to all shareholders must state that shareholders
are entitled to assert dissenters' rights and shall be accompanied by a copy
of Article 113 of the Code.
A shareholder who wishes to assert dissenters' rights must (a) cause the
Company to receive, before the vote is taken, written notice of the
shareholder's intention to demand payment for the shareholder's shares if the
proposed Merger is effectuated; and (b) not vote their shares in favor of the
Merger.
Upon shareholder approval of the Merger the Company must give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article. Such dissenters' notice must be given no
later than ten days after the effective date of the Merger and must (a) state
that the Merger was authorized and state the effective date or proposed
effective date of the Merger; (b) state an address at which the Company will
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receive payment demands and the address of a place where stock certificates
must be deposited; (c) supply a form for demanding payment, which form shall
request a dissenter to state an address to which payment is to be made; (d)
set the date by which the Company must receive the payment demand and stock
certificates, which date shall not be less than thirty days after the date
the dissenters' notice is given; and (e) be accompanied by a copy of Article
113 of the Code.
A shareholder who is given a dissenters' notice and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice (a) cause the Company to receive a payment demand, which may be the
payment demand form provided by the Company; and (b) deposit with the Company
the shareholder's stock certificates. A shareholder who properly demands
payment retains all rights of a shareholder, except the right to transfer the
shares, until the effective date of the Merger and has only the right to
receive payment for the shares after the effective date of the Merger.
Except under circumstances where the Company fails to timely take action the
demand for payment and deposit of certificates are irrevocable. A shareholder
who does not demand payment and deposit their stock certificates by the date
set in the dissenters' notice is not entitled to payment for the shares.
At the earlier of receipt of a payment demand or the date of the Merger,
whichever is later, the Company must pay each dissenter who complied with the
applicable procedures the amount the Company estimates to be the, fair value
of the dissenter's shares, plus accrued interest. This shall be accompanied
by (a) the Company's balance sheet as of the end of its most recent fiscal
year, an income statement for that year, and, if the Company customarily
provides such statements to shareholders, a statement of changes in
shareholders' equity for that year and a statement of cash flow for that
year, which balance sheet and statements shall have been audited if the,
Company customarily provides audited financial statements to shareholders, as
well as the latest available financial statements, if any, for the interim or
full-year period, which financial statements need not be audited; (b) a
statement of the Company's estimate of the fair value of the shares; (c) an
explanation of how the interest was calculated; (d) a statement of the
dissenter's right to demand payment; and (e) a copy of Article 113 of the
Code.
If the effective date of the Merger occurs more than sixty days after the
date set by the Company by which the Company must receive the payment demand,
then the Company shall send a new dissenters' notice.
A dissenter may give notice to the Company in writing of the dissenter's
estimate of the faire value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, or reject the Company's
offer and demand payment of the fair value of the shares and interest due, if
(a) the dissenter believes that the amount paid or offered by the Company is
less than the fair value of the shares or that the interest due was
incorrectly calculated; (b) the Company fails to make the payment within
sixty days after the date set by the Company by which the Company must
receive the payment demand; or (c) the Company does not return the deposited
certificates as required.
A dissenter waives the right to demand payment unless the dissenter causes
the Company to receive the notice of the dissenter's estimate of the fair
value of the dissenter's shares within thirty days after the Company made or
offered payment for the dissenter's shares.
If a demand for payment remains unresolved, the Company may, within sixty
days after receiving the payment demand, commence a proceeding and petition
the court to determine, the fair value of the shares and accrued interest.
If the Company does not commence the proceeding within the sixty-day period,
it shall pay to each dissenter whose demand remains unresolved the amount
demanded.
The jurisdiction of the court in which the proceeding is commenced is
exclusive. The court may appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The
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appraisers have the powers described in the order appointing them, or in any
amendment to such order. The parties to the proceeding are entitled to the
same discovery rights as parties in other civil proceedings.
Each dissenter made a party to such a proceeding is entitled to judgment for
the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the Company, or
for the fair value, plus interest, of the dissenter's shares for which the
Company elected to withhold payment.
FINANCIAL INFORMATION
The following table sets forth a summary of historical financial information
for the Company derived from the Company's Form 10-KSB for fiscal 1996, as
filed with the Securities and Exchange Commission. Representatives of the
independent accounting firms of the Company and MRI will not be in attendance
at the Special Meeting and therefore not be able to answer questions or make
any statements.
AS OF JULY 31, 1996 AND THE YEAR THEN ENDED:
Operating revenue $ 657,831
Income from continuing operations $ 55,853
Income per share from continuing operations $ 0.021
Common and common equivalent shares outstanding(1):
Weighted average 2,673,398
End of period 2,673,398
Total assets $1,210,290
Long-term debt, including current portion $ 374,500
Stockholders' equity $ 688,687
Stockholders' equity per share $ 0.26
Dividends declared per share $ --
- ---------------
(1) Includes 2,400,184 of common shares and 273,214 of common stock options.
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DOCUMENTS INCORPORATED BY REFERENCE
The information regarding the Company and MRI is incorporated by reference
from the below listed filings with the Securities and Exchange Commission,
and copies thereof are being sent with this Information Statement:
COMPANY: Form 10-KSB for the year ended July 31, 1996; and
Form 8-K dated September 18, 1996.
MIDLAND RESOURCES INC.: Form 10-KSB for the year ended December 31, 1995;
Form 10-QSB for the nine months ended September
30, 1996;
Form 8-K dated September 18, 1996; and
Form 8-K/A to the Form 8-K dated September 18,
1996.
TRANSACTION OF OTHER BUSINESS
As of the date of this proxy statement, the board of directors has no
knowledge of business other than that described above which will be presented
for consideration at the meeting. With respect to any other business which
may properly come before the meeting, it is intended that proxies will be
voted in accordance with the judgment of the person or persons voting them.
By the order of the Board of Directors,
DEAS H. WARLEY III
President
Date: November [*], 1994
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ATTACHMENT A
COLORADO REVISED STATUTES
TITLE 7
ARTICLE 113
Dissenters' Rights
PART I
RIGHT OF DISSENT -
PAYMENT FOR SHARES
7-113-101. DEFINITIONS. For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in
a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
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ATTACHMENT A
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102. RIGHT TO DISSENT.
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of his or her shares in the event of any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its
parent corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under section 7-112-102 (1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote
upon the consent of the corporation to the disposition pursuant to section
7-112-102 (2).
(2) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
(a) An amendment to the articles of incorporation that materially and
adversely affects rights in respect of the shares because it:
(I) Alters or abolishes a preferential right of the shares; or
(II) Creates, alters, or abolishes a right in respect of
redemption of the shares, including a provision respecting a sinking
fund for their redemption or repurchase; or
(b) An amendment to the articles of incorporation that affects rights
in respect of the shares because it:
(I) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
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ATTACHMENT A
(II) Reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so
created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
right. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as on the
beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
PART 2
PROCEDURE FOR EXERCISE
OF DISSENTERS' RIGHTS
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ATTACHMENT A
7-113-201. NOTICE OF DISSENTERS' RIGHTS.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, the notice
of the meeting shall be given to all shareholders, whether or not entitled to
vote. The notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the materials, if any, that, under articles 101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
to shareholders not entitled to vote shall not affect any action taken at the
shareholders' meeting for which the notice was to have been given.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
to shareholders not entitled to vote shall not affect any action taken pursuant
to section 7-107-104 for which the notice was to have been given.
7-113-202. NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, a shareholder who wishes to assert dissenters' rights shall
not execute a writing consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
7-113-203. DISSENTERS' NOTICE.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article.
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ATTACHMENT A
(2) The dissenters' notice required by subsection (1) of this section
shall be given no later than ten days after the effective date of the corporate
action creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for certificated
shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall not be
less than thirty days after the date the notice required by subsection (1)
of this section is given;
(f) State the requirement contemplated in section 7-113-103 (3), if
such requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204. PROCEDURE TO DEMAND PAYMENT.
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203 (2)(d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1)(b), the
demand for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the
shareholder's share certificates as required by the date or dates set in the
dissenters' notice is not entitled to payment for the shares under this article.
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ATTACHMENT A
7-113-205. UNCERTIFICATED SHARES.
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. PAYMENT.
(1) Except as provided in section 7-113-208, upon the effective date of
the corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, and, if the
corporation customarily provides such statements to shareholders, a
statement of changes in shareholders' equity for that year and a statement
of cash flow for that year, which balance sheet and statements shall have
been audited if the corporation customarily provides audited financial
statements to shareholders, as well as the latest available financial
statements, if any, for the interim or full-year period, which financial
statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
7-113-207. FAILURE TO TAKE ACTION.
(1) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the
6
<PAGE>
ATTACHMENT A
corporation must receive the payment demand as provided in section 7-113-203,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
7-113-208. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER
ANNOUNCEMENT OF PROPOSED CORPORATE ACTION.
(1) The corporation may, in or with the dissenters notice given pursuant
to section 7-113-203, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under section 7-113-102 and state that the dissenter shall
certify in writing, in or with the dissenter's payment demand under section
7-113-204, whether or not the dissenter (or the person on whose behalf
dissenters' rights are asserted) acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not so certify in
writing, in or with the payment demand, that the dissenter or the person on
whose behalf the dissenter asserts dissenters' rights acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of
making the payment provided in section 7-113-206, offer to make such payment
if the dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206 (2).
7-113-209. PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR
OFFER.
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section
7-113-206 or offered under section 7-113-208 is less than the fair value
of the shares or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by which the
corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as
required by section 7-113-207 (1).
(d) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required
by subsection (1) of this
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ATTACHMENT A
section within thirty days after the corporation made or offered payment
for the dissenter's shares.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. COURT ACTION.
(1) If a demand for payment under section 7-113-209 remains unresolved,
the corporation may, within sixty days after receiving the payment demand,
commence a proceeding and petition the court to determine, the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay to each dissenter whose
demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if it has no principal office in
this state, in the district court of the county in which its registered office
is located. If the corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county in this
state where the registered office of the domestic corporation merged into, or
whose shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to such order. The
parties to the proceeding are entitled to the same discovery rights as parties
in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
7-113-302. COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of
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ATTACHMENT A
appraisers appointed by the court. The court shall assess the costs against
the corporation; except that the court may assess costs against all or some
of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the
court finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in
favor of any other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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Exhibit 1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of July 17, 1996,
between Midland Resources, Inc., a Texas corporation ("PURCHASER"), MRI
Acquisition Corp., a Texas corporation and a wholly owned subsidiary of
Purchaser ("MERGER SUB"), and Summit Petroleum Corporation., a Colorado
corporation (the "COMPANY").
RECITALS WHEREAS, the Boards of Directors of Purchaser and the Company each have
determined that it is in the best interests of their respective companies and
stockholders for Purchaser to acquire the Company upon the terms and subject to
the conditions set forth herein.
WHEREAS, the parties hereto desire to make certain representations, warranties,
covenants and agreements in connection herewith.
NOW, THEREFORE, in consideration of the foregoing, and of the representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE 1: THE OFFER
1.1 THE OFFER. (a) Subject to the provisions of this Agreement and this
Agreement not having been terminated, as promptly as practicable but in no event
later than July 31, 1996, Merger Sub shall, and Purchaser shall cause Merger Sub
to commence, within the meaning of Rule 14d-2 under the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder
(the "EXCHANGE ACT"), an offer to purchase all of the outstanding shares of
Common Stock, par value $.01 per share (the "COMMON STOCK") of the Company, at a
price of $0.70 (seventy cents) per share of Common Stock net to the seller in
cash (the "OFFER"). The obligation of Merger Sub to, and of Purchaser to cause
Merger Sub to, commence the Offer and accept for payment, and pay for, any
shares of Common Stock tendered pursuant to the Offer shall be subject to the
conditions set forth in EXHIBIT A and to the terms and conditions of this
Agreement. Subject to the provisions of this Agreement, the Offer shall expire
20 business days after the date of its commencement, unless this Agreement is
terminated in accordance with ARTICLE 10, in which case the Offer (whether or
not previously extended in accordance with the terms hereof) shall expire on
such date of termination.
(b) Without the prior written consent of the Company, Merger Sub shall
not (i) waive the Minimum Condition (as defined in EXHIBIT A), (ii) reduce the
number of shares of Common Stock subject to the Offer, (iii) reduce the price
per share of Common Stock to be paid pursuant to the Offer, (iv) extend the
Offer if all of the Offer conditions are satisfied or waived, (v) change the
form of consideration payable in the Offer, or (vi) amend or modify any term or
condition of the Offer (including the conditions set forth on EXHIBIT A) in
any manner adverse to the holders of Common Stock. Notwithstanding anything
here into the contrary, Merger Sub may, in its sole discretion without the
consent of the Company, extend the Offer at any time and from time to time
(i) if at the then scheduled expiration date of the Offer any of the
conditions to Merger Sub's obligation to accept for payment and pay for
shares of Common Stock shall not have been satisfied or waived; (ii) for any
period required by any rule, regulation, interpretation or position of the
Securities and Exchange Commission (the "SEC") or its staff applicable to the
Offer; (iii) for any period required by applicable law in connection with an
increase in the consideration to be paid pursuant to the Offer; and (iv) if
all Offer conditions are satisfied or waived but the number of shares of
Common Stock tendered is 85% or more, but less than 90%, of the then
outstanding number of shares of Common Stock, for an aggregate period of not
more than 5 business days (for all such extensions under this clause (iv))
beyond the latest expiration date that would be permitted under clause (i),
(ii) or (iii) of this sentence. So long as this Agreement is in effect and
the Offer conditions have not been satisfied or waived, at the request of the
Company, Merger Sub shall, and Purchaser shall cause Merger Sub to, extend
the Offer for an aggregate period of not more than 20 business days (for all
such extensions) beyond the originally scheduled expiration date of the
Offer. Subject to the terms and conditions of the Offer and this Agreement
(but subject to the right of termination in
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accordance with ARTICLE 10), Merger Sub shall, and Purchaser shall cause Merger
Sub to, accept for payment, in accordance with the terms of the Offer, all
shares of Common Stock validly tendered and not withdrawn pursuant to the Offer
as soon as practicable after the expiration of the Offer.
1.2. ACTIONS BY PURCHASER AND MERGER SUB. (a) As soon as reasonably
practicable following execution of this Agreement, but in no event later than
five business days from the date hereof, Purchaser and Merger Sub shall file
with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer, which shall contain an offer to purchase and a related letter of
transmittal and any other ancillary documents pursuant to which the Offer shall
be made (such Schedule 14D-1 and the documents therein pursuant to which the
Offer will be made, together with any supplements or amendments thereto, the
"OFFER DOCUMENTS"). The Company and its counsel shall be given an opportunity
to review and comment upon the Offer Documents prior to the filing thereof with
the SEC. The Offer Documents shall comply as to form in all material respects
with the requirements of the Exchange Act, and on the date filed with the SEC
and on the date first published, sent or given to the Company's stockholders,
the Offer Documents shall not 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 therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by
Purchaser or Merger Sub with respect to information supplied by the Company for
inclusion in the Offer Documents. Each of Purchaser, Merger Sub and the Company
agrees promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that such information shall have become false or
misleading in any material respect, and each of Purchaser, Merger Sub and the
Company further agrees to take all steps necessary to cause the Offer Documents
as so corrected to be filed with the SEC and to be disseminated to holders of
shares of Common Stock, in each case as and to the extent required by applicable
federal securities laws. Purchaser and Merger Sub agree to provide the Company
and its counsel in writing with any comments Purchaser, Merger Sub or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents promptly after receipt of such comments and with copies of any written
responses and telephonic notification of any verbal responses by Purchaser,
Merger Sub or their counsel.
(b) Purchaser shall provide or cause to be provided to Merger Sub all of
the funds necessary to purchase any shares of Common Stock that Merger Sub
becomes obligated to purchase pursuant to the Offer.
1.3. ACTIONS BY THE COMPANY. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that the Board of Directors of
the Company (the "BOARD OF DIRECTORS" or the "BOARD") at a meeting duly called
and held has duly adopted, by unanimous vote, resolutions approving this
Agreement, the Offer and the Merger (as hereinafter defined), determining that
the Merger is advisable and that the terms of the Offer and Merger are fair to,
and in the best interests of, the Company's stockholders and recommending that
the Company's stockholders accept the Offer and approve the Merger and this
Agreement inapplicable to the Offer, the Merger and this Agreement or any of the
transactions contemplated hereby or thereby. The Company hereby consents to the
inclusion in the Offer Documents of the recommendation of the Board of Directors
described in the first sentence of this SECTION 1.3(a).
(b) On the date the Offer Documents are filed with the SEC, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to
time, the "SCHEDULE 14D-9") containing the recommendations described in
paragraph (a) above and shall mail the Schedule 14D-9 to the stockholders of the
Company. To the extent practicable, the Company shall cooperate with Purchaser
in mailing or otherwise disseminating the Schedule 14D-9 with the appropriate
Offer Documents to the Company's stockholders. Purchaser and its counsel shall
be given an opportunity to review and comment upon the Schedule 14D-9 prior to
the filing thereof with the SEC. The Schedule 14D-9 shall comply as to form in
all material respects with the requirements of the Exchange Act and, on the date
filed with the SEC and on the date first published, sent or given to the
Company's stockholders, shall not 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 therein, in light of the circumstance
sunder which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by Purchaser or Merger
Sub for inclusion in the Schedule 14D-9. Each of the Company, Purchaser and
Merger Sub
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agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 if and to the extent that such information shall have become
false or misleading in any material respect, and the Company further agrees to
take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed
with the SEC and to be disseminated to the holders of shares of Common Stock, in
each case as and to the extent required by applicable federal securities laws.
The Company agrees to provide Purchaser and Merger Sub and their counsel in
writing with any comments the Company or its counsel may receive from the SEC or
its staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments and with copies of any written responses and telephonic notification of
any verbal responses by the Company or its counsel.
(c) In connection with the Offer, the Company shall cause its transfer
agent to furnish Merger Sub with mailing labels containing the names and
addresses of the record holders of Common Stock as of a recent date and of those
persons becoming record holders subsequent to such date, together with copies of
all lists of stockholders, security position listings and computer files and all
other information in the Company's possession or control regarding the
beneficial owners of Common Stock, and shall furnish to Merger Sub such
information and assistance (including updated lists of stockholders, security
position listings and computer files) as Merger Sub may reasonably request in
communicating the Offer to the Company's stockholders. Subject to the
requirements of law, and except for such steps as are necessary to disseminate
the Offer Documents and any other documents necessary to consummate the Offer
and the Merger, Purchaser and Merger Sub and each of their affiliates and
associates shall hold in confidence the information contained in any of such
labels, lists and files, shall use such information only in connection with the
Offer and the Merger, and, if this Agreement is terminated, shall promptly
deliver to the Company all copies of such information then in their possession.
(d) Subject to the terms and conditions of this Agreement, if there shall
occur a change in law or in a binding judicial interpretation of existing law
which would, in the absence of action by the Company or the Board, prevent the
merger Sub, were it to acquire a specified percentage of the shares of Common
Stock then outstanding, from approving and adopting this Agreement by its
affirmative vote as the holder of a majority of shares of Common Stock and
without the affirmative vote of any other stockholder, the Company will use its
best efforts to promptly take or cause such action to be taken.
1.4. DIRECTORS. (a) Promptly upon the purchase of shares of Common Stock
pursuant to the Offer, Purchaser shall be entitled to designate such number of
directors, rounded up to the next whole number, as will give Purchaser
representation on the Board of Directors equal to the product of (i) the number
of directors on the Board of Directors and (ii) the percentage that the number
of shares of Common Stock purchased by Merger Sub or Purchaser or any affiliate
bears to the number of shares of Common Stock outstanding (the "PERCENTAGE"),
and the Company shall, upon request by Purchaser, promptly increase the size of
the Board of Directors and/or exercise its best efforts to secure the
resignations of such number of directors as is necessary to enable Purchaser's
designees to be elected to the Board of Directors and shall cause the
Purchaser's designees to be so elected. At the request of Purchaser, the
Company will use its best efforts to cause such individuals designated by
Purchaser to constitute the same Percentage of (i) each committee of the Board.
The Company's obligations to appoint designees to the Board of Directors shall
be subject to Section 14(f) of the Exchange Act. The Company shall, at
Purchaser's request, take, at the Company's expense, all action necessary to
effect any such election, and shall include in the Schedule 14D-9 the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Purchaser will supply to Company in writing and be
solely responsible for any information with respect to itself and its nominees,
directors and affiliates required by Section 14(f) and Rule 14f-1.
Notwithstanding the foregoing, the parties hereto shall use their respective
best efforts to ensure that at least two of the members of the Board of
Directors shall at all times prior to the Effective Time (as hereinafter
defined) be Continuing Directors (as hereinafter defined).
(b) If Purchaser shall exercise its right to designate members to the
Board of Directors as permitted in this SECTION 1.4, then following the election
or appointment of Purchaser's designees pursuant to this SECTION 1.4 and prior
to the Effective Time, the approval of a majority of the directors of the
Company then in office who are not designated by Purchaser (the "CONTINUING
DIRECTORS") shall be required to authorize (and such authorization shall
constitute the authorization of the Board of Directors and no other action on
the part of the Company, including any action by any other director of the
Company, shall be required to authorize) any
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termination of this Agreement by the Company, any amendment of this
Agreement requiring action by the Board of Directors, any extension of time for
the performance of any of the obligations or other acts of Purchaser or Merger
Sub, and any waiver of compliance with any of the agreements or conditions
contained herein for the benefit of the Company.
ARTICLE 2: THE MERGER
2.1. THE MERGER. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in SECTION 2.3), Merger Sub shall be merged with and
into the Company in accordance with this Agreement and the applicable provisions
of the CBCA, and the separate corporate existence of Merger Sub shall thereupon
cease (the "MERGER"). The Company shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "SURVIVING CORPORATION"). The
Merger shall have the effects specified in the CBCA.
2.2. THE CLOSING. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "CLOSING") shall take place at the offices of
Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk,
L.L.P., 301 Commerce Street, Suite 3500, Fort Worth, Texas 76102 at 10:00 a.m.,
local time, as soon as practicable following the satisfaction (or waiver if
permissible) of the conditions set forth in ARTICLE 9. The date on which the
Closing occurs is hereinafter referred to as the "CLOSING DATE."
2.3. EFFECTIVE TIME. If all the conditions to the Merger set forth in ARTICLE 9
shall have been fulfilled or waived in accordance herewith and this Agreement
shall not have been terminated as provided in ARTICLE 10, the parties hereto
shall cause a Certificate of Merger meeting the requirements of the CBCA to be
properly executed and filed in accordance with such Section on the Closing Date.
The Merger shall become effective at the time of filing of the Certificate of
Merger with the Secretary of State of the State of Colorado in accordance with
the CBCA or at such later time which the parties hereto shall have agreed upon
and designated in such filing as the effective time of the Merger (the
"EFFECTIVE TIME")
ARTICLE 3 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION
3.1. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of the
Surviving Corporation shall be in the form attached hereto as EXHIBIT B, until
duly amended in accordance with applicable law.
3.2. BYLAWS. The Bylaws of Merger Sub in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.
ARTICLE 4 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
4.1. DIRECTORS. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law.
4.2. OFFICERS. The Merger Sub immediately prior to the Effective Time shall
be the officers of the Surviving Corporation as of the Effective Time and until
their successors are duly appointed or elected in accordance with applicable
law.
ARTICLE 5 EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND THE COMPANY
5.1. MERGER SUB STOCK. At the Effective Time, each share of Common Stock, $.01
Par value per share, of Merger Sub outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock, $.01 Par value per share,
of the Surviving
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Corporation.
5.2. COMPANY SECURITIES. (a) At the Effective Time, each share of
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Common Stock owned by Purchaser or Merger Sub or held by
the Company, all of which shall be canceled, and other than shares of Dissenting
Common Stock (as hereinafter defined)) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive the per share consideration in the Offer, without interest (the
"MERGER CONSIDERATION").
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time all shares of Common Stock shall cease to
be outstanding and shall be canceled and retired and shall cease to exist, and
each holder of shares of Common Stock (other than Merger Sub, Purchaser and the
Company) shall thereafter cease to have any rights with respect to such shares
of Common Stock, except the right to receive, without interest, the merger
Consideration in accordance with SECTION 5.3 upon the surrender of a certificate
or certificates (a "CERTIFICATE") representing such shares of Common Stock.
(c) Each share of Common Stock issued and held in the Company's treasury
at the Effective Time shall, by virtue of the Merger, cease to be outstanding
and shall be canceled and retired without payment of any consideration therefor.
(d) All options (individually, an "OPTION" and collectively,
the "OPTIONS") outstanding immediately prior to the Effective Time under any
Company stock option plan (the "STOCK OPTION PLANS"), whether or not then
exercisable, shall be canceled and each holder of an Option will be entitled to
receive from the Surviving Corporation, for each share of Common Stock subject
to an Option, an amount in cash equal to the excess, if any, of the Merger
Consideration over the per share exercise price of such Option, without
interest. All amounts payable pursuant to this SECTION 5.2(d) shall be subject
to all applicable withholding of taxes. The Company shall use its reasonable
best efforts to obtain all necessary consents of the holders of Options,
provided, however, that the failure of the Company to obtain any one or more of
such consents shall have no effect on the Purchaser's and Merger Sub's
obligation to consummate the Offer and the Merger and shall not afford any basis
for them to assert the condition set forth in clause (ii) of paragraph (d) of
Exhibit A.
5.3. EXCHANGE OF CERTIFICATES REPRESENTING COMMON STOCK. (a) Promptly after
the Effective Time, Purchaser shall mail to each holder of record of shares of
Common Stock (i) a letter of transmittal which shall specify that delivery shall
be effected, and risk of loss and title to such Certificates shall pass, only
upon delivery of the Certificates to the Depositary and which letter shall be
in such form and have such other provisions as Purchaser may reasonably specify
and (ii) instructions for effecting the surrender of such Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate to the
Depositary together with such letter of transmittal, duly executed and completed
in accordance with the instructions thereto, and such other documents as may
reasonably be required by the Depositary, the holder of such Certificate shall
promptly receive in exchange therefor the amount of cash into which shares of
Common Stock theretofore represented by such Certificate shall have been
converted pursuant to SECTION 5.2, and the shares represented by the Certificate
so surrendered shall forthwith be canceled. No interest will be paid or will
accrue on the cash payable upon surrender of any Certificate. In the event of a
transfer of ownership of Common Stock which is not registered in the transfer
records of the Company, payment may be made with respect to such Common Stock to
such a transferee if the Certificate representing such shares of Common Stock is
presented to the Depositary, accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock transfer
taxes have been paid.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the company of the shares of Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged as provided in this ARTICLE 5.
(d) Any portion of the consideration that remains unclaimed by the
former stockholders of the Company six months after the Effective Time shall be
delivered to the Surviving Corporation. Any former stockholders of the Company
who have not theretofore complied with this ARTICLE 5 shall thereafter look only
to the Surviving Corporation for payment of any Merger Consideration that may be
payable in respect of each share of Common
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Stock such stockholder holds as determined pursuant to this Agreement, without
any interest thereon.
(e) None of Purchaser, the Company, the Surviving Corporation, the
Depositary or any other person shall be liable to any former holder of shares of
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(f) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by the SURVIVING CORPORATION,
the posting by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Depositary will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration payable in
respect thereof pursuant to this Agreement.
5.4. ADJUSTMENT OF MERGER CONSIDERATION. If, subsequent to the date of this
Agreement but prior to the Effective Time, the outstanding shares of Common
Stock shall have been changed into a different number of shares or a different
class as a result of a stock split, reverse stock split, stock dividend,
subdivision, reclassification, split, combination, exchange, recapitalization or
other similar transaction, the Merger Consideration shall be appropriately
adjusted.
5.5. DISSENTING COMPANY STOCKHOLDERS. Notwithstanding any provision of this
Agreement to the contrary, if required by the CBCA but only to the extent
required thereby, shares of Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by holders of such
shares of Common Stock who have properly exercised appraisal rights with respect
thereto in accordance with the CBCA (the "DISSENTING COMMON STOCK") will not be
exchangeable for the right to receive the Merger Consideration, and holders of
such shares of Dissenting Common Stock will be entitled to receive payment of
the appraised value of such shares of Common Stock in accordance with the
provisions of CBCA unless and until such holders fail to perfect or effectively
withdraw or lose their rights to appraisal and payment under the CBCA. If,
after the Effective Time, any such holder fails to perfect or effectively
withdraws or loses such right, such shares of Common Stock will thereupon be
treated as if they had been converted into and to have become exchangeable for,
at the Effective Time, the right to receive the Merger Consideration, without
any interest thereon. The Company will give Purchaser prompt notice of any
demands received by the Company for appraisals of shares of Common Stock. The
Company shall not, except with the prior written consent of Purchaser, make any
payment with respect to any demands for appraisal or offer to settle or settle
any such demands.
5.6. MERGER WITHOUT MEETING OF STOCKHOLDERS. Notwithstanding the foregoing
but subject to the provisions of Section 8.3(f), if Merger Sub, or any other
direct or indirect subsidiary of Purchaser, shall acquire at least 90% of the
outstanding shares of Common Stock, the parties hereto shall take all necessary
and appropriate action to cause the Merger to become effective as soon as
practicable after the expiration of the Offer without a meeting of stockholders
of the Company, in accordance with the CBCA.
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser and Merger Sub as
follows:
6.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. The Company is (i) a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and (ii) is duly licensed or
qualified to do business as a foreign corporation and is in good standing
under the laws of any other state of the United States in which the character
of the properties owned or leased by it or in which the transaction of its
business makes such qualification necessary, except where the failure to be
so qualified or to be in good standing, individually or in the aggregate,
would not have a Material Adverse Effect (as hereinafter defined). The
Company has all requisite corporate power and authority to own, operate and
lease its properties and carry on its business as now conducted, except where
the failure to have such power and authority, individually or in the
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aggregate, would not have a Material Adverse Effect. The Company has
heretofore delivered to Purchaser true and correct copies of the Company's
Certificate of Incorporation and Bylaws as currently in effect.
6.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby or executed in connection
herewith (the "ANCILLARY DOCUMENTS") and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors, and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement and the Ancillary
Documents or to consummate the transactions contemplated hereby and thereby
(other than the approval of this Agreement by the holders of a majority of the
shares of Common Stock if required by applicable law). This Agreement has been,
and any Ancillary Document at the time of execution will have been, duly and
validly executed and delivered by the Company, and (assuming this Agreement and
such Ancillary Documents each constitutes a valid and binding obligation of the
Purchaser and Merger Sub) constitutes and will constitute the valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights and general principles of equity.
6.3. COMPLIANCE WITH LAWS. Except as set forth in the Company Reports (as
hereinafter defined), each of the Company and its Subsidiaries is incompliance
with all applicable foreign, federal, state or local laws, statutes, ordinances,
rules, regulations, orders, judgments, rulings and decrees ("LAWS") of any
foreign, federal, state or local judicial, legislative, executive,
administrative or regulatory body or authority or any court, arbitration, board
or tribunal ("GOVERNMENTAL ENTITY"), except where the failure to be
incompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
6.4. CAPITALIZATION. The authorized capital stock of the Company consists of
80,000,000 shares of Common Stock and 20,000,000 shares of preferred stock, $.01
par value. As of July 15, 1996, (a) 2,400,184 shares of Common Stock were
issued and outstanding, (b) No shares of Preferred Stock were issued and
outstanding, (c) Options to purchase an aggregate of 300,000 shares of Common
Stock were outstanding and there are no stock appreciation rights or limited
stock appreciation rights outstanding other than those attached to such Options,
and (d) no shares of Common Stock were held by the Company in its treasury. The
Company has no outstanding bonds, debentures, notes or other obligations
entitling the holders thereof to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
the Company on any matter. Since July 15, 1996, the Company (i) has not issued
any shares of Common Stock, (ii) has granted no Options to purchase shares of
Common Stock under the Stock Option Plans, and (iii) has not split, combined or
reclassified any of its shares of capital stock. All issued and outstanding
shares of Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. There are no other shares of
capital stock or voting securities of the Company, and no existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Company to issue, transfer or sell
any shares of capital stock of, or equity interests in, the Company. There are
no outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company and there are no performance
awards outstanding under the Stock Option Plan or any other outstanding stock
related awards. After the Effective Time, the Surviving Corporation will have
no obligation to issue, transfer or sell any shares of capital stock of the
Company or the SURVIVING CORPORATION pursuant to any Company Benefit Plan (as
defined in SECTION 6.11). There are no voting trusts or other agreements or
understandings to which the Company is a party with respect to the voting of
capital stock of the Company.
6.5. SUBSIDIARIES. The Company has no subsidiaries.
6.6. NO VIOLATION. Except as set forth in SCHEDULE 6.6, neither the execution
and delivery by the Company of this Agreement or any of the Ancillary Documents
nor the consummation by the Company of the
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transactions contemplated hereby or thereby will: (i) violate, conflict with or
result in a breach of any provisions of the Certificate of Incorporation or
Bylaws of the Company; (ii) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, result in the termination or in
a right of termination of, accelerate the performance required by or benefit
obtainable under, result in the triggering of any payment or other obligations
pursuant to, result in the creation of any Encumbrance upon any of the
properties of the Company under, or result in there being declared void,
voidable, or without further binding effect, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust or any license,
franchise, permit, lease, contract, agreement or other instrument, commitment or
obligation to which the Company is a party, or by which the Company or any of
its properties is bound (each, a "CONTRACT" and collectively, "CONTRACTS"),
Except for any of the foregoing matters which individually or in the aggregate
would not have a Material Adverse Effect; (iii) other than the filings provided
for in SECTION 2.3 and the filings required under the Exchange Act and the
Securities Act of 1933, as amended (the "SECURITIES ACT"), require any consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Entity, the lack of which individually or in the aggregate would
have a Material Adverse Effect or by Law prevent the consummation of the
transactions contemplated hereby; and (iv) violate any Laws applicable to the
Company, or any of its respective assets, except for violations which
individually or in the aggregate would not have a Material Adverse Effect or
materially adversely affect the ability of the Company to consummate the
transactions contemplated hereby.
6.7. COMPANY REPORTS; OFFER DOCUMENTS. (a) The Company has
delivered to Purchaser each registration statement, report, proxy statement
or information statement (as defined under the Exchange Act) prepared by it
since January 1, 1993, each in the form (including exhibits and any
amendments thereto) filed with the SEC (collectively, the "COMPANY
REPORTS"). As of their respective dates, (i) the Company Reports filed since
December 31, 1994 complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act, and the
rules and regulations thereunder and (ii) the Company Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each of the balance sheets of the Company included in or
incorporated by reference into the Company Reports (including the related
notes and schedules) fairly presents the financial position of the Company as
of its date, and each of the statements of income, retained earnings and cash
flows of the Company included in or incorporated by reference into the
Company Reports (including any related notes and schedules) fairly presents
the results of operations, retained earnings or cash flows, as the case may
be, of the Company for the periods set forth therein, in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Except as set
forth in SCHEDULE 6.7, the Company has no liabilities or obligations,
contingent or otherwise, except (i) liabilities and obligations in the
respective amounts reflected or reserved against in the Company's balance
sheet as of April 30, 1996 included in the Company Reports or (ii)
liabilities and obligations incurred in the ordinary course of business since
April 30, 1996 which individually or in the aggregate would not have a
Material Adverse Effect.
(b) None of the Schedule 14D-9, the information statement, if any, filed
by the Company in connection with the Offer pursuant to Rule 14f-1 under the
Exchange Act (the "INFORMATION STATEMENT"), any schedule required to be filed by
the Company with the SEC or any amendment or supplement thereto, at the
respective times such documents are filed with the SEC or first published, sent
or given to the Company's stockholders, will contain any untrue statement of a
material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading except that no
representation is made by the Company with respect to information supplied by
the Purchaser or Merger Sub specifically for inclusion in the Schedule 14D-9 or
information Statement or any amendment or supplement. None of the information
supplied or to be supplied by the Company in writing specifically for inclusion
or incorporation by reference in the Offer Documents will, at the date of filing
with the SEC, 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 therein, in light of the circumstances under which they were
made, not misleading. If at any time prior to the Effective Time the Company
shall obtain knowledge of any facts with respect
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to itself, any of its officers and directors that would require the supplement
or amendment to any of the foregoing documents in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or to comply with applicable Laws, such amendment or supplement
shall be promptly filed with the SEC and, as required by Law, disseminated to
the stockholders of the Company, and in the event Purchaser shall advise the
Company as to its obtaining knowledge of any facts that would make it necessary
to supplement or amend any of the foregoing documents, the Company shall
promptly amend or supplement such document as required and distribute the same
to its stockholders.
6.8. LITIGATION. Except as set forth in SCHEDULE 6.8 or in the Company
Reports, (i) there are no claims, actions, suits, proceedings, arbitrations,
investigations or audits (collectively, "LITIGATION") by a Governmental Entity
pending or, to the knowledge of the Company through receipt of written notice,
threatened against the Company, at law or in equity, other than those in the
ordinary course of business which individually or in the aggregate would not
have a Material Adverse Effect, and (ii) there are no claims, actions, suits,
proceedings, or arbitrations by a non-Governmental Entity third party pending
or, to the knowledge of the Company, threatened against the Company, at law or
at equity, other than those in the ordinary course of business which
individually or in the aggregate would not have a Material Adverse Effect.
Except as set forth in the Company Reports, no Governmental Entity has indicated
in writing an intention to conduct any audit, investigation or other review with
respect to the Company which investigation or review, if adversely determined,
individually or in the aggregate would have a Material Adverse Effect.
6.9. ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE 6.9 or in
the Company Reports, since July 31, 1995, the Company has conducted its
business only in the ordinary course of such business consistent with past
practices, and there has not been (i) any events or states of fact which
individually or in the aggregate would have a Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution with
respect to its capital stock; (iii) any repurchase, redemption or any other
acquisition by the Company of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company; (iv) any material
change in accounting principles, practices or methods; (v) any entry into any
employment agreement with, or any increase in the rate or terms (including,
without limitation, any acceleration of the right to receive payment) of
compensation payable or to become payable by the Company to, its directors,
officers or employees, except normal increases of hourly employees; or (vi) any
increase in the rate or terms (including, without limitation, any acceleration
of the right to receive payment) of any bonus, insurance, pension or other
employee benefit plan or arrangement covering any directors, officers or
employees.
6.10. TAXES. Except as set forth in SCHEDULE 6.10, the Company has timely
filed all material Tax Returns required to be filed by any of them. All such Tax
Returns are true, correct and complete, except for such instances which
individually or in the aggregate would not have a Material Adverse Effect. All
Taxes of the Company which are (i) shown as due on such Returns, (ii) otherwise
due and payable or (iii) claimed or asserted by any taxing authority to be due,
have been paid, except for those Taxes being contested in good faith and for
which adequate reserves have been established in the financial statements
included in the Company Reports in accordance with generally accepted accounting
principles. The Company does not know of any proposed or threatened Tax claims
or assessments which, if upheld, would individually or in the aggregate have a
Material Adverse Effect. Except as set forth in SCHEDULE 6.10, the Company has
withheld and paid over to the relevant taxing authority all Taxes required to
have been withheld and paid in connection with payments to employees,
independent contractors, creditors, stockholders or other third parties, except
for such Taxes which individually or in the aggregate would not have a Material
Adverse Effect. For purposes of this Agreement, (a) "TAX" (and, with
correlative meaning, "TAXES") means any federal, state, local or foreign income,
gross receipts, property, sales, use, license, excise, franchise, employment,
payroll, premium, withholding, alternative or added minimum, ad valorem,
transfer or excise tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any Governmental Entity, and (b) "TAX RETURN"
means any return, report or similar statement required to be filed with respect
to any Tax (including any attached schedules), including, without limitation,
any information return, claim for refund, amended return or declaration of
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estimated Tax.
6.11. EMPLOYEE BENEFIT PLANS. All employee benefit plans, compensation
arrangements and other benefit arrangements covering employees of the Company
(the "COMPANY BENEFIT PLANS") and all employee agreements providing
compensation, severance or other benefits to any employee or former employee of
the Company which are not disclosed in the Company Reports and which exceed
$1,000 per annum are set forth in SCHEDULE 6.11. True and complete copies of
the Company Benefit Plans have been made available to Purchaser. To the extent
applicable, the Company Benefit Plans comply with the requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
Internal Revenue Code of 1986, as amended (the "CODE"), and any Company Benefit
Plan intended to be qualified under Section 401(a) of the Code has received a
determination letter and, to the knowledge of the Company continues to satisfy
the requirements for such qualification. Neither the Company nor any ERISA
Affiliate of the Company maintains, contributes to or has maintained or
contributed in the past six years to any benefit plan which is covered by Title
IV of ERISA or Section 412 of the Code. No Company Benefit Plan nor the Company
nor any Subsidiary has incurred any liability or penalty under Section 4975 of
the Code or Section 502(i) of ERISA or, to the knowledge of the Company, engaged
in any transaction that is reasonably likely to result in any such liability or
penalty. Except as set forth on SCHEDULE 6.11, each Company Benefit Plan has
been maintained and administered in compliance with its terms and with ERISA and
the Code to the extent applicable thereto, except for such non-compliance which
individually or in the aggregate would not have a Material Adverse Effect.
There is no pending or, to the knowledge of the Company, anticipated Litigation
against or otherwise involving any of the Company Benefit Plans and no
Litigation (excluding claims for benefits incurred in the ordinary course of
Company Benefit Plan activities) has been brought against or with respect to any
such Company Benefit Plan, except for any of the foregoing which individually or
in the aggregate would not have a Material Adverse Effect. All contributions
required to be made as of the date hereof to the Company Benefit Plans have been
made or provided for. Except as described in the Company Reports or as required
by Law, the Company does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance or medical or
other employee welfare benefits to any employee or former employee upon his
retirement or termination of employment, and the Company has not ever
represented, promised or contracted (whether in oral or written form) to any
employee or former employee that such benefits would be provided. Except as set
forth in SCHEDULE 6.11, the execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) constitute an event under any benefit plan,
policy, arrangement or agreement or any trustor loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any employee. Except as set forth in SCHEDULE
6.11, no payment or benefit which will or may be made by the Company, any
ERISA Affiliate or Purchaser or Merger Sub with respect to any employee will
constitute an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code. For purposes of this Agreement "ERISA AFFILIATE"
means any business or entity which is a member of the same "controlled group
of corporations," under "common control" or an "affiliated service group"
with an entity within the meanings of Sections 414(b), (c) or (m) of the
Code, or required to be aggregated with the entity under Section 414(o) of
the Code, or is under "common control" with the entity, within the meaning of
Section 4001(a)(14) of ERISA, or any regulations promulgated or proposed
under any of the foregoing Sections.
6.12. LABOR AND EMPLOYMENT MATTERS. Except as set forth in SCHEDULE 6.12, the
Company is not a party to, or bound by, any collective bargaining agreement or
other Contracts or understanding with a labor union or labor organization.
Except for such matters which, individually or in the aggregate, would not have
a Material Adverse Effect, there is no (i) unfair labor practice, labor dispute
(other than routine individual grievances) or labor arbitration proceeding
pending or, to the knowledge of the Company, threatened against the Company
relating to their business, (ii) to the knowledge of the Company, activity or
proceeding by a labor union or representative thereof to organize any employees
of the Company, or (iii) lockouts, strikes, slowdowns, work stops or threats
thereof by or with respect to such employees.
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6.13. BROKERS. No broker, finder or financial advisor is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company and (ii) the Company's fee arrangements with the
Financial Advisor have been disclosed to the Purchaser.
6.14. ENVIRONMENTAL COMPLIANCE AND DISCLOSURE. (a) Except as set forth on
SCHEDULE 6.17 or except for any matters which individually or in the aggregate
would not have a Material Adverse Effect, (i) the Company is in full compliance
with all applicable Laws relating to Environmental Matters (as defined below);
(ii) the Company has obtained, and is in full compliance with, all Permits
required by applicable Laws for the use, storage, treatment, transportation,
release, emission and disposal of raw materials, by-products, wastes and other
substances used or produced by or otherwise relating to the operations of any of
them; (iii) to the Company's knowledge, there are no past or present events,
conditions, activities or practices that would prevent compliance or continued
compliance with any Law or give rise to any Environmental Liability (as defined
below).
(b) As used in this Agreement, the term "ENVIRONMENTAL MATTERS" means any
matter arising out of or relating to pollution or protection of the environment,
human safety or health, or sanitation, including matters relating to emissions,
discharges, releases, exposures, or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes including petroleum and
its fractions, radiation, biohazards and all toxic agents of whatever type or
nature into ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or wastes including petroleum and its fractions, radiation,
biohazards and all toxic agents of whatever type or nature. "ENVIRONMENTAL
LIABILITY" shall mean any liability or obligation arising under any Law or under
any other current theory of law or equity (including, without limitation, any
liability for personal injury, property damage or remediation) that results
from, or is based upon or related to, the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or
the emission, discharge, release, exposures or threatened release into the
environment, of any pollutant, contaminant, chemical, or industrial, toxic or
hazardous substance or waste.
6.15. TITLE TO ASSETS. (a) Except as set forth in the 1995 Balance Sheet,
the Company have good and marketable title to all of their real and personal
properties and assets reflected on the 1995 Balance Sheet (other than assets
disposed of since December 31, 1995 in the ordinary course of business
consistent with past practice) or acquired since December 31, 1995, in each case
free and clear of all Encumbrances except for (i) Encumbrances which secure
indebtedness which is properly reflected in the 1995 Balance Sheet; (ii) liens
for Taxes accrued but not yet payable; (iii) liens arising as a matter of law in
the ordinary course of business with respect to obligations incurred after the
date of the 1995 Balance Sheet, provided that the obligations secured by such
liens are not delinquent; and (iv) such imperfections of title and Encumbrances,
if any, as individually or in the aggregate would not have a Material Adverse
Effect. Except as set forth in SCHEDULE 6.18, the Company either own, or have
valid leasehold interests in, all properties and assets used by them in the
conduct of their business except where the absence of such ownership or
leasehold interest would not individually or in the aggregate have a Material
adverse Effect. (b) Except as set forth in SCHEDULE 6.18, neither the Company n
has any legal obligation, absolute or contingent, to any other person to sell or
otherwise dispose of any interest in any assets, or to sell or dispose of any of
its other assets with an individual value of $1,000 or an aggregate value in
excess of $5,000.
6.16. MATERIAL CONTRACTS. SCHEDULE 6.19 sets forth a list of all (i)
Contracts for borrowed money or guarantees thereof involving a currently
outstanding principal amount in excess of $1,000 , (ii) Contracts to acquire or
dispose of assets (iii) Contracts containing non-compete covenants by the
Company or any Subsidiary and (iv) other Contracts (other than national supply
and national purchasing Contracts for the purchase of supplies in the ordinary
course of business) which involve the payment or receipt of $100,000 or more per
year. All Contracts to which the Company is a party or by which any of their
respective assets is bound are valid and binding, in full force and effect and
enforceable against the Company, as the case may be, and to the knowledge of
the Company, the other parties thereto in accordance with their respective
terms, subject to applicable bankruptcy, insolvency or other
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similar laws relating to creditors' rights and general principles of equity,
except where the failure to be so valid and binding, in full force and effect or
enforceable would not individually or in the aggregate have a Material Adverse
Effect.
6.17. REQUIRED VOTE OF COMPANY STOCKHOLDERS. Unless the Merger maybe
consummated in accordance with the CBCA, the only vote of the stockholders of
the Company required to adopt this Agreement and approve the Merger is the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock.
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Purchaser and Merger Sub hereby represent and warrant to the Company as follows:
7.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Each of Purchaser and
Merger Sub is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted, except where the
failure to have such power and authority individually or in the aggregate
would not materially adversely affect the Purchaser and Merger Sub, taken as
a whole.
7.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Each of purchaser and
Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and the Ancillary Documents and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Ancillary Documents and the consummation by Purchaser and
Merger Sub of the transactions contemplated hereby and thereby have been duly
and validly authorized by the respective Boards of Directors of Purchaser and
Merger Sub and by Purchaser as the sole stockholder of Merger Sub and no other
corporate proceedings on the part of Purchaser or Merger Sub are necessary to
authorize this Agreement and the Ancillary Documents or to consummate the
transactions contemplated hereby and thereby. This Agreement has been, and any
Ancillary Documents at the time of execution will have been, duly and validly
executed and delivered by Purchaser and Merger Sub, and (assuming this Agreement
and such Ancillary Documents each constitutes a valid and binding obligation of
the Company) constitutes and will constitute the valid and binding obligations
of each of Purchaser and Merger Sub, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
7.3. OFFER DOCUMENTS. None of the Offer Documents, any schedule required to be
filed by Purchaser or Merger Sub with the SEC or any amendment or supplement
will contain, on the date of filing with the SEC, any untrue statement of a
material fact or will 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 are made, not misleading, except that no
representation is made by the Purchaser or Merger Sub with respect to
information supplied by the Company specifically for inclusion in the Offer
Documents, any schedule required to be filed with the SEC or any amendment or
supplement. None of the information supplied by the Purchaser or Merger Sub in
writing specifically for inclusion or incorporation by reference in the Schedule
14D-9 will, at the date of filing with the SEC, 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 therein, in light of the
circumstances under which they were made, not misleading. If at any time prior
to the Effective Time either the Purchaser or Merger Sub shall obtain knowledge
of any facts with respect to itself, any of its officers and directors that
would require the supplement or amendment to any of the foregoing documents in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or to comply with applicable Laws, such
amendment or supplement shall be promptly filed with the SEC and, as required by
Law, disseminated to the stockholders of the Company, and in the event the
Company shall advise the Purchaser or Merger Sub as to its obtaining knowledge
of any facts that would make it necessary to supplement or amend any of the
foregoing documents, the Purchaser or Merger Sub shall
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promptly amend or supplement such document as required and distribute the same
to the stockholders of the Company.
7.4. NO VIOLATION. Neither the execution and delivery of this Agreement or
any of the Ancillary Documents by the Purchaser and Merger Sub nor the
consummation by them of the transactions contemplated hereby or thereby will(i)
violate, conflict with or result in any breach of any provision of the
respective Certificates of Incorporation or By-Laws of the Purchaser or Merger
Sub; (ii) other than the filings provided for in SECTION 2.3 and the filings
required under the Exchange Act and the Securities Act, require any consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental entity, the lack of which individually or in the aggregate would
have a Material adverse effect on the ability of the Purchaser or Merger Sub to
consummate the transactions contemplated hereby, (iii) violate any Laws
applicable to the Purchaser or the Merger Sub or any of their respective assets,
except for violations which individually or in the aggregate would not have a
Material adverse effect on the ability of the Purchaser or Merger Sub to
consummate the transactions contemplated hereby, and (iv) violate, conflict with
or result in a breach of any provision of, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
result in the termination or in a right of termination of, accelerate the
performance required by or benefit obtainable under, result in the creation of
any Encumbrance upon any of the properties of the Purchaser or Merger Sub under,
or result in there being declared void, voidable, or without further binding
effect, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which the Purchaser
or Merger Sub is bound, except for any of the foregoing matters which would not
individually or in the aggregate have a material adverse effect on the Purchaser
and Merger Sub, taken as a whole.
ARTICLE 8 COVENANTS
8.1. NO SOLICITATION. Neither the Company, nor any of its respective officers,
directors, employees, representatives, agents or affiliates, shall, directly or
indirectly, encourage, solicit, initiate or, except as is required in the
exercise of the fiduciary duties of the Company's directors to the Company or
its stockholders after consultation with outside counsel (as hereinafter
defined) to the Company, participate in any way in any discussions or
negotiations with, or provide any information to, or afford any access to the
properties, books or records of the Company to, or otherwise assist, facilitate
or encourage, any corporation, partnership, person or other entity or group
(other than the Purchaser or any affiliate or associate of the Purchaser)
concerning any merger, consolidation, business combination, liquidation,
reorganization, sale of substantial assets, sale of shares of capital stock or
similar transactions involving the Company or any Subsidiary or any division of
any thereof (an"ALTERNATIVE PROPOSAL"), and shall immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing; provided,
however, that nothing contained in this SECTION 8.1 shall prohibit the Company
or its Board of Directors from complying with Rule 14e-2(a) promulgated under
the Exchange Actor from making such disclosure to the Company's stockholders or
from taking such action which, in the judgment of the Board of Directors with
the advice of outside counsel, may be required under applicable law. The
Company will promptly notify the Purchaser if any such information is requested
from it or any such negotiations or discussions are sought to be initiated with
the Company.
8.2. INTERIM OPERATIONS. (a) From the date of this Agreement to the
Effective Time, except asset forth in SCHEDULE 8.2(a), unless Purchaser has
consented in writing thereto, the Company shall, and shall cause each of its
Subsidiaries to, (i) conduct its operations according to its usual, regular and
ordinary course of business consistent with past practice; (ii) use its
reasonable best efforts to preserve intact their business organizations and
goodwill, maintain in effect all existing qualifications, licenses, permits,
approvals and other authorizations referred to in SECTIONS 6.1 and 6.14, keep
available the services of their officers and employees and maintain satisfactory
relationships with those persons having business relationships with them; (iii)
promptly upon the discovery thereof notify Purchaser of the existence of any
breach of any representation or warranty contained herein (or, in the case of
any representation or warranty that makes no reference to Material Adverse
Effect, any breach of such representation or warranty in any material respect)
or the occurrence of any event that would cause any
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representation or warranty contained herein no longer to be true and correct
(or, in the case of any representation or warranty that makes no reference to
Material Adverse Effect, to no longer be true and correct in any material
respect); and (iv) promptly deliver to Purchaser true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of this
Agreement, any internal monthly reports prepared for or delivered to the Board
of Directors after the date hereof and monthly financial statements for the
Company for and as of each month end subsequent to the date of this Agreement.
(b) From and after the date of this Agreement to the Effective Time,
except as set forth on SCHEDULE 8.2(b), unless Purchaser has consented in
writing thereto, the Company shall not, and shall not permit to, (i) amend its
Certificate of Incorporation or Bylaws or comparable governing instruments; (ii)
issue, sell or pledge any shares of its capital stock or other ownership
interest in the Company (other than issuances of Common Stock in respect of any
exercise of Options outstanding on the date hereof and disclosed in SCHEDULE
6.4) or any of the Subsidiaries, or any securities convertible into or
exchangeable for any such shares or ownership interest, or any rights, warrants
or options to acquire or with respect to any such shares of capital stock,
ownership interest, or convertible or exchangeable securities; or accelerate any
right to convert or exchange or acquire any securities of the Company for any
such shares or ownership interest; (iii) effect any stock split or otherwise
change its capitalization as it exists on the date hereof; (iv) grant, confer or
award any option, warrant, convertible security or other right to acquire any
shares of its capital stock or take any action to cause to be exercisable any
otherwise unexercisable option under any existing stock option plan; (v)
declare, set aside or pay any dividend or make any other distribution or payment
with respect to any shares of its capital stock or other ownership interests
(other than such payments by a wholly-owned Subsidiary); (vi) directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital stock
or capital stock of ; (vii) sell, lease or otherwise dispose of any of its
assets (including capital stock of Subsidiaries), except in the ordinary course
of business, none of which dispositions individually or in the aggregate will be
material; (viii) settle or compromise any pending or threatened Litigation,
other than settlements which involve solely the payment of money (without
admission of liability) not to exceed $500 in any one case; (ix) acquire by
merger, purchase or any other manner, any business or entity or otherwise
acquire any assets that are material, individually or in the aggregate, to the
Company taken as a whole, except for purchases of inventory, supplies or
capital equipment in the ordinary course of business consistent with past
practice; (x) incur or assume any long-term or short-term debt, except for
working capital purposes in the ordinary course of business under the Company's
existing credit agreement set forth in SCHEDULE 6.19;(xi) assume, guarantee or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except wholly owned
Subsidiaries of the Company; (xii) make or forgive any loans, advances or
capital continuations to, or investments in, any other person other than loans
and advances to employees in the ordinary course of business which do not exceed
$5,000 in the aggregate at any one time outstanding;(xiii) make any Tax election
or settle any Tax liability other than settlements involving solely the payment
of money, which settlement would be permitted by clause (viii); (xiv) grant any
stock related or performance awards; (xv) enter into any employment, severance,
consulting or salary continuation agreements with any officers, directors or
employees or grant any increases incompensation or benefits to employees; (xvi)
adopt, amend in any material respect or terminate any employee benefit plan or
arrangement;(xvi) permit any insurance policy naming the Company or any
Subsidiary as a beneficiary or a loss payee to be canceled or terminated other
than in the ordinary course of business; and (xvii) agree in writing or
otherwise to take any of the foregoing actions.
8.3. COMPANY STOCKHOLDER APPROVAL; PROXY STATEMENT. (a) If approval or
action in respect of the Merger by the stockholders of the Company is required
by applicable law, the Company, acting through the Board of Directors, shall (i)
call a meeting of its stockholders (the"STOCKHOLDERS MEETING") for the purpose
of voting upon the Merger, (ii) hold the Stockholder Meeting as soon as
practicable following the purchase of shares of Common Stock pursuant to the
Offer, and (iii) subject to its fiduciary duties under applicable law as advised
by outside counsel, recommend to its stockholders the approval of the Merger.
The record date for the Stockholders meeting shall be a date subsequent to the
date Purchaser or Merger Sub becomes a record holder of Common Stock purchased
pursuant to the Offer.
(b) If required by applicable law, the Company will, as soon as
practicable following the expiration of the Offer, prepare and file a
preliminary Proxy Statement (such proxy statement, and any amendments or
supplements
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thereto, the "PROXY STATEMENT") or, if applicable, an Information Statement with
the SEC with respect to the Stockholders Meeting and will use its best efforts
to respond to any comments of the SEC or its staff and to cause the Proxy
Statement to be cleared by the SEC. The Company will notify Purchaser of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Purchaser with copies of all
correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Proxy
Statement or the Merger. The Company shall give Purchaser and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the SEC
and shall give Purchaser and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company and Purchaser agrees to use its
best efforts, after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC. As promptly as
practicable after the Proxy Statement has been cleared by the SEC, the Company
shall mail the Proxy Statement to the stockholders of the Company. If at
anytime prior to the approval of this Agreement by the Company's stockholders
there shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, the Company will prepare and mail to its
stockholders such an amendment or supplement.
(c) The Company represents and warrants that the Proxy Statement will
comply as to form in all material respects with the Exchange Act and, at the
respective times filed with the SEC and distributed to stockholders of the
Company, will not 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 therein, in the light of the circumstances under which they
were made, not misleading; provided, that the Company makes no representation or
warranty as to any information included in the Proxy Statement which was
provided by Purchaser or Merger Sub. The Purchaser represents and warrants that
none of the information supplied by Purchaser or Merger Sub for inclusion in the
Proxy Statement will, at the respective times filed with the SEC and distributed
to stockholders of the Company, contain any untrue statement of a material
factor omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Company shall use its best efforts to obtain the necessary
approvals by its stockholders of the Merger, this Agreement and the
transactions contemplated hereby.
(e) Purchaser agrees, subject to applicable law, to cause all shares of
Common Stock purchased by Merger Sub pursuant to the Offer and all other shares
of Common Stock owned by Purchaser, Merger Sub or any other subsidiary or
affiliate of Purchaser to be voted in favor of the approval of the Merger.
(f) Notwithstanding anything in this Agreement to the contrary, Purchaser
and Merger Sub, in their sole discretion, shall have the right to defer the
closing of the Merger for a period of 90 days following the consummation of the
Offer if, in Purchaser's and Merger Sub's sole judgment, such deferral is
necessary in order to enable the Company to effect a covenant.
8.4. FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Company, Purchaser, and Merger Sub shall: (a) use their best
efforts to cooperate with one another in (i) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits, authorizations or waivers are required to be obtained
prior to the Effective Time from, Governmental Entities or other third
parties in connection with the execution and delivery of this Agreement and
any other Ancillary Documents and the consummation of the transactions
contemplated hereby and thereby and (ii) timely making all such filings and
timely seeking all such consents, approvals, permits, authorizations and
waivers; and (b) use their 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 Purchaser and the Surviving Corporation
shall take all such necessary action.
8.5. ACCESS TO INFORMATION. From the date of this Agreement to the
Closing, the Company shall, and shall cause its Subsidiaries to, (i) give
Purchaser and its authorized representatives and lender banks full access
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to all books, records, personnel, offices and other facilities and properties of
the Company and their accountants and accountants' work papers, (ii) permit
Purchaser to make such copies and inspections thereof as Purchaser may
reasonably request and(iii) furnish Purchaser with such financial and operating
data and other information with respect to the business and properties of the
Company as Purchaser may from time to time reasonably request; provided that no
investigation or information furnished pursuant to this SECTION 8.5 shall affect
any representations or warranties made by the Company herein or the conditions
to the obligations of the Purchaser to consummate the transactions contemplated
hereby.
8.6. PUBLICITY. The initial press release relating to this Agreement shall be a
joint press release and thereafter the Company and Purchaser shall, subject to
their respective legal obligations, consult with each other before issuing any
such press release or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any Governmental
Entity or with any national securities exchange with respect thereto.
8.7. FURTHER ACTION. Each party hereto shall, subject to the fulfillment at or
before the Effective Time of each of the conditions of performance set forth
herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
8.8. INSURANCE; INDEMNITY. (a) The Purchaser shall cause the Surviving
Corporation to keep in effect in its By-Laws a provision for a period of not
less than three years from the Effective Time (or, in the case of matters
occurring prior to the Effective Time which have not been resolved prior to the
third anniversary of the Effective Time, until such matters are finally
resolved) which provides for indemnification of the past and present officers
and directors of the Company to the fullest extent permitted by the CBCA. From
and after the Effective Time, the Purchaser shall indemnify and hold harmless,
to the fullest extent permitted under applicable law, each person who is, or has
been at any time prior to the date hereof or who becomes prior to the Effective
Time, an officer or director of the Company or any Subsidiary against all
losses, claims, damages, liabilities, costs or expenses(including attorneys'
fees), judgments, fines, penalties and amounts paid in settlement (collectively,
"LOSSES") in connection with any Litigation arising out of or pertaining to acts
or omissions, or alleged acts or omissions, by them in their capacities as such,
which acts or omissions existed or occurred at or prior to the Effective Time,
whether commenced, asserted or claimed before or after the Effective Time,
including, without limitation, liabilities arising under the Securities Act, the
Exchange Act and state corporation laws in connection with the transactions
contemplated hereby.
(b) Without limiting the foregoing, the Company and after the Effective
Time the Purchaser shall periodically advance expenses as incurred with respect
to the foregoing to the fullest extent permitted under applicable law provided
that the person to whom the expenses are advanced provides an undertaking to
repay such advance if it is ultimately determined that such person is not
entitled to indemnification.
(c) If the Merger shall have been consummated, the Surviving Corporation
shall, to the fullest extent permitted under applicable law, indemnify and hold
harmless the Purchaser and any person or entity who was a stockholder, officer,
director or affiliate of Purchaser prior to the Effective Time against any
Losses in connection with any Litigation arising out of or pertaining to any of
the transactions contemplated by this Agreement or the Ancillary Documents. The
Purchaser shall periodically advance expenses as incurred with respect to the
foregoing to the fullest extent permitted under applicable law provided that the
person to whom the expenses are advanced provides an undertaking to repay such
advance if it is ultimately determined that such person is not entitled to
indemnification.
(d) If any Litigation described in paragraph (b) or (c) of this SECTION
8.8 (each, an "ACTION") arises or occurs, the Surviving Corporation shall
control the defense of such Action through its counsel, but counsel for the
party seeking indemnification pursuant to paragraph (b) or (c) of this SECTION
8.8 (each, an "INDEMNIFIED PARTY") shall be selected by the Indemnified Party,
which counsel shall be reasonably acceptable to the Surviving Corporation, and
the Indemnified Parties
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shall be permitted to participate in the defense of such Action through such
counsel at the Corporation's expense. If there is any conflict between the
Surviving Corporation and any Indemnified Parties or there are additional
defenses available to any Indemnified Parties, the Indemnified Parties shall be
permitted to participate in the defense of such Action with counsel selected by
the Indemnified Parties, which counsel shall be reasonably acceptable to the
Surviving Corporation; provided that the Surviving Corporation shall not be
obligated to pay the reasonable fees and expenses of more than one counsel for
all Indemnified Parties in any single Action except to the extent that, in the
opinion of counsel for the Indemnified Parties, two or more of such Indemnified
Parties have conflicting interests in the outcome of such Action. The Surviving
Corporation shall not be liable for any settlement effected without its written
consent, which consent shall not unreasonably be withheld. The Purchaser shall
cause the Surviving Corporation to cooperate in the defense of any Action.
(e) This Section 8.8 is intended to benefit each of the persons referred
to herein and shall be binding on all successors and assigns of the Company and
the Purchaser.
8.9. RESTRUCTURING OF MERGER. Upon the mutual agreement of Purchaser and the
Company, the Merger shall be restructured in the form of a forward subsidiary
merger of the Company into Merger Sub, with Merger Sub being the Surviving
corporation, or as a merger of the Company into Purchaser, with Purchaser being
the surviving corporation. In such event, this Agreement shall be deemed
appropriately modified to reflect such form of merger.
8.10. EMPLOYEE BENEFIT PLANS. (a) From and after the Effective Time,
the Surviving Corporation and their respective subsidiaries will honor and
assume, and Purchaser will cause the Surviving Corporation to honor and assume,
in accordance with their terms, all existing employment and severance agreements
between the Company and any officer, director, or employee of the Company and
all benefits or other amounts earned or accrued to the extent vested or which
becomes vested in the ordinary course, through the Effective Time under all
employee benefit plans of the Company.
(b) The Purchaser confirms that it is the Purchaser's intention that,
until the first anniversary of the Effective Time, the Surviving Corporation
will provide benefits to their employees (excluding employees covered by
collective bargaining agreements, if any) which benefits will, in the aggregate,
be substantially equivalent to those currently provided by the Company to such
employees (other than pursuant to stock option, stock purchase or other stock
based plans). The Purchaser intends that, after the first anniversary of the
Effective Time, the Surviving Corporation audits Subsidiaries will provide
benefits to their employees (excluding employees covered by collective
bargaining agreements, if any) which benefits are appropriate in the judgment of
the Surviving Corporation, taking into account all relevant factors, including,
without limitation, the businesses in which the Surviving Corporation are
engaged.
8.11. NO LIABILITY FOR FAILURE TO OBTAIN CONSENT OF LENDERS. The Purchaser
and Merger Sub hereby agree that neither the Company nor any of its Affiliates
(as defined below) will incur any liability to Purchaser or Merger Sub if the
transactions contemplated hereby are not consummated because of the failure or
inability to obtain any consent, approval or waiver by the Company's Lenders.
ARTICLE 9 CONDITIONS
9.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective
obligation of each party to effect the Merger shall be subject to the
satisfaction or waiver, where permissible, prior to the Effective Time, of the
following conditions:
(a) If approval of this Agreement and the Merger by the holders of Common
Stock is required by applicable law, this Agreement and the Merger shall have
been approved by the requisite vote of such holders.
(b) There shall not have been issued any injunction or issued or
enacted any Law which prohibits or has the effect of prohibiting the
consummation of the Merger or makes such consummation illegal. .
9.2. CONDITIONS TO OBLIGATION OF PURCHASER AND MERGER SUB TO EFFECT THE MERGER.
The obligations of Purchaser and Merger Sub to effect the Merger shall be
further subject to the satisfaction or waiver on or prior to the Effective Time
of the condition that Purchaser shall have accepted for payment and paid for
shares of Common Stock tendered pursuant to the Offer; provided that this
condition shall be
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deemed satisfied if the Purchaser's failure to accept for payment and pay for
such shares breaches this Agreement or violates the terms and conditions of the
Offer.
ARTICLE 10 TERMINATION; AMENDMENT; WAIVER
10.1. TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the stockholders of the Company, but prior to the Effective Time:
(a) by mutual written consent of the Board of Directors of the
Company(subject to SECTION 1.4) and the Purchaser;
(b) by the Purchaser or the Company: (i) if the Effective Time shall
not have occurred on or before December 31, 1996 (provided that the right to
terminate this Agreement pursuant to this clause (i) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the Effective Time to occur on or
before such date); (ii) if there shall be any statute, law, rule or
regulation that makes consummation of the Offer or the Merger illegal or
prohibited or if any court of competent jurisdiction in the United States or
other Governmental Entity shall have issued an order, judgment, decree or
ruling, or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment, decree, ruling or other action
shall have become final and non-appealable; (iii) after December 31, 1996 if, on
account of the failure of any condition specified in EXHIBIT A, the Merger Sub
has not purchased any shares of Common Stock in the Offer by that date (provided
that the right to terminate this Agreement pursuant to this clause (iii) shall
not be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of any such
condition); or (iv) upon a vote at a duly held meeting or upon any adjournment
thereof, the stockholders of the Company shall have failed to give any approval
required by applicable law;
(c) by the Company if there is an Alternative Proposal which the Board of
Directors in good faith determines is more favorable from a financial point of
view to the stockholders of the Company as compared to the Offer and the Merger,
and the Board of Directors determines, after consultation with counsel ("
COUNSEL"), that failure to terminate this Agreement would be inconsistent with
the compliance by the Board of Directors with its fiduciary duties to
stockholders imposed by law; provided, however, that the right to terminate this
Agreement pursuant to this SECTION 10.1(c)shall not be available (i) if the
Company has breached in any material respect its obligations under SECTION 8.1,
or (ii) if the Alternative Proposal (x) is subject to a financing condition or
(y) involves consideration that is not entirely cash or does not permit
stockholders to receive the payment of the offered consideration in respect of
all shares at the same time, unless the Board of Directors has been furnished
with a written opinion of the Financial Advisor or other nationally recognized
investment banking firm to the effect that (in the case of clause (x)) the
Alternative Proposal is readily financeable and (in the case of clause (y)) that
such offer provides a higher value per share than the consideration per share
pursuant to the Offer or the Merger, or(iii) if, prior to or concurrently with
any purported termination pursuant to this SECTION 10.1(c), the Company shall
not have paid the fees and expenses contemplated by SECTION 11.5, or (iv) if the
Company has not provided Purchaser and Merger Sub with prior written notice of
its intent to so terminate this Agreement and delivered to the Purchaser and
Merger Sub a copy of the written agreement embodying the Alternative Proposal in
its then most definitive form concurrently with the earlier of (x) the public
announcement of, or (y) filing with the SEC of any documents relating to, the
Alternative Proposal; and (d) by the Purchaser if the Board of Directors shall
have failed to recommend, or shall have withdrawn, modified or amended in any
material respect, its approval or recommendation of the Offer or the Merger, or
shall have recommended acceptance of any Alternative Proposal, or shall have
resolved to do any of the foregoing.
10.2. EFFECT OF TERMINATION. If this Agreement is terminated and the Merger
is abandoned pursuant to SECTION 10.1 hereof, this Agreement, except for the
provisions of SECTIONS 1.3(c), 8.5(b), 8.6 and ARTICLE 11, shall terminate,
without any liability on the part of any party or its directors, officers or
stockholders. Nothing herein shall relieve any party to this Agreement of
liability for breach of this Agreement or prejudice the ability of the
non-breaching party to seek damages from any other party for any breach of this
Agreement, including without
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limitation, attorneys' fees and the right to pursue any remedy at law or in
equity.
10.3. AMENDMENT. To the extent permitted by applicable law, this Agreement
may be amended by action taken by or on behalf of the Board of Directors of the
Company (subject to SECTION 1.4) and the Purchaser at any time before or after
adoption of this Agreement by the stockholders of the Company but, after any
such stockholder approval, no amendment shall be made which decreases the Merger
Consideration or which adversely affects the rights of the Company's
stockholders hereunder without the approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of all of the parties.
10.4. EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken by or on behalf of the Board of Directors of the
Company (subject to SECTION 1.4) and the Purchaser, may (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein by any other applicable party or in any document, certificate
or writing delivered pursuant hereto by any other applicable party or (iii)waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 11 GENERAL PROVISIONS
11.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
11.2. NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (with a
confirmatory copy sent by overnight courier), by courier service (with proof of
service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as reflected on the
signature page hereto
11.3. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that either Purchaser
or Merger Sub (or both) may assign its rights hereunder (including without
limitation the right to make the Offer and/or to purchase shares of Common Stock
in the Offer) to an affiliate but nothing shall relieve the assignor from its
obligations hereunder. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and the
irrespective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, except for the provisions of SECTION 8.8, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
11.4. ENTIRE AGREEMENT. This Agreement, the Confidentiality Agreement, the
Schedules, the Exhibits, the Ancillary Documents and any other documents
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto.
11.5. FEES AND EXPENSES. (a) Except as provided in SECTION 11.5(b),
whether or not the Offer or the Merger is consummated, all costs and expenses
incurred in connection with the transactions contemplated by this Agreement
shall be paid by the party incurring such expenses.
(b)(1) The Company shall reimburse the Purchaser and its affiliates for the
documented reasonable out-of-pocket expenses of the Purchaser and its
affiliates, incurred in connection with or arising out of the Offer, the Merger,
this Agreement and the Ancillary Documents and the transactions contemplated
hereby (including, without limitation, amounts paid or payable to banks and
investment bankers, fees and expenses of counsel, accountants and
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consultants, and printing expenses),regardless of when those expenses are
incurred, if this Agreement is terminated(i) by the Company pursuant to SECTION
10.1(c); (ii) by the Purchaser (x)pursuant to SECTION 10.1(d) (unless the event
described therein occurs solely as a result of the Purchaser's willful breach in
any material respect of its representations, warranties or obligations contained
herein) or (y) pursuant to SECTION 10.1(b)(iii) because of the failure of the
condition set forth in paragraph (d) of EXHIBIT A, or (iii) pursuant to SECTION
10.1(b)(iii) at a time when the Minimum Condition shall not have been satisfied
and, either (x) during the term of this Agreement or within 12 months after the
termination of this Agreement, the Board of Directors recommends an Alternative
Proposal or the Company enters into an agreement providing for an Alternative
Proposal or a Stock Acquisition occurs which Alternative Proposal (or another
Alternative Proposal by the same or a related person or entity) was made prior
to the termination of this Agreement, or (y) during the term of this Agreement
or within two months after the termination of this Agreement, the Board of
Directors recommends an Alternative proposal or the Company enters into an
agreement providing for an Alternative proposal or a Stock Acquisition occurs.
No amounts in reimbursement of expenses shall be payable pursuant to this
paragraph (1) if the Commitment Amount has been paid. If the Company shall have
reimbursed the Purchaser for expenses incurred by the Purchaser and its
affiliates pursuant to this paragraph (1) and thereafter the Commitment Amount
shall become payable pursuant to paragraph (1)of this Section 11.5(b), then the
Commitment Amount shall be reduced by the amount of any reimbursed expenses.
(2) The Company acknowledges that the agreements contained in this SECTION
11.5(b) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, the Purchaser would not enter into this
Agreement. Accordingly, if the Company fails to promptly pay any amounts owing
pursuant to this SECTION 11.5(b) when due, the Company shall in addition thereto
pay to the Purchaser and its affiliates all costs and expenses(including fees
and disbursements of counsel) incurred in collecting such amounts, together with
interest on such amounts (or any unpaid portion thereof)from the date such
payment was required to be made until the date such payment is received by the
Purchaser at the prime rate of Chemical Bank as in effect from time to time
during such period.
11.6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without regard to its rules of
conflict of laws. Each of the Company, Purchaser and Merger Sub hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of Texas and of the United States of America located
in the State of Texas (the "TEXAS COURTS") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the Texas Courts
and agrees not to plead or claim in any Texas Court that such litigation brought
therein has been brought in an inconvenient forum.
11.7. HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
11.8. INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." As used in this Agreement, "Subsidiary" shall mean, when used with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions with respect to such corporation or other
organization. "Significant Subsidiaries" shall refer to Subsidiaries (as
defined above) which constitute "significant subsidiaries" under Rule 12b2 under
the Exchange Act. As used in this Agreement, "MATERIAL ADVERSE EFFECT"shall
mean a material adverse effect on the business, results of operations, assets or
financial condition of the Company taken as a whole.
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11.9. INVESTIGATIONS. No action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement.
11.10. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
11.11. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any Delaware Court, this being
in addition to any other remedy to which they are entitled at law or in equity.
11.12. COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all, of the parties hereto. IN
WITNESS WHEREOF, the parties have executed this Agreement and caused the same to
be duly delivered on their behalf on the day and year first written above.
SUMMIT PETROLEUM CORPORATION
16701 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
By:
-----------------------------------------------------
Name: Deas H. Warley III
Title : President
MRI ACQUISITION CORP
16701 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
By:
-----------------------------------------------------
Name: Deas H. Warley III
Title: President
MIDLAND RESOURCES, INC.
16701 Greenspoint Park Drive, Suite 200
Houston, Texas 77060
By:
-----------------------------------------------------
Name: Deas H. Warley III
Title: President
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<PAGE>
EXHIBIT A CONDITIONS OF THE OFFER Notwithstanding any other term of the
Offer, Merger Sub shall not be required to accept for payment or pay for,
subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) of the Exchange Act, any shares of Common Stock not theretofore
accepted for payment or paid for and may terminate or amend the Offer as to such
shares of Common Stock unless there shall have been validly tendered and not
withdrawn prior to the expiration of the Offer that number of shares of Common
Stock which would represent at least a majority of the outstanding shares of
Common Stock on a fully diluted basis (the"MINIMUM CONDITION"). Furthermore,
notwithstanding any other term of the Offeror this Agreement, Merger Sub shall
not be required to accept for payment or, subject as aforesaid, to pay for any
shares of Common Stock not theretofore accepted for payment or paid for, and may
terminate or amend the Offer if at anytime on or after the date of this
Agreement and before the acceptance of such shares of Common Stock for payment
or the payment therefor, any of the following conditions exist or shall occur
and remain in effect: (a) there shall have been instituted or pending any
litigation by the Government of the United States of America or any agency or
instrumentality thereof (i) which seeks to challenge the acquisition by
Purchaser or Merger Sub (or any of its affiliates) of shares of Common Stock
pursuant to the Offer or restrain, prohibit or delay the making or consummation
of the Offer or the Merger, (ii) which seeks to make the purchase of or payment
for some or all of the shares of Common Stock pursuant to the Offer or the
Merger illegal, (iii) which seeks to impose limitations on the ability of
Purchaser or Merger Sub (or any of their affiliates) effectively to acquire or
hold, or to require the Purchaser, Merger Sub or the Company or any of their
respective affiliates or subsidiaries to dispose of or hold separate, any
material portion of their assets or business, (iv) which seeks to impose
limitations on the ability of Purchaser, Merger Sub or their affiliates to
exercise full rights of ownership of the shares of Common Stock purchased by
it, including, without limitation, the right to vote the shares purchased by it
on all matters properly presented to the stockholders of the Company, or (v)
which seeks to limit or prohibit any future business activity by Purchaser,
Merger Sub or any of their affiliates, including, without limitation, requiring
the prior consent of any person or entity (including the Government of the
United States of America or any agency or instrumentality thereof) to future
transactions by Purchaser, Merger Sub or any of their affiliates; or (b) there
shall have been promulgated, enacted, entered, enforced or deemed applicable to
the Offer or the Merger, by any Governmental Entity, any Law or there shall
have been issued any injunction that results in any of the consequences referred
to in subsection (a) above; or -C- this Agreement shall have been terminated
in accordance with its terms; or (d) (i) any of the representations and
warranties made by the Company in this Agreement shall not have been true and
correct in all material respects when made, or shall thereafter have ceased to
be true and correct in all material respects as if made as of such later date
(other than representations and warranties made as of a specified date) or (ii)
the Company shall have breached or failed to comply in any material respect
with any of its obligations under this Agreement; or (e) any corporation,
entity, "group" or "person" (as defined in the Exchange Act), other than
Purchaser or Merger Sub, shall have acquired beneficial ownership of more than
49% of the outstanding shares of Common Stock; or (f) except as set forth in
the Company Reports or the Schedules to the Agreement, any change shall have
occurred or be threatened which individually or in the aggregate has had or is
continuing to have a material adverse effect on the prospects of the Company
, taken as a whole; or (g) there shall have occurred (i) any general suspension
of, or limitation on prices for, trading in securities on any national
securities exchange or in the over the counter market in the United States,
(ii) a declaration of any banking moratorium by federal or state authorities or
any suspension of payments in respect of banks or any limitation (whether or not
mandatory) imposed by federal or state authorities on the extension of credit by
lending institutions in the United States, (iii) a commencement of a war, armed
hostilities or any other international or national calamity directly or
indirectly involving the United States, other than any war, armed hostilities or
other international calamity involving the former Yugoslavia, (iv) any mandatory
limitation by the federal government on the extension of credit by banks or
other financial institutions generally, (v) any increase of 500 or more basis
points in the prime rate as announced by Chemical Bank, measured from the date
of this Agreement, or (vi) in the case of the foregoing clause (iii), if
existing at the time of the commencement of the Offer, in the reasonable
judgment of the Purchaser, a material
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acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of Purchaser and Merger
Sub and may be asserted by Purchaser or Merger Sub regardless of the
circumstances (including any action or inaction by the Purchaser or the
Company)giving rise to any such condition and may be waived by Purchaser or
Merger sub in whole or in part, at any time and from time to time, in the sole
discretion of Purchaser. The failure by Purchaser or Merger Sub at any time to
exercise any of the foregoing rights will not be deemed a waiver of any right,
the waiver of such right with respect to any particular facts or circumstances
shall not be deemed a waiver with respect to any other facts or circumstances,
and each right will be deemed an ongoing right which may be asserted at any time
and from time to time. Should the Offer be terminated pursuant to the foregoing
provisions, all tendered shares of Common Stock not theretofore accepted for
payment shall forthwith be returned by the depositary to the tendering
stockholders.
23
