<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
CODA ENERGY, INC.
(Name of Registrant as Specified in Its Charter and
Person filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
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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):
--------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------------
[X] Fee previously paid with preliminary materials.
[ ] 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:
-----------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
CODA ENERGY, INC.
5735 PINELAND DRIVE, SUITE 300
DALLAS, TEXAS 75231
TELEPHONE: (214) 692-1800
January 18, 1996
Dear Coda Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
(the "Special Meeting") of Coda Energy, Inc. ("Coda") to be held on Friday,
February 16, 1996, at 10:00 a.m., Dallas time. The meeting will be held at the
Royal Oaks Country Club, 7915 Greenville Avenue, Dallas, Texas.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
October 30, 1995, as amended by that certain Amendment to Agreement and Plan of
Merger, dated as of December 22, 1995, and by that certain Second Amendment to
Agreement and Plan of Merger, dated as of January 10, 1996 (as amended, the
"Merger Agreement"), among Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI") and an affiliate of Enron
Capital & Trade Resources Corp., a Delaware corporation, Coda Acquisition, Inc.,
a newly-formed Delaware corporation ("Purchaser") and a subsidiary of JEDI, and
Coda, and to approve the merger contemplated thereby. The Merger Agreement
provides, among other things, for the merger (the "Merger") of Purchaser with
and into Coda, with Coda surviving the Merger (the "Surviving Corporation").
Pursuant to and subject to the terms and conditions of the Merger Agreement, at
the effective time of the Merger, (i) all then-outstanding shares of Coda's
common stock, par value $.02 per share (the "Coda Common Stock") (other than (A)
shares of Coda Common Stock held by Purchaser, Coda or any Coda subsidiary, all
of which will be canceled without payment of any consideration, and (B) shares
of Coda Common Stock held by stockholders who perfect their statutory appraisal
rights), will be converted into the right to receive, in cash, $7.75 per share
of Coda Common Stock, without interest, and (ii) all shares of Coda Common Stock
underlying then-outstanding but unexercised options and warrants to purchase
Coda Common Stock (other than then-outstanding but unexercised options and
warrants held by certain members of management and designated as the "Specified
Options" and "Specified Warrants" in the Merger Agreement) will, at the election
of the holder, be converted into the right to receive, in cash, either (A) the
difference between (x) $7.75 per underlying share of Coda Common Stock and (y)
the exercise or strike price of the option or warrant, without interest, or (B)
$7.75 per underlying share of Coda Common Stock, without interest, upon such
holder's exercise (including payment of the applicable exercise or strike price)
of his or her options.
JEDI has required as a condition to its consummating the Merger that
certain members of Coda's management continue with the Surviving Corporation
following the Merger. Accordingly, certain members of Coda's management have
entered into employment agreements with Purchaser effective at the closing of
the Merger. In addition, in conjunction with the Merger, certain members of
Coda's management will acquire common stock of Purchaser, which will be
converted into common stock of the Surviving Corporation in the Merger, in
exchange for cash, shares of Coda Common Stock and promissory notes, and will
receive options to purchase common stock of the Surviving Corporation in
replacement of their Specified Options and Specified Warrants which are not
converted into the right to receive cash in the Merger. Immediately following
closing of the Merger, management will hold an aggregate of approximately 1.5%
of the Surviving Corporation's common stock (approximately 5% on a fully-diluted
basis, including options granted to such persons) and will have certain
contractual rights as described in the attached Proxy Statement.
<PAGE>
Your Board of Directors and a Special Committee of outside directors have
approved the Merger and the Merger Agreement, having determined that the
acquisition of Coda pursuant to the Merger Agreement is fair to, and in the best
interests of, Coda and its stockholders. Bear, Stearns & Co. Inc., the Special
Committee's financial advisor, has advised the Special Committee that, in its
opinion, based on certain assumptions, the Merger is fair, from a financial
point of view, to the stockholders (other than the members of Coda's management
who are exchanging equity interests in Coda for equity interests in the
Surviving Corporation, as to whom no opinion is expressed).
The affirmative vote of the holders of a majority of the outstanding shares
of Coda Common Stock entitled to vote at the Special Meeting is required for the
approval of the Merger Agreement and the Merger. Your vote, therefore, is
important. Regardless of the number of shares you hold or whether you plan to
attend the Special Meeting, we urge you to complete, sign, date and return the
enclosed proxy card immediately. If you attend the Special Meeting, you may vote
in person if you wish, even if you have previously returned your proxy card.
If Coda's stockholders approve the adoption of the Merger Agreement and the
Merger, it is currently anticipated that the Merger will be consummated as
promptly as practicable after the satisfaction of certain conditions to the
Merger. As soon as practicable after the Merger is consummated, a Letter of
Transmittal will be mailed to all stockholders of record to use in surrendering
their certificates representing shares of Coda Common Stock. PLEASE DO NOT SEND
YOUR STOCK CERTIFICATES TO CODA UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL,
WHICH WILL INCLUDE INSTRUCTIONS ON THE PROCEDURE TO BE USED IN SENDING IN YOUR
CERTIFICATES.
Enclosed is a Proxy Statement that describes, and contains other important
information relating to, the Merger Agreement and the proposed Merger. A copy
of the Merger Agreement is included in the Proxy Statement. You are urged to
read the Proxy Statement, including the Appendices, carefully.
Your Board of Directors and the Special Committee of outside directors
believe that the Merger and related transactions are in the best interests of
Coda and its stockholders and recommend that you vote "FOR" the adoption and
approval of the Merger Agreement and the Merger.
On behalf of the Board of Directors,
/s/ Douglas H. Miller
DOUGLAS H. MILLER
Chairman of the Board and
Chief Executive Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
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<PAGE>
CODA ENERGY, INC.
5735 PINELAND DRIVE, SUITE 300
DALLAS, TEXAS 75231
TELEPHONE: (214) 692-1800
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 16, 1996
To the Stockholders of Coda Energy, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Coda Energy, Inc., a Delaware corporation ("Coda"), will be held at
the Royal Oaks Country Club, 7915 Greenville Avenue, Dallas, Texas, on Friday,
February 16, 1996, at 10:00 a.m., Dallas time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of October 30, 1995, as amended by
that certain Amendment to Agreement and Plan of Merger, dated as of
December 22, 1995, and by that certain Second Amendment to Agreement and
Plan of Merger, dated as of January 10, 1996 (as amended, the "Merger
Agreement"), among Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership ("JEDI") and an affiliate of
Enron Capital & Trade Resources Corp., a Delaware corporation, Coda
Acquisition, Inc., a newly-formed Delaware corporation ("Purchaser") and a
subsidiary of JEDI, and Coda, and to approve the merger contemplated
thereby. The Merger Agreement provides, among other things, for the merger
(the "Merger") of Purchaser with and into Coda, with Coda surviving the
Merger. Pursuant to and subject to the terms and conditions of the Merger
Agreement, at the effective time of the Merger, (i) all then-outstanding
shares of Coda's common stock, par value $.02 per share (the "Coda Common
Stock") (other than (A) shares of Coda Common Stock held by Purchaser, Coda
or any Coda subsidiary, all of which will be canceled without payment of
any consideration and (B) shares of Coda Common Stock held by stockholders
who perfect their appraisal rights under Section 262 of the Delaware
General Corporation Law ("Section 262")), will be converted into the right
to receive, in cash, $7.75 per share of Coda Common Stock, without
interest, and (ii) all shares of Coda Common Stock underlying then-
outstanding but unexercised options and warrants to purchase Coda Common
Stock (other than then-outstanding but unexercised options and warrants
held by certain members of management and designated as the "Specified
Options" and "Specified Warrants" in the Merger Agreement) will, at the
election of the holder, be converted into the right to receive, in cash,
either (A) the difference between (x) $7.75 per underlying share of Coda
Common Stock and (y) the exercise or strike price of the option or warrant,
without interest, or (B) $7.75 per underlying share of Coda Common Stock,
without interest, upon such holder's exercise (including payment of the
applicable exercise or strike price) of his or her options.
2. To transact such other business as may properly come before the
Special Meeting, including any and all adjournment(s) or postponement(s)
thereof.
Information regarding the matter to be acted upon at the Special Meeting is
contained in the Proxy Statement attached to this Notice. A copy of the Merger
Agreement appears as Appendix A to, and is summarized in, the accompanying Proxy
Statement.
<PAGE>
Stockholders who do not wish to accept the $7.75 per share cash payment in
the Merger and who comply with the requirements of Section 262 have the right to
seek an appraisal by the Delaware Court of Chancery of the fair value of their
shares. For a description of the rights of stockholders pursuant to Section 262
and a description of the procedures to be followed in order to obtain such an
appraisal, see "APPRAISAL RIGHTS" in the accompanying Proxy Statement. A copy
of the text of Section 262 appears as Appendix C thereto.
Only holders of Coda Common Stock of record at the close of business on
January 8, 1996, are entitled to notice of and to vote at the Special Meeting or
any adjournment(s) or postponement(s) thereof. A complete list of stockholders,
arranged in alphabetical order, showing the address of each stockholder and the
number of shares registered in the name of each stockholder will be open to the
examination of any stockholder for any purpose germane to the Special Meeting at
Coda's principal executive offices at 5735 Pineland Drive, Suite 300, Dallas,
Texas 75231, during regular business hours, for a period of 10 days prior to the
Special Meeting. Such list will also be produced and kept at the Special
Meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The Special Meeting may be adjourned from time to time without
notice other than by announcement at the Special Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF
SHARES YOU MAY HOLD. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROXY IS REVOCABLE AND WILL NOT BE USED IF
YOU ARE PRESENT AT THE SPECIAL MEETING AND PREFER TO VOTE IN PERSON. FAILURE TO
SIGN AND RETURN YOUR PROXY, OR TO OTHERWISE VOTE AT THE SPECIAL MEETING, IS THE
EQUIVALENT OF A VOTE AGAINST APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE MERGER, WHICH HAVE BEEN RECOMMENDED BY A SPECIAL COMMITTEE OF OUTSIDE
DIRECTORS AND BY THE BOARD OF DIRECTORS OF CODA.
This Notice, the accompanying Proxy Statement and the enclosed proxy card
are sent to you by order of the Board of Directors of Coda.
/s/ Joyce Berthier
Dallas, Texas JOYCE BERTHIER
January 18, 1996 Secretary
IMPORTANT: PLEASE DO NOT
SEND IN ANY CERTIFICATES FOR SHARES
OF CODA COMMON STOCK AT THIS TIME
2
<PAGE>
CODA ENERGY, INC.
5735 PINELAND DRIVE, SUITE 300
DALLAS, TEXAS 75231
TELEPHONE: (214) 692-1800
PROXY STATEMENT
FOR ITS
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 16, 1996
This Proxy Statement is being furnished to the holders of common stock, par
value $.02 per share (the "Coda Common Stock"), of Coda Energy, Inc., a Delaware
corporation ("Coda"), in connection with the solicitation of proxies by the
Board of Directors of Coda to be voted at the Special Meeting of Stockholders of
Coda (the "Special Meeting") to be held at the Royal Oaks Country Club, 7915
Greenville Avenue, Dallas, Texas, on Friday, February 16, 1996, at 10:00 a.m.,
Dallas time, and any and all adjournment(s) or postponement(s) thereof. The
purpose of the Special Meeting is to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger, dated as of October 30,
1995, as amended by that certain Amendment to Agreement and Plan of Merger,
dated as of December 22, 1995, and by that certain Second Amendment to Agreement
and Plan of Merger, dated as of January 10, 1996 (as amended, the "Merger
Agreement"), among Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI") and an affiliate of Enron Capital & Trade
Resources Corp., a Delaware corporation ("ECT"), Coda Acquisition, Inc., a
newly-formed Delaware corporation ("Purchaser") and a subsidiary of JEDI, and
Coda, and to approve the merger contemplated thereby. A copy of the Merger
Agreement is attached to this Proxy Statement as Appendix A. This Proxy
Statement, the enclosed Notice of Special Meeting and the enclosed proxy card
are first being sent or given to stockholders of Coda on or about January 19,
1996.
The Merger Agreement provides, among other things, for the merger (the
"Merger") of Purchaser with and into Coda, with Coda surviving the Merger (the
"Surviving Corporation"). Pursuant to and subject to the terms and conditions
of the Merger Agreement, at the effective time of the Merger (the "Effective
Time"), (i) all then-outstanding shares of Coda Common Stock (other than (A)
shares of Coda Common Stock held by Purchaser, Coda or any Coda subsidiary, all
of which will be canceled without payment of any consideration, and (B) shares
of Coda Common Stock held by stockholders who perfect their appraisal rights
under Section 262 of the Delaware General Corporation Law ("Section 262" of the
"DGCL")), will be converted into the right to receive, in cash, $7.75 per share
of Coda Common Stock, without interest, and (ii) all shares of Coda Common Stock
underlying then-outstanding but unexercised options and warrants to purchase
Coda Common Stock (other than then-outstanding but unexercised options and
warrants held by certain members of management and designated as the "Specified
Options" and "Specified Warrants" in the Merger Agreement) will, at the election
of the holder, be converted into the right to receive, in cash, either (A) the
difference between (x) $7.75 per underlying share of Coda Common Stock and (y)
the exercise or strike price of the option or warrant, without interest, or (B)
$7.75 per underlying share of Coda Common Stock, without interest, upon such
holder's exercise (including payment of the applicable exercise or strike price)
of his or her options.
A Special Committee of outside directors (the "Special Committee") and the
Board of Directors of Coda have approved the Merger Agreement and the Merger,
having determined that the acquisition of Coda pursuant to the Merger Agreement
is fair to, and in the best interests of, Coda and its stockholders.
<PAGE>
Accordingly, the Special Committee and the Board of Directors recommend that the
stockholders vote "FOR" the adoption and approval of the Merger Agreement and
the Merger.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement or in the documents
incorporated herein by reference in connection with the solicitation made hereby
and, if given or made, such information or representations should not be relied
upon as having been authorized by Coda. The delivery of this Proxy Statement
shall not, under any circumstances, create any implication that the information
contained herein or in any document incorporated herein by reference is correct
as of any time subsequent to the date hereof or the date of such document, as
the case may be, or that there has been no change in the affairs of Coda since
the date hereof or the date of such document, as the case may be. This Proxy
Statement does not constitute the solicitation of a proxy from any person in any
jurisdiction in which it is unlawful to make such proxy solicitation.
The date of this Proxy Statement is January 18, 1996.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY........................................................................................ 5
The Special Meeting....................................................................... 5
Recommendation of Board of Directors and Special Committee of Outside Directors........... 5
The Parties to the Merger................................................................. 5
Background of and Reasons for the Merger.................................................. 6
Certain Terms of the Merger............................................................... 9
Opinion of Financial Advisor.............................................................. 11
Interests of Certain Persons in the Merger................................................ 12
Surrender of Certificates................................................................. 12
No Solicitation of Other Bids............................................................. 12
Sources and Amount of Funds............................................................... 13
Certain Federal Income Tax Consequences................................................... 13
Appraisal Rights.......................................................................... 13
Market Price Information.................................................................. 14
Selected Summary Consolidated Financial Information Concerning Coda....................... 15
AVAILABLE INFORMATION.......................................................................... 16
GENERAL INFORMATION REGARDING THE SPECIAL MEETING.............................................. 16
Date, Time, Place and Purpose of Special Meeting.......................................... 16
Vote Required for Approval; Shares Entitled to Vote; Record Date.......................... 17
Solicitation and Revocability of Proxies.................................................. 18
Approval by JEDI and Purchaser............................................................ 19
JEDI and Purchaser Information............................................................ 19
THE COMPANIES.................................................................................. 19
Coda...................................................................................... 19
JEDI and Purchaser........................................................................ 19
RECENT DEVELOPMENTS REGARDING CODA............................................................. 20
Acquisition of Certain Properties......................................................... 20
THE MERGER..................................................................................... 20
General................................................................................... 20
Background of the Merger.................................................................. 21
Recommendation of the Special Committee and the Board of Directors;
Reasons for the Merger.................................................................... 27
Opinion of Financial Advisor.............................................................. 29
Interests of Certain Persons in the Merger................................................ 36
Indemnification and Insurance............................................................. 41
Miscellaneous Provisions.................................................................. 42
Effective Time; Effect of Merger.......................................................... 44
Surrender of Certificates................................................................. 44
Surrender of Options and Warrants......................................................... 45
Conditions to Consummation of the Merger.................................................. 46
Certain Regulatory Matters................................................................ 47
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Representations and Warranties............................................................ 48
Business of Coda Pending the Merger....................................................... 49
Obligations of JEDI and Purchaser Pending the Merger...................................... 51
Amendment, Waiver and Termination......................................................... 51
Expenses; Termination Fees................................................................ 53
No Solicitation of Other Bids............................................................. 54
Survival of Representations, Warranties and Agreements.................................... 55
Sources and Amount of Funds............................................................... 55
Operation and Management of Surviving Corporation After the Merger........................ 56
Certain Federal Income Tax Consequences................................................... 57
Accounting Treatment...................................................................... 58
APPRAISAL RIGHTS............................................................................... 58
SELECTED CONSOLIDATED FINANCIAL DATA........................................................... 61
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.............................................. 62
Pro Forma Combined Condensed Statement of Operations...................................... 63
Pro Forma Combined Condensed Statement of Operations...................................... 64
Pro Forma Combined Condensed Balance Sheet................................................ 65
Note to Pro Forma Combined Condensed Financial Statements................................. 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 68
DIVIDENDS ON AND MARKET PRICES OF CODA COMMON STOCK............................................ 68
Coda...................................................................................... 68
JEDI and Purchaser........................................................................ 69
SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT.................................. 69
INDEPENDENT PUBLIC ACCOUNTANTS................................................................. 71
OTHER BUSINESS................................................................................. 71
STOCKHOLDER PROPOSALS.......................................................................... 71
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................................. 72
APPENDICES..................................................................................... 73
APPENDIX A - AGREEMENT AND PLAN OF MERGER AND AMENDMENTS TO AGREEMENT AND PLAN OF MERGER.. A-1
APPENDIX B - FORM OF FAIRNESS OPINION OF BEAR, STEARNS & CO. INC.......................... B-1
APPENDIX C - SECTION 262 OF DELAWARE GENERAL CORPORATION LAW.............................. C-1
</TABLE>
4
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement and does not purport to be complete. The information
contained in this Summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
Proxy Statement, the Appendices hereto and the documents incorporated herein by
reference. The Appendices attached to this Proxy Statement constitute a part of
the Proxy Statement. Stockholders are urged to read this Proxy Statement in its
entirety. The full text of the Merger Agreement (including the amendments
thereto) is attached hereto as Appendix A and should be read in its entirety.
THE SPECIAL MEETING
Date, Time, Place and Purpose of the Special Meeting. The Special Meeting
will be held on Friday, February 16, 1996, at the Royal Oaks Country Club, 7915
Greenville Avenue, Dallas, Texas, commencing at 10:00 a.m., Dallas time, to
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the Merger, which provides, among other things, for the Merger of Purchaser with
and into Coda, with Coda surviving the Merger. Coda would become a majority-
owned subsidiary of JEDI. See "GENERAL INFORMATION REGARDING THE SPECIAL
MEETING -- Date, Time, Place and Purpose of Special Meeting."
Record Date; Shares Entitled to Vote. Only holders of record of Coda
Common Stock at the close of business on January 8, 1996 (the "Record Date"),
will be entitled to notice of and to vote at the Special Meeting. Only shares
of Coda Common Stock are entitled to vote on matters presented at the Special
Meeting. Each holder of record of Coda Common Stock is entitled to cast one vote
per share on the matter to be acted upon or upon any other matters that may
properly come before the Special Meeting or any adjournment(s) or
postponement(s) thereof. See "GENERAL INFORMATION REGARDING THE SPECIAL MEETING
- -- Vote Required for Approval; Shares Entitled to Vote; Record Date."
Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of Coda Common Stock entitled to vote at the Special Meeting
is required for the approval of the Merger Agreement and the Merger. See
"GENERAL INFORMATION REGARDING THE SPECIAL MEETING -- Vote Required for
Approval; Shares Entitled to Vote; Record Date."
RECOMMENDATION OF BOARD OF DIRECTORS AND SPECIAL COMMITTEE OF OUTSIDE DIRECTORS
The Special Committee, composed solely of certain outside directors, has
approved the Merger Agreement and the Merger and has determined that the Merger
and the transactions related thereto are fair to, and in the best interests of,
Coda and its stockholders. The Special Committee and Coda's Board of Directors
both have recommended that the stockholders of Coda vote "FOR" the approval and
adoption of the Merger Agreement and the Merger. See "THE MERGER --
Recommendation of the Special Committee and the Board of Directors; Reasons for
the Merger." Certain members of the Board of Directors had, and currently have,
certain interests that may present them with a potential conflict of interest in
connection with the Merger. See "THE MERGER -- Interests of Certain Persons in
the Merger."
THE PARTIES TO THE MERGER
Coda. Coda is an independent energy company which, together with its
subsidiaries, is principally engaged in the acquisition and exploitation of (i)
producing oil and natural gas properties, (ii) natural gas processing and
liquids extraction facilities and (iii) natural gas gathering systems. Coda's
5
<PAGE>
producing oil and natural gas properties are concentrated in the mid-continent
region of the United States. Coda's exploitation efforts include, where
appropriate, the drilling of low-risk development wells, the initiation of
secondary recovery projects, the renegotiation of product marketing agreements
and the reduction of drilling, completion and lifting costs.
The principal executive offices of Coda are located at 5735 Pineland Drive,
Suite 300, Dallas, Texas 75231, and the telephone number at that address is
(214) 692-1800. See "THE COMPANIES -- Coda" and "RECENT DEVELOPMENTS REGARDING
CODA."
JEDI and Purchaser. JEDI is a Delaware limited partnership whose general
partner, Enron Capital Management Limited Partnership, is a subsidiary of ECT,
which is a wholly-owned subsidiary of Enron Corp. The limited partner of JEDI
is the California Public Employees' Retirement System ("CalPERS"). JEDI was
created primarily to invest in a portfolio of diversified natural gas related
assets. The principal executive offices of JEDI are located at 1400 Smith
Street, Houston, Texas 77002, and the telephone number at that address is (713)
853-5259.
Purchaser is a Delaware corporation formed solely for the purpose of
effecting the Merger and has not carried on any activities other than in
connection with the Merger. Purchaser is a subsidiary of JEDI. The principal
executive offices of Purchaser are located at 1400 Smith Street, Houston, Texas
77002, and the telephone number at that address is (713) 853-5259. See "THE
COMPANIES -- JEDI and Purchaser."
BACKGROUND OF AND REASONS FOR THE MERGER
In late 1994, Coda's Chairman and Chief Executive Officer, Mr. Douglas H.
Miller, became increasingly concerned that the market was not adequately valuing
Coda Common Stock. In spite of Coda's record earnings, cash flow, crude oil
production, crude oil reserves and asset growth in 1994, Coda Common Stock was
trading at what Mr. Miller believed to be a discount to its true value.
Following preliminary discussions with prospective investors, on April 26, 1995,
at a special meeting of Coda's Board of Directors, Mr. Miller advised the Board
of Directors that he was engaged in efforts to form an investor group and had
entered into discussions with various parties regarding obtaining financing for
the possible cash acquisition of Coda at a premium to the then recent trading
prices of Coda Common Stock. However, no offer was presented to the Board of
Directors at that time. In response to this announcement, the Board of
Directors formed the Special Committee to review any offer that might be
forthcoming. A press release announcing Mr. Miller's intentions was issued on
that date.
For the next several weeks, Mr. Miller continued his efforts to form an
investor group. However, these efforts ultimately were not successful.
On May 23, 1995, Mr. Grant W. Henderson, Coda's Executive Vice President
and Chief Financial Officer, had a preliminary conversation with representatives
of ECT regarding ECT's potential involvement in financing an acquisition of Coda
by Mr. Miller's investment group. ECT expressed an interest in investigating
the possibilities of financing such a transaction led by other parties and
possibly making an equity investment in Coda. ECT representatives met with
members of Coda management on May 31, 1995, at Coda's office in Dallas to begin
preliminary discussions, which led to the furnishing of additional information
to ECT and the signing of a confidentiality agreement on June 12, 1995.
During June, July and early August 1995, various members of Coda management
met with ECT representatives to discuss various issues relating to a possible
acquisition, including other potential equity partners, personnel issues,
operational issues and an offer price for Coda Common Stock. During this
6
<PAGE>
period, ECT conducted extensive financial, engineering, land, legal,
environmental and operational due diligence. As a result of this due diligence,
ECT determined that it would prefer to acquire Coda through a merger transaction
between Coda and a subsidiary of JEDI, subject to Coda retaining certain members
of its management team.
On August 23, 1995, representatives of ECT met with Coda's Board of
Directors, including the Special Committee and the Special Committee's legal
counsel, to present a Letter of Understanding (the "Letter of Understanding")
whereby ECT (or an affiliate thereof) would propose to acquire through a cash
merger all of the outstanding shares of Coda Common Stock for $8.00 per share.
The Letter of Understanding had certain binding and non-binding terms. The
offer was contingent upon, among other things, the sale of Taurus Energy Corp.
("Taurus"), Coda's natural gas gathering and processing subsidiary, on terms
acceptable to ECT and the participation of certain members of Coda management in
the management of the Surviving Corporation. At such time, Coda had received a
non-binding written indication of interest regarding a possible sale of Taurus
on terms generally acceptable to Coda and ECT, but with terms and conditions
still to be negotiated. Subject to a full review and receipt of a fairness
opinion from the Special Committee's financial advisor, Bear, Stearns & Co.,
Inc. ("Bear Stearns"), the Special Committee approved the Letter of
Understanding. Acting on that approval, Coda's Board of Directors authorized
Coda's management to execute the Letter of Understanding and commence the
preparation of definitive agreements. The Letter of Understanding was executed
on August 23, 1995, and on August 24, 1995, Coda issued a press release
announcing the proposed Merger.
Thereafter and through October 30, 1995, documents relating to the Merger
were extensively negotiated between JEDI and Coda. In addition, JEDI engaged in
extensive discussions with certain members of Coda management and their counsel
concerning the terms of their continued involvement in the Surviving
Corporation. On October 30, 1995, acting on the unanimous recommendation and
approval of the Special Committee, the Board of Directors approved the execution
of the Agreement and Plan of Merger, dated as of October 30, 1995 (the "Original
Merger Agreement"), among all of the parties to the Merger Agreement.
During the weeks following the execution of the Letter of Understanding and
the public announcement that the sale of Taurus would be a condition to the
Merger, Coda received inquiries from several parties requesting information
concerning Taurus and expressing an interest in acquiring Taurus. Two parties
(including the party who had expressed an interest in acquiring Taurus prior to
the execution of the Letter of Understanding) separately conducted extensive due
diligence on Taurus, and further discussions were held with each regarding a
potential sale. Initial drafts of definitive stock purchase agreements were
submitted by both parties, and a non-binding letter of intent was entered into
between Coda and one party. Ultimately, however, negotiations with both
prospective purchasers failed to progress beyond preliminary stages, and by
December 20, 1995, Coda management and JEDI had concluded that a timely sale of
Taurus upon terms satisfactory to JEDI was not feasible or likely.
In light of the concern that the closing condition could not be satisfied,
on December 20 and 21, 1995, Messrs. Miller and Henderson discussed with
representatives of JEDI the prospect of removing the sale of Taurus as a
condition to the Merger. These discussions resulted in a proposal by JEDI that
in exchange for the removal of such condition, the consideration to be paid
pursuant to the Merger be reduced from $8.00 to $7.75 per share of Coda Common
Stock to reflect reduced value of the transaction to JEDI if proceeds
anticipated from the sale of Taurus were not received. Mr. Miller apprised the
Special Committee of this development, as well as all other members of Coda's
Board of Directors. On December 21, 1995, the Special Committee met by
conference call to discuss JEDI's proposal.
7
<PAGE>
The Special Committee considered that the proposed reduction in the merger
consideration from $8.00 to $7.75 per share of Coda Common Stock reflected
reduced value of the transaction to JEDI if proceeds anticipated from the sale
of Taurus were not received. The Special Committee also considered the
uncertainty associated with leaving this condition in the Original Merger
Agreement and the advantage of removing the condition and proceeding to a
consummation of the Merger as soon as practicable, and the cost of extending the
Original Merger Agreement to allow additional time to sell Taurus (the Original
Merger Agreement provided that Purchaser could terminate such agreement if Coda
did not present to JEDI by December 29, 1995, an agreement pertaining to the
sale of Taurus satisfactory to JEDI; provided, that Coda could extend this
period for 30 days upon paying Purchaser $175,000 and an additional 30 days upon
the payment to Purchaser of an additional $75,000).
On December 22, 1995, Coda's Board of Directors met by conference call.
The Board of Directors reviewed the revised JEDI offer and a proposed form of
amendment to the Original Merger Agreement (a copy of which is included as a
part of Appendix A; the "First Amendment"). The Special Committee recommended
to the Board of Directors that, subject to confirmation by Bear Stearns that in
its opinion the Merger (as contemplated by the First Amendment) was fair, from a
financial point of view, to Coda's stockholders (other than members of the
Management Group (defined below), as to whom no opinion would be rendered), the
consummation of the Merger upon the revised terms and conditions set forth in
the First Amendment was in the best interests of Coda and its stockholders.
Acting on the recommendation and approval of the Special Committee and subject
to confirmation by Bear Stearns of its fairness opinion, Coda's Board of
Directors authorized and approved the execution of the First Amendment by Coda
management, which was executed on December 22, 1995, and a press release
announcing its execution was issued on that same date.
On January 2, 1996, the Special Committee met by conference call and
received the oral report of Bear Stearns that in its opinion the Merger, as
contemplated by the First Amendment, was fair, from a financial point of view,
to Coda's stockholders (other than the Management Group, as to whom no opinion
was rendered). On January 5, 1996, the Board of Directors met by conference
call. At this meeting, the Special Committee reported to the Board of Directors
on its receipt of the updated fairness opinion of Bear Stearns. Based upon such
opinion and upon the advice and recommendation of the Special Committee, the
Board of Directors ratified, adopted and approved the First Amendment. In
addition, the Board authorized and approved the execution of the Second
Amendment to Agreement and Plan of Merger (a copy of which is included as a part
of Appendix A; the "Second Amendment"). For a more complete discussion of the
background of the Merger, see "THE MERGER -- Background of the Merger" and "THE
MERGER -- Recommendation of the Special Committee and the Board of Directors;
Reasons for the Merger."
In determining to recommend approval of the Merger Agreement and the
Merger, the Board of Directors and the Special Committee considered the
following factors: (i) the terms and conditions of the Merger Agreement; (ii)
the fact that since April 26, 1995, the date Coda announced Mr. Miller's
interest in forming an investor group for an acquisition of Coda, Coda had
received no indications that any other person would be willing to make an offer
for Coda on terms better than those contained in the Merger Agreement; (iii) the
fact that since August 24, 1995, the date Coda first announced ECT's proposal to
acquire Coda, there had been no indications that any other person would be
willing to make an offer for Coda on terms better than those contained in the
Merger Agreement (including the outcome of a limited market check performed by
Bear Stearns, as more fully described under "THE MERGER -- Opinion of Financial
Advisor"); (iv) the trading price of Coda Common Stock over the past three years
and the fact that the $7.75 per share price in the Merger Agreement represents a
premium of approximately 11% over the closing sales price for Coda Common Stock
on the Nasdaq National Market on April 25, 1995, the last trading day prior to
the public announcement by Coda of Mr. Miller's interest in acquiring Coda, and
8
<PAGE>
a premium of approximately 32% over the average closing sales price on the
Nasdaq National Market for the quarter ended March 31, 1995, and the advantage
offered to Coda stockholders as a result of a sale at a cash purchase price at a
premium over the trading price for Coda Common Stock prior to April 1995 as
compared to the disadvantage of no longer owning an equity interest in Coda
following the consummation of the Merger; (v) the written financial and
comparative analyses prepared by Bear Stearns in connection with its fairness
opinion (as described in "THE MERGER -- Opinion of Financial Advisor"); (vi) the
advice of Bear Stearns at a January 2, 1996 meeting of the Special Committee
that, as of such date, the Merger was fair, from a financial point of view, to
Coda's stockholders (other than members of the Management Group, as to whom no
advice was rendered), and Bear Stearns' confirmation on January 18, 1996, that
its opinion had not changed; (vii) the fact that the Merger Agreement permits
Coda to terminate the Merger Agreement, subject to certain terms and conditions,
if any person makes a bona fide offer to acquire Coda that the Board of
Directors believes in its good faith judgment would yield a better value to the
Coda stockholders than the Merger Agreement; (viii) information with respect to
the financial condition, results of operations and business of Coda, contained
in Coda's Annual Report on Form 10-K for the fiscal year ended December 31,
1994, and its Quarterly Reports on Form 10-Q for the periods ended March 31,
June 30 and September 30, 1995; and (ix) the strategic direction of Coda's
business and future prospects of the oil and gas industry. For a more complete
discussion of the reasons for the Merger, see "THE MERGER -- Recommendation of
the Special Committee and the Board of Directors; Reasons for the Merger."
CERTAIN TERMS OF THE MERGER
Principal Effects of the Merger. Purchaser will be merged with and into
Coda, with Coda as the Surviving Corporation. Pursuant to and subject to the
terms and conditions of the Merger Agreement, at the Effective Time, (i) all
then-outstanding shares of Coda Common Stock (other than (A) shares of Coda
Common Stock held by Purchaser, Coda or any Coda subsidiary, all of which will
be canceled without payment of any consideration, and (B) shares of Coda Common
Stock held by stockholders who perfect their appraisal rights under Section 262
of the DGCL) will be converted into the right to receive, in cash, $7.75 per
share of Coda Common Stock, without interest, and (ii) all shares of Coda Common
Stock underlying then-outstanding but unexercised options and warrants to
purchase Coda Common Stock (other than the "Specified Options" and "Specified
Warrants" held by certain members of the Management Group and designated as such
in the Merger Agreement) will, at the election of the holder, be converted into
the right to receive, in cash, either (A) the difference between (x) $7.75 per
share of Coda Common Stock and (y) the exercise or strike price of the option or
warrant, without interest, or (B) $7.75 per share of Coda Common Stock, without
interest, upon such holder's exercise (including payment of the applicable
exercise or strike price) of his or her options. See "THE MERGER -- Effective
Time; Effect of Merger."
Effective Time. The Effective Time of the Merger will be the date and time
when a properly executed certificate of merger, in such form as is required by
and executed in accordance with the DGCL, is duly filed with the Secretary of
State of the State of Delaware, or at such later time as the parties to the
Merger Agreement designate in such filing as the Effective Time. It is
anticipated that, subject to the satisfaction or waiver, if permissible, of the
conditions to consummation of the Merger set forth in the Merger Agreement, such
filing will be made promptly after the Merger Agreement has been approved by
Coda's stockholders. See "THE MERGER -- Effective Time; Effect of Merger" and
"-- Conditions to Consummation of the Merger."
Conditions to the Merger. The respective obligations of Coda, JEDI and
Purchaser to effect the Merger are subject to the satisfaction, or waiver if
applicable, at or prior to the Effective Time, of various conditions, including,
among other things, (i) the approval and adoption of the Merger Agreement and
the Merger by the requisite vote of the holders of Coda Common Stock; (ii) the
expiration or termination of
9
<PAGE>
the waiting period applicable to the consummation of the Merger under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "Hart-Scott-
Rodino Act"); (iii) the absence of any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
that is then in effect and has the effect of making the Merger illegal or
otherwise preventing or prohibiting consummation of the Merger; (iv) the
confirmation by Coda at the time of the Special Meeting that the written opinion
of Bear Stearns, dated the date of this Proxy Statement and attached hereto as
Appendix B, to the effect that the Merger is fair, from a financial point of
view, to the stockholders of Coda (except that such advice will not be provided
to the members of Coda's management, consisting of Mr. Douglas H. Miller,
Chairman of the Board and Chief Executive Officer of Coda, Mr. Jarl P. Johnson,
Vice Chairman of the Board and President of Diamond Energy Operating Company, a
subsidiary of Coda ("Diamond"), Mr. Grant W. Henderson, Executive Vice
President, Chief Financial Officer and a director of Coda, and twelve other
officers and employees of Coda and Diamond (collectively, the "Management
Group"), who have agreed to participate in the equity ownership of the Surviving
Corporation) has not been withdrawn; and (v) the absence of any pending action,
proceeding or investigation brought by any person or entity before any
governmental entity challenging, affecting or seeking material damages in
connection with the transactions contemplated by the Merger Agreement.
Furthermore, each of Coda, on the one hand, and JEDI and Purchaser, on the other
hand, have additional conditions to their respective obligations to consummate
the Merger. Among the conditions to JEDI and Purchaser consummating the Merger
are that (i) certain members of the Management Group shall have not breached or
anticipatorily breached certain employment and other agreements with Purchaser
that are to become effective in conjunction with the consummation of the Merger
and certain specified senior executives of Coda shall not have died or become
disabled; (ii) the number of shares of Coda Common Stock held by stockholders
dissenting in accordance with Section 262 shall not exceed 10% of the
outstanding shares of Coda Common Stock; and (iii) assuming the representations
and warranties of Coda in the Merger Agreement were made without regard to any
"materiality qualifications," the amount that would be required to be
contributed to the Surviving Corporation at the Effective Time, so that the
owners of the Surviving Corporation would be in the same economic position as
they would have been if the representations and warranties, without regard to
any materiality qualifications, had been true and correct in all respects, in
the aggregate does not exceed $7.5 million. Accordingly, although the holders of
Coda Common Stock may approve and adopt the Merger Agreement and the Merger at
the Special Meeting, there can be no assurance that the Merger will be
consummated if any of the foregoing conditions has not yet been satisfied. See
"THE MERGER -- Conditions to Consummation of the Merger."
Regulatory Clearances. The Merger is subject to review by the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission (the "FTC") pursuant to the Hart-Scott-Rodino Act. The required
information has been provided to those agencies and on December 9, 1995, the
applicable waiting period prescribed under the Hart-Scott-Rodino Act expired
without objection by either the Antitrust Division or the FTC. See "THE MERGER
- -- Certain Regulatory Matters."
Termination; Expenses and Termination Fees. Under certain conditions, the
Merger Agreement may be terminated prior to the Effective Time, whether prior to
or after approval of the Merger Agreement by the stockholders of Coda. Such
conditions include termination by either Coda or Purchaser if the Merger shall
not have been consummated on or before March 15, 1996 (unless such circumstance
is the result of a breach of the terms of the Merger Agreement by the party
wishing to exercise such termination right). In the event of the termination of
the Merger Agreement, there will be no obligation or liability on the part of
any party thereto, except as described under "THE MERGER -- Expenses;
Termination Fees" or as otherwise expressly provided for in the Merger
Agreement; provided, however, that no termination pursuant to the termination
provisions will relieve any party from liability for any breach of the Merger
Agreement. See "THE MERGER -- Amendment, Waiver and Termination." Pursuant to
the
10
<PAGE>
Merger Agreement, if the Merger Agreement is terminated by Purchaser for certain
reasons, then Coda is obligated to reimburse Purchaser for certain out-of-pocket
expenses not to exceed $750,000. If the Merger Agreement is terminated by Coda
due to a breach on the part of JEDI or Purchaser, JEDI is obligated to reimburse
Coda for certain expenses not to exceed $750,000. See "THE MERGER -- Expenses;
Termination Fees."
In addition to the payment of expenses described above, (i) if the Merger
Agreement is terminated for certain reasons and if Coda were to consummate
another acquisition transaction prior to October 30, 1996, that provides better
value to Coda's stockholders than the Merger would have provided, or (ii) if
(A) any person (other than Purchaser or any affiliate thereof) or group becomes
the beneficial owner of more than 20% of the outstanding Coda Common Stock; (B)
either the Merger Agreement is terminated due to the failure to obtain the
requisite stockholders' vote at the Special Meeting or such beneficial owner
takes any action to oppose or prevent the consummation of the Merger and the
Merger Agreement is terminated for any reason; and (C) another acquisition
transaction is consummated within one calendar year of the date of the Special
Meeting, then Coda is obligated to pay Purchaser a fee (the "Break-up Fee") of
$3.5 million. See "THE MERGER -- Expenses; Termination Fees."
Business of Coda. Coda has agreed that, during the period from the date
of the Merger Agreement to the Effective Time, except as otherwise contemplated
by the Merger Agreement or unless Purchaser otherwise consents in writing, Coda
will conduct its operations in the ordinary course of business, consistent with
past practices. In addition, unless Purchaser consents in writing or except as
otherwise permitted pursuant to the Merger Agreement, prior to the Effective
Time Coda is not permitted to engage in certain actions specified in the Merger
Agreement. See "THE MERGER -- Business of Coda Pending the Merger."
Obligations of JEDI and Purchaser. Each of JEDI and Purchaser has agreed
to use its reasonable best efforts to refrain from taking any action that would,
or reasonably might be expected to, result in any of its representations and
warranties set forth in the Merger Agreement being or becoming untrue in any
material respect as of the Effective Time or in any of the conditions to the
Merger not being satisfied, or (unless such action is required by applicable
law) that would adversely affect the ability of JEDI or Purchaser to obtain any
of the regulatory approvals required to consummate the Merger. See "THE MERGER
- -- Obligations of JEDI and Purchaser Pending the Merger."
Other Agreements. Each of Coda, JEDI and Purchaser have made certain other
agreements concerning various matters both prior to and subsequent to the
Effective Time. See "THE MERGER -- Miscellaneous Provisions."
OPINION OF FINANCIAL ADVISOR
The Special Committee engaged Bear Stearns to act as its financial advisor
in connection with the Merger and related matters. On January 18, 1996, Bear
Stearns delivered to the Special Committee its written opinion that the Merger
is fair, from a financial point of view, to Coda's stockholders (except that no
opinion was rendered as to the Management Group). The opinion of Bear Stearns
will not be updated and is limited to the facts and circumstances as of January
18, 1996, the date on which the written opinion was delivered to the Special
Committee. The full text of the opinion of Bear Stearns, which sets forth the
procedures followed, matters considered and assumptions made in connection with
rendering such opinion is attached as Appendix B to this Proxy Statement and
should be read carefully in its entirety. For a description of the Bear Stearns
opinion, including the procedures followed, the matters considered and the
assumptions made by Bear Stearns in arriving at its opinion, see "THE MERGER --
Opinion of Financial Advisor."
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Messrs. Miller, Johnson and Henderson have entered into written agreements
with Purchaser pursuant to which, effective at the Effective Time, they will be
employed by the Surviving Corporation and will acquire equity interests in the
Surviving Corporation. Members of the Management Group have also entered into
written agreements with Purchaser concerning their employment with and/or equity
participation in the Surviving Corporation. For a discussion of the voting on
the Merger Agreement and the Merger, see "THE MERGER -- Background of the
Merger" and "-- Recommendation of the Special Committee and the Board of
Directors; Reasons for the Merger." See "THE MERGER -- Interests of Certain
Persons in the Merger."
SURRENDER OF CERTIFICATES
Prior to the Effective Time, Coda and Purchaser have agreed to appoint The
First National Bank of Boston as paying agent (the "Paying Agent") to receive,
hold and disburse the funds to which holders of shares of Coda Common Stock and
holders of options and warrants to purchase Coda Common Stock will become
entitled upon consummation of the Merger. As soon as practicable after the
Effective Time, the Surviving Corporation will mail to each person who was a
record holder of shares of Coda Common Stock immediately prior to the Effective
Time (other than Purchaser, Coda, Coda's subsidiaries and holders of shares who
perfect their statutory appraisal rights under Section 262 of the DGCL), a form
of letter of transmittal and instructions advising the holder of the procedure
for surrendering for payment the certificates that immediately prior to the
Effective Time represented shares of Coda Common Stock (the "Certificates").
Holders of Certificates should not submit their Certificates to the Paying Agent
until they have received such materials. Payment for shares of Coda Common
Stock will be made to former holders of Coda Common Stock as promptly as
practicable following receipt by the Paying Agent of Certificates and other
documents required by the letter of transmittal. No interest will accrue or be
paid on the cash payable upon the surrender of Certificates. See "THE MERGER --
Surrender of Certificates." STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES TO
CODA AT THIS TIME.
NO SOLICITATION OF OTHER BIDS
Prior to the Effective Time, Coda has agreed not to, nor to permit any of
its subsidiaries to, nor to authorize or permit any of its officers, directors
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any of its subsidiaries to, directly
or indirectly, initiate, solicit, negotiate or encourage (including by way of
furnishing information), or take any other action to facilitate or entertain,
any inquiries or the making of any proposal that constitutes, or may be
reasonably expected to lead to, any proposal or offer to acquire all or
substantially all of the business of Coda and its subsidiaries, or all or
substantially all of the capital stock of Coda; provided, however, that Coda may
negotiate with a potential acquiror if (i) the potential acquiror has made a
tender or exchange offer or a proposal to Coda's Board of Directors to acquire
Coda, (ii) Coda's Board of Directors believes, based in part upon advice of its
financial advisor and after having an opportunity to discuss any such proposal
with a potential acquiror, that such potential acquiror has the financial
wherewithal to consummate such offer or transaction and such offer or
transaction would yield a better value to Coda's stockholders than would the
Merger and (iii) based upon the advice of counsel to Coda given to the Board of
Directors, the Board of Directors determines in good faith that there is a
significant risk that the failure to negotiate with the potential acquiror could
constitute a breach of the Board of Directors' fiduciary duty to Coda's
stockholders. See "THE MERGER -- No Solicitation of Other Bids."
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<PAGE>
SOURCES AND AMOUNT OF FUNDS
The total amount of funds required by JEDI and Purchaser to acquire all of
the then-outstanding shares of capital stock of Coda (including options and
warrants to purchase Coda Common Stock, but excluding the Specified Options, the
Specified Warrants and shares of Coda Common Stock held by Purchaser), is
estimated to be approximately $176.2 million. Coda will also need approximately
$6.5 million in cash to pay the fees and expenses incurred or to be incurred by
Coda (as itemized in "THE MERGER -- Sources and Amount of Funds") associated
with effecting the Merger and the financing thereof, including an estimated $3.9
million in transaction fees expected to be paid to ECT Securities Corp., an
affiliate of Enron Capital Management Limited Partnership (the general partner
of JEDI). Coda also has agreed to provide loans in exchange for limited
recourse promissory notes to certain members of the Management Group in the
aggregate principal amount of $937,300 to purchase shares of capital stock of
Purchaser. See "THE MERGER -- Interests of Certain Persons in the Merger."
JEDI expects Purchaser to have available to it at the Effective Time
approximately $190 million from (i) a $90 million equity investment to be made
in Purchaser by JEDI prior to the Effective Time and (ii) proceeds of a $100
million loan to be made to Purchaser by JEDI prior to the Effective Time.
Immediately after the Effective Time, JEDI also has agreed to contribute an
additional $20.0 million in cash in exchange for 20,000 shares of 15% Cumulative
Preferred Stock of the Surviving Corporation (the "15% Cumulative Preferred
Stock"). The obligation of JEDI and Purchaser to consummate the Merger under
the Merger Agreement is not subject to a condition that any financing be
available to JEDI or Purchaser. See "THE MERGER -- Sources and Amount of
Funds."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for shares of Coda Common Stock pursuant to the Merger
or pursuant to the exercise of appraisal rights will be a taxable transaction
for federal income tax purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws. For United States federal
income tax purposes, in general, a stockholder who receives cash for shares of
Coda Common Stock pursuant to the Merger will recognize a gain or loss equal to
the difference between the stockholder's tax basis for the shares of Coda Common
Stock converted into the right to receive cash in such transaction and the
amount of cash received in exchange therefor. Assuming that the shares of Coda
Common Stock constitute capital assets in the hands of the stockholder, such
gain or loss will be long-term capital gain or loss if, as of the date of
disposition, such shares of Coda Common Stock have been held for more than one
year. See "THE MERGER -- Certain Federal Income Tax Consequences."
ALL STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSIONS IN "THE MERGER --
CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND ARE URGED TO CONSULT THEIR OWN
ADVISORS AS TO SPECIFIC CONSEQUENCES TO THEM OF THE MERGER UNDER FEDERAL, STATE,
LOCAL, FOREIGN OR ANY OTHER APPLICABLE TAX LAWS.
APPRAISAL RIGHTS
Under Section 262 of the DGCL, stockholders may demand an appraisal by the
Delaware Court of Chancery of the "fair value" of their shares of Coda Common
Stock in lieu of accepting the payment to be made pursuant to the Merger. A
stockholder electing to demand an appraisal must deliver to Coda, before the
taking of the vote on the Merger, a written demand for appraisal of such
stockholder's shares of Coda Common Stock. A proxy or vote against the Merger
or an abstention or broker non-vote will not constitute such a demand. A vote
in favor of the Merger will waive the appraisal rights. A
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description of Section 262 is provided in "APPRAISAL RIGHTS" and the full text
of Section 262 is included with this Proxy Statement as Appendix C.
FAILURE TO TAKE ANY OF THE STEPS REQUIRED UNDER SECTION 262 MAY RESULT IN
TERMINATION OR WAIVER OF APPRAISAL RIGHTS. STOCKHOLDERS INTENDING TO EXERCISE
APPRAISAL RIGHTS UNDER SECTION 262 ARE ADVISED TO ACT IMMEDIATELY.
MARKET PRICE INFORMATION
Coda Common Stock is quoted on the Nasdaq National Market under the trading
symbol "CODA." The following table sets forth for the calendar periods indicated
the high and low closing prices per share of Coda Common Stock, as reported on
the Nasdaq Monthly Statistical Report. These prices reflect inter-dealer
prices, without retail markup, markdown or commission, and may not necessarily
represent actual transactions. For current price information, stockholders
should consult publicly available sources.
<TABLE>
<CAPTION>
High Low
--------- --------
<S> <C> <C>
1993
----
First Quarter............................. $ 5 1/8 $ 4
Second Quarter............................ 7 5/8 5 1/4
Third Quarter............................. 6 7/8 5 5/8
Fourth Quarter............................ 7 4 1/2
1994
----
First Quarter............................. $ 5 7/8 $ 4 5/8
Second Quarter............................ 6 7/8 4 5/8
Third Quarter............................. 7 1/4 5 7/8
Fourth Quarter............................ 7 5 5/8
1995
----
First Quarter............................. $ 6 3/8 $ 5 3/8
Second Quarter............................ 7 3/8 5 5/8
Third Quarter............................. 7 1/2 6 1/8
Fourth Quarter............................ 7 3/4 6 7/8
1996
----
First Quarter (through January 17, 1996).. $7 33/64 $7 5/16
</TABLE>
On April 25, 1995, the last full trading day prior to the public
announcement that Mr. Douglas H. Miller, Chairman of the Board and Chief
Executive Officer of Coda, had informed Coda's Board of Directors that he was
actively pursuing discussions concerning a possible acquisition of Coda, the
reported Nasdaq National Market high and low sales prices per share of Coda
Common Stock were $7 1/8 and $6 7/8, respectively. On August 23, 1995, the last
full trading day prior to the public announcement that ECT had submitted an
offer to acquire all of the outstanding shares of Coda Common Stock in a
transaction in which stockholders would receive $8.00 per share in cash, the
reported Nasdaq National Market high and low sales prices per share of Coda
Common Stock were $6 1/2 and $6 1/4, respectively. On October 30, 1995, the
last full trading day prior to the public announcement that Coda and JEDI had
executed the definitive Merger Agreement, the reported Nasdaq National Market
high and low sales prices per share of Coda Common Stock were $7 3/8 and $7
5/16, respectively. On December 21, 1995, the last trading day prior to the
public announcement that Coda and JEDI had executed the First Amendment
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<PAGE>
removing the condition to closing that Taurus be sold on terms acceptable to
JEDI and lowering the purchase price for Coda Common Stock to $7.75 per share,
the reported Nasdaq National Market high and low sales prices per share of Coda
Common Stock were $7 1/2 and $7 3/8, respectively. On January 10, 1996, the last
trading day prior to the public announcement that Coda and JEDI had executed the
Second Amendment, the reported Nasdaq National Market high and low sales prices
per share of Coda Common Stock were $7 15/32 and $7 7/16, respectively. On
January 17, 1996, the most recent available date prior to printing this Proxy
Statement, the reported Nasdaq National Market high and low sales prices per
share of Coda Common Stock were $7 35/64 and $7 1/2, respectively.
SELECTED SUMMARY CONSOLIDATED FINANCIAL INFORMATION CONCERNING CODA
The following table presents certain selected summary consolidated
financial data of Coda as of and for the years ended December 31, 1990, 1991,
1992, 1993 and 1994 and as of and for the nine months ended September 30, 1994
and 1995. The financial data set forth below should be read in conjunction with
the financial statements of Coda and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" incorporated by reference in this
Proxy Statement from Coda's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995. See "SELECTED CONSOLIDATED FINANCIAL DATA" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31,/(1)/ September 30,/(1)/
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
- ------------------------------
Total revenues........................... $15,428 $22,782 $23,637 $ 40,050 $ 71,586 $ 50,362 $ 71,345
Income (loss) from continuing
operations.............................. 1,829 (65) (734) 2,334 3,329 2,025 3,917
Income (loss) from continuing
operations per common and common
equivalent share........................ .15 (.01) (.06) .15 .15 .09 .17
Balance Sheet Data (at end of period):
- ------------------
Total assets............................. 41,738 56,010 82,226 132,754 203,102 180,059 209,683
Long-term debt, less current maturities.. 14,494 28,794 56,563 59,651 105,063 83,893 107,930
</TABLE>
- ----------
(1) Reflects revenues and earnings since date of acquisition of various assets
that materially affect comparability with prior years. (See Note 3 of Notes
to Consolidated Financial Statements included in Coda's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, incorporated by
reference herein.)
15
<PAGE>
AVAILABLE INFORMATION
Coda is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission") relating to its business,
financial condition and other matters. Coda is required to disclose in such
reports and proxy statements certain information, as of particular dates,
concerning Coda's directors and executive officers, their remuneration, stock
options granted to them, Coda's principal stockholders and any material interest
of such persons in transactions with Coda. Such reports, proxy statements and
other information filed with the Commission in accordance with the Exchange Act
can be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at certain regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also may be obtained by mail at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549.
GENERAL INFORMATION REGARDING
THE SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE OF SPECIAL MEETING
The Special Meeting will be held on Friday, February 16, 1996 at the Royal
Oaks Country Club, 7915 Greenville Avenue, Dallas, Texas, beginning at 10:00
a.m., Dallas time. This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Coda for use at the Special
Meeting and at any adjournments or postponements thereof. These materials were
first mailed or given to Coda's stockholders on or about January 19, 1996. The
purpose of the Special Meeting is to consider and vote upon a proposal to
approve and adopt the Merger Agreement and the Merger, pursuant to which
Purchaser will be merged with and into Coda, with Coda surviving the Merger as
the Surviving Corporation. Upon consummation of the Merger, Coda will become a
majority-owned subsidiary of JEDI.
Pursuant to the terms of the Merger Agreement, after the approval and
adoption of the Merger Agreement and the Merger by Coda's stockholders, the
satisfaction or waiver of the other conditions to the Merger and the filing of a
copy of a Certificate of Merger with the Secretary of State of the State of
Delaware, (i) all then-outstanding shares of Coda Common Stock (other than (A)
shares of Coda Common Stock held by Purchaser, Coda or any Coda subsidiary, all
of which will be canceled without payment of any consideration, and (B) shares
of Coda Common Stock held by stockholders who perfect their statutory appraisal
rights under Section 262 of the DGCL), will be converted into the right to
receive, in cash, $7.75 per share of Coda Common Stock, without interest, and
(ii) all shares of Coda Common Stock underlying then-outstanding but unexercised
options and warrants to purchase Coda Common Stock (other than the Specified
Options and Specified Warrants held by certain members of the Management Group
and designated as such in the Merger Agreement) will, at the election of the
holder, be converted into the right to receive, in cash, either (A) the
difference between (x) $7.75 per underlying share of Coda Common Stock and (y)
the exercise or strike price of the option or warrant, without interest, or (B)
$7.75 per underlying share of Coda Common Stock, without interest, upon such
holder's exercise (including payment of the applicable exercise or strike price)
of his or her options.
16
<PAGE>
VOTE REQUIRED FOR APPROVAL; SHARES ENTITLED TO VOTE; RECORD DATE
This Proxy Statement is being mailed to all stockholders of record of Coda
as of the Record Date. Only holders of record of Coda Common Stock at the close
of business on the Record Date will be entitled to notice of, and to vote at,
the Special Meeting or any adjournment(s) or postponement(s) thereof. As of the
Record Date, 22,088,903 shares of Coda Common Stock were outstanding, all of
which were entitled to vote and which were held of record by 2,442 holders.
The shares of Coda Common Stock constitute the only shares of voting
securities of Coda issued and outstanding and entitled to vote on matters to be
presented at the Special Meeting. Each share of Coda Common Stock is entitled to
one vote on each matter submitted to a vote at the Special Meeting or any
adjournment(s) or postponement(s) thereof.
The presence at the Special Meeting, whether in person or by proxy, of the
holders of a majority of the outstanding shares of Coda Common Stock entitled to
vote thereat will constitute a quorum for the transaction of business. The
affirmative vote, in person or by proxy, of the holders of a majority of the
outstanding shares of Coda Common Stock entitled to vote at the Special Meeting
is required for the approval of the Merger Agreement and the Merger. Shares of
Coda Common Stock represented by a properly signed, dated and returned proxy
will be treated as present at the Special Meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. Abstentions are counted in the tabulation of the votes cast on
proposals presented to stockholders. Proxies relating to "street name" shares
that are voted by brokers will be counted as shares present for purposes of
determining a quorum, but will not be treated as shares having voted at the
Special Meeting as to the Merger proposal if authority to vote is withheld by
the broker. ACCORDINGLY, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME
EFFECT AS VOTES AGAINST THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
As of December 1, 1995, JEDI and Purchaser did not own any shares of Coda
Common Stock. However, pursuant to the agreements with the Management Group,
Purchaser has the right immediately prior to the Effective Time to acquire
51,330 shares of Coda Common Stock from the Management Group in exchange for
Purchaser common stock, and the Management Group has agreed to the cancellation
as of the Effective Time of all the Specified Options and Specified Warrants,
which relate to an aggregate of 864,735 shares of Coda Common Stock, and in
return will be granted options to acquire Surviving Corporation common stock.
See "THE MERGER -- Interests of Certain Persons in the Merger." As of December
1, 1995, Coda's directors and executive officers, and their affiliates, held an
aggregate of 2,399,236 shares of Coda Common Stock, representing approximately
11% of the outstanding shares of Coda Common Stock on the Record Date. As of
December 1, 1995, the Management Group held an aggregate of 1,167,445 shares of
Coda Common Stock, representing approximately 5% of the outstanding shares of
Coda Common Stock on the Record Date. As of December 1, 1995, Coda's directors
and executive officers, and their affiliates, and the Management Group, when
taken as a group, held an aggregate of 2,415,201 shares of Coda Common Stock,
representing approximately 11% of the outstanding shares of Coda Common Stock on
the Record Date. Coda anticipates that its directors and officers and the
Management Group will vote their shares of Coda Common Stock in favor of the
Merger Agreement. For information with respect to the beneficial ownership of
shares of Coda Common Stock by each of Coda's directors, by the named executive
officers, by all directors and executive officers as a group and by each person
known to Coda to be a beneficial owner of more than five percent of the
outstanding shares of Coda Common Stock, see "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
17
<PAGE>
Stockholders have the right to dissent from the Merger and to be paid the
"fair value" of their shares of Coda Common Stock, as determined by a Delaware
Court of Chancery, by following the procedures prescribed in Section 262 of the
DGCL. See Appendix C and "APPRAISAL RIGHTS."
INSTRUCTIONS WITH REGARD TO THE SURRENDER OF CERTIFICATES TO THE PAYING
AGENT, TOGETHER WITH A LETTER OF TRANSMITTAL TO BE USED FOR THIS PURPOSE, WILL
BE FORWARDED TO CODA'S STOCKHOLDERS AS PROMPTLY AS PRACTICABLE FOLLOWING THE
EFFECTIVE TIME. STOCKHOLDERS SHOULD SURRENDER CERTIFICATES ONLY AFTER RECEIVING
A LETTER OF TRANSMITTAL. STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES TO CODA
AT THIS TIME.
SOLICITATION AND REVOCABILITY OF PROXIES
Coda expects to solicit proxies primarily by mail, but directors, officers,
employees and agents of Coda may also solicit proxies in person, by telephone or
by other electronic means, although none will receive additional compensation
for such services. However, such persons will be reimbursed by Coda for out-of-
pocket expenses incurred in connection therewith. Coda will also request
brokerage houses, banks and other fiduciaries to forward soliciting materials to
the beneficial owners of shares of Coda Common Stock held of record by such
fiduciaries and will reimburse such persons for their reasonable expenses in
connection therewith. The accompanying proxy card is being solicited on behalf
of the Board of Directors of Coda for use at the Special Meeting and at any
adjournment(s) or postponement(s) thereof and the cost of preparing, assembling
and mailing the proxy cards and accompanying materials for the Special Meeting,
including the cost of reimbursing brokers and nominees for forwarding proxy
cards and proxy statements to their principals, will be paid by Coda. In
addition, Coda has retained Morrow & Co., Inc. to assist Coda in the
solicitation of proxies. It is estimated that Coda will pay approximately $7,000
in fees, plus expenses and disbursements, to Morrow & Co., Inc. for their proxy
solicitation services.
If the enclosed proxy card is properly executed, duly returned and not
revoked, the shares represented thereby will be voted in accordance with the
instructions contained therein, if any. Unless authority to do so is withheld
or the stockholder abstains from voting, the proxy will be voted "FOR" approval
of the Merger Agreement and the consummation of the Merger and the related
transactions. Each proxy granted may be revoked by the stockholder granting such
proxy at any time before it is voted by filing with the Secretary of Coda a
written revocation or a duly executed proxy card bearing a later date, or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not in itself constitute the revocation of a proxy. Proxy cards
marked as withholding authority or abstaining will be treated as present for
purposes of determining whether a quorum is present at the Special Meeting, but
will not be counted as a vote for any proposal as to which authority is withheld
or abstention indicated. Proxy cards returned by brokers as "non-votes" will be
treated as present for purposes of determining whether a quorum is present at
the Special Meeting, but will not be counted as a vote for any proposal as to
which a non-vote is indicated.
If the Special Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Special Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for proxies that have theretofore effectively been
revoked or withdrawn), notwithstanding that they may have been effectively voted
on the same or any other matter at a previous meeting.
18
<PAGE>
APPROVAL BY JEDI AND PURCHASER
The affirmative vote of the holders of a majority of the outstanding shares
of Purchaser common stock is required to approve and adopt the Merger Agreement
and approve the Merger. All of the outstanding shares of Purchaser common stock
are held by JEDI, and such shares have previously been voted by written consent
of JEDI, as Purchaser's sole stockholder, in favor of the Merger Agreement and
the Merger.
JEDI AND PURCHASER INFORMATION
All information contained in this Proxy Statement with respect to JEDI and
Purchaser has been supplied by JEDI or Purchaser for inclusion herein and has
not been independently verified by Coda.
THE COMPANIES
CODA
Coda is an independent energy company that, together with its subsidiaries,
is principally engaged in the acquisition and exploitation of (i) producing oil
and natural gas properties, (ii) natural gas processing and liquids extraction
facilities and (iii) natural gas gathering systems. Coda seeks to acquire
properties whose predominant economic value is attributable to proved producing
reserves and to enhance that value through control of operations, reduction of
costs, development of properties and expansion of natural gas gathering systems.
Coda's producing oil and natural gas properties are concentrated in the mid-
continent region of the United States.
Coda's principal strategy is to increase oil and natural gas reserves and
cash flow by selectively acquiring and exploiting producing oil and natural gas
properties, especially those properties with enhanced recovery and other low-
risk development potential. Coda's exploitation efforts include, where
appropriate, the drilling of low-risk development wells, the initiation of
secondary recovery projects, the renegotiation of product marketing agreements
and the reduction of drilling, completion and lifting costs. Cost savings may be
principally achieved through reductions in field staff and the more effective
utilization of field facilities and equipment by virtue of geographic
concentration.
Additional information concerning Coda's business, assets, management,
results of operations and other matters is included in Coda's reports filed
under the Exchange Act, including Coda's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, which are incorporated by reference in this
Proxy Statement. See "RECENT DEVELOPMENTS REGARDING CODA" and "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE." The mailing address for Coda's principal
executive offices is 5735 Pineland Drive, Suite 300, Dallas, Texas 75231, and
the telephone number at that address is (214) 692-1800.
JEDI AND PURCHASER
JEDI is a Delaware limited partnership whose general partner, Enron Capital
Management Limited Partnership, is a subsidiary of ECT, which is a wholly-owned
subsidiary of Enron Corp. The limited partner of JEDI is CalPERS. JEDI was
created primarily to invest in a portfolio of diversified natural gas related
assets. The principal executive offices of JEDI are located at 1400 Smith
Street, Houston, Texas 77002, and the telephone number at that address is (713)
853-5259.
19
<PAGE>
Purchaser is a Delaware corporation formed solely for the purpose of
effecting the Merger and has not carried on any activities other than in
connection with the Merger. Purchaser is a subsidiary of JEDI. The principal
executive offices of Purchaser are located at 1400 Smith Street, Houston, Texas
77002, and the telephone number at that address is (713) 853-5259.
RECENT DEVELOPMENTS REGARDING CODA
ACQUISITION OF CERTAIN PROPERTIES
On October 6, 1995, but effective as of October 1, 1995, Coda acquired 63
producing oil and natural gas properties and related assets from Snyder Oil
Corporation ("Snyder"). The majority of these properties are located in the
Permian Basin in West Texas. The total purchase price of these properties was
$17.1 million in cash, of which $16 million was financed with borrowings under
Coda's existing credit facility. Total proved reserves are estimated as of
October 1, 1995, to be 4.3 million barrels of oil and 6.8 billion cubic feet of
natural gas. Coda believes that the West Texas properties (the "SOCO
Properties") acquired present exploitation opportunities, including
opportunities to implement cost-cutting strategies and initiate or improve
secondary recovery operations and low-risk development drilling activities.
Additionally, the acquisition complements Coda's core operating areas within the
mid-continent region of the United States. See "PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS."
THE MERGER
THE DISCUSSION IN THIS PROXY STATEMENT OF THE MERGER AND THE MERGER
AGREEMENT AND THE SUMMARY OF THE MERGER AGREEMENT'S PRINCIPAL TERMS ARE SUBJECT
TO AND QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY
OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A AND WHICH IS
INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF THE MERGER AGREEMENT
DOES NOT MODIFY OR SUPPLEMENT THE TERMS OF THE MERGER AGREEMENT.
GENERAL
The Merger Agreement provides, among other things, for the merger of
Purchaser with and into Coda, with Coda surviving the Merger as the Surviving
Corporation. Pursuant to and subject to the terms and conditions of the Merger
Agreement, at the Effective Time of the Merger, (i) all then-outstanding shares
of Coda Common Stock (other than (A) shares of Coda Common Stock held by
Purchaser, Coda or any Coda subsidiary, all of which will be canceled without
payment of any consideration, and (B) shares of Coda Common Stock held by
stockholders who perfect their appraisal rights under Section 262 of the DGCL),
will be converted into the right to receive, in cash, $7.75 per share of Coda
Common Stock, without interest, and (ii) all shares of Coda Common Stock
underlying then-outstanding but unexercised options and warrants to purchase
Coda Common Stock (other than the Specified Options and Specified Warrants held
by certain members of the Management Group and designated as such in the Merger
Agreement) will, at the election of the holder, be converted into the right to
receive, in cash, either (A) the difference between (x) $7.75 per share of Coda
Common Stock and (y) the exercise or strike price of the option or warrant,
without interest, or (B) $7.75 per share of Coda Common Stock, without interest,
upon such holder's exercise (including payment of the applicable exercise or
strike price) of his or her options.
20
<PAGE>
As a result of the Merger, and without any action on the part of the holder
thereof, all then-outstanding shares of Coda Common Stock will cease to be
outstanding and will be canceled and retired and will cease to exist, and each
holder of a certificate representing shares of Coda Common Stock will thereafter
cease to have any rights with respect to such shares of Coda Common Stock,
except the right to receive, without interest, $7.75 in cash per share of Coda
Common Stock or the appraisal rights available under Section 262 of the DGCL and
except that shares of Coda Common Stock held by Purchaser, Coda or any Coda
subsidiary will be canceled without payment of any consideration. Coda
stockholders who do not vote in favor of the proposal to adopt the Merger
Agreement and who comply with the statutory procedure set forth in Section 262
of the DGCL will be entitled to appraisal rights with respect to any shares of
Coda Common Stock held by them to be converted at the Effective Time of the
Merger. See "APPRAISAL RIGHTS."
The Management Group has agreed to acquire shares of common stock of
Purchaser (the "Purchaser Common Stock"), which will be converted into shares of
common stock of the Surviving Corporation in the Merger (representing
approximately 1.5% of such common stock outstanding immediately after the
Effective Time), in exchange for cash, shares of Coda Common Stock and
promissory notes, and will receive options exercisable for common stock of the
Surviving Corporation (representing in the aggregate approximately an additional
3.4% of the fully diluted common stock of the Surviving Corporation immediately
after the Effective Time) in replacement of their Specified Options and
Specified Warrants which are not converted into the right to receive cash in the
Merger. As a result, immediately following the Merger, JEDI and the Management
Group will own approximately 98.5% and 1.5%, respectively, of the outstanding
shares of Surviving Corporation common stock (approximately 95% and 5%,
respectively, on a fully diluted basis, including options granted to the
Management Group). JEDI also will purchase 20,000 shares of 15% Cumulative
Preferred Stock in the Surviving Corporation (constituting all issued and
outstanding shares of such 15% Cumulative Preferred Stock) subsequent to the
Merger. The Management Group has entered into a stockholders agreement with
JEDI and Purchaser pursuant to which all outstanding shares of common stock of
Surviving Corporation will be held and that provides for, among other things,
(i) certain rights of first refusal, buy-sell and similar obligations among the
stockholders of Surviving Corporation and (ii) the Management Group to earn the
right to receive cash or additional shares of the common stock of the Surviving
Corporation under certain conditions. In addition, Messrs. Miller, Johnson and
Henderson and three other members of the Management Group have entered into
employment agreements with Purchaser to be effective at the Effective Time of
the Merger. See "-- Interests of Certain Persons in the Merger."
BACKGROUND OF THE MERGER
Management Buyout. In late 1994, Coda's Chairman and Chief Executive
Officer, Mr. Douglas H. Miller, became increasingly concerned that the market
was not adequately valuing Coda Common Stock. In spite of Coda's record
earnings, cash flow, crude oil production, crude oil reserves and asset growth
in 1994, Coda Common Stock was trading at what Mr. Miller believed to be a
discount to its true value. During this period, Mr. Miller believed that the
public market for energy securities was depressed in part due to low natural gas
prices and relatively poor performance of Coda's peer companies, whose reserves
tended to be more heavily weighted towards natural gas. Mr. Miller believed
that Coda Common Stock should trade at a higher relative value since, among
other things, approximately 80% of Coda's reserves were comprised of crude oil
reserves, and crude oil prices were trending upward while natural gas prices
were trending downward. The average daily closing price as quoted on the Nasdaq
National Market for Coda Common Stock for the quarter ended December 31, 1994,
and the quarter ended March 31, 1995, was $6.57 and $5.88, respectively. The
low trading price of Coda Common Stock was a principal reason for Coda's open
market stock repurchase program announced in 1994.
21
<PAGE>
In light of the circumstances described above, and with the goal of
enhancing stockholder value, Mr. Miller met with TGV Partners and Apollo
Advisors, L.P. (collectively, "Apollo"), both private investment firms, and had
discussions regarding the formation of an investor group for the possible cash
acquisition of Coda at a premium over the then recent average daily closing
price of Coda Common Stock. These discussions began in late February, continued
into April 1995 and at one time included representatives from Goldman, Sachs &
Co. ("Goldman Sachs").
On April 26, 1995, at a special meeting of Coda's Board of Directors, Mr.
Miller advised Coda's Board of Directors that he was engaged in forming an
investor group and had entered into discussions with various parties regarding
obtaining financing for the possible cash acquisition of Coda at a premium to
the then recent trading prices of Coda Common Stock. However, no offer was
presented to the Board of Directors at that time. A press release was issued
following the Board of Directors' meeting announcing Mr. Miller's efforts and
that Coda's Board of Directors had formed the Special Committee for the purpose
of, among other things, considering any acquisition proposal that might be
forthcoming. The Special Committee was authorized to retain independent legal
counsel to advise it and an independent investment banking firm to evaluate any
acquisition proposal. The Special Committee consists of Messrs. Earl E. Ellis,
Worthy R. Warnack and David A. Keener and is chaired by Mr. Ellis.
As Mr. Miller continued his discussions with Apollo, it became apparent to
him that, while Apollo had an interest in contributing equity capital to fund a
buyout of Coda Common Stock, it would only do so if joined by an equity partner
known to have expertise in the oil and gas industry. Accordingly, Mr. Miller
began to hold meetings with other potential equity investors with oil and gas
industry knowledge.
At a meeting with representatives of Donaldson, Lufkin & Jenrette ("DLJ")
on April 27, 1995, at Coda's offices in Dallas, financing alternatives,
including debt, common and preferred equity investments, were proposed by DLJ.
On May 5, 1995, the DLJ representatives met again with Mr. Miller and other Coda
officers and a representative of Apollo to discuss further financing
alternatives.
On May 8, 1995, representatives of Koch Supply & Trading Company ("Koch")
met with Mr. Miller and other Coda officers in Dallas to discuss Coda's business
plan and various potential financing alternatives that Koch might be willing to
pursue with Coda in conjunction with a possible purchase of Coda Common Stock.
On May 9, 1995, representatives from Salomon Brothers Inc met with Mr.
Miller and other Coda officers in Dallas to discuss financing ideas, including
an issue of Coda subordinated debt, the proceeds of which would be used to
repurchase a portion of the outstanding Coda Common Stock.
A representative of Trust Company of the West ("TCW") met with Mr. Miller
and other Coda officers on May 11, 1995, in Dallas and discussed combining TCW
financing and a TCW investment in preferred stock to be issued by Coda to
finance the purchase of Coda Common Stock.
On May 12, 1995, The Beacon Group, a group of former Goldman Sachs
associates, met with Mr. Miller and other Coda officers in Dallas and discussed
a direct equity purchase of Coda Common Stock.
Mr. Miller and Coda officials met with E.M. Warburg Pincus & Company, Inc.
("Warburg") officials in New York on June 22, 1995, and held preliminary
discussions regarding an equity investment in Coda. Warburg and Coda
representatives met again in Dallas on June 29, 1995, to explore further
financing alternatives and an equity investment in Coda.
22
<PAGE>
None of these discussions resulted in a buyout proposal that would provide
Coda's stockholders a significant premium over the then-current trading prices.
While a few verbal indications of interest were received from the persons
described above, no firm offers or proposals were extended. Additionally, the
verbal indications of interest typically ranged from $6.50 to $7.50 per share,
and were not necessarily all payable in cash.
ECT Acquisition. Coda has had a customary industry supplier/marketing
relationship with ECT or its affiliates since 1993. Coda or its subsidiaries
have sold crude oil to EOTT Energy Partners, L.P. ("EOTT") since at least
December 1993. EOTT is a crude oil transportation and trading company and an
affiliate of ECT. Coda has conducted some of its oil hedging activities through
ECT since July 1994. Coda or its subsidiaries have also sold or marketed
natural gas or gas plant liquid products through affiliates of ECT. Coda has
had no direct past, present or proposed contracts, arrangements, understandings,
relationships, negotiations or transactions with either JEDI or Enron Capital
Management Limited Partnership, general partner of JEDI, other than those
relating to the Merger, as described below.
On May 23, 1995, at a symposium in Colorado sponsored by ECT, Mr. Grant W.
Henderson, Coda's Executive Vice President and Chief Financial Officer, had a
preliminary conversation with representatives of ECT regarding ECT's potential
involvement in financing the acquisition of Coda. ECT expressed an interest in
investigating the possibility of financing such a transaction led by other
parties and possibly making an equity investment in Coda. ECT representatives
met with Coda officials on May 31, 1995, at Coda's offices in Dallas to begin
preliminary discussions, which led to the furnishing of additional information
to ECT and the signing of a confidentiality agreement on June 12, 1995.
On June 14, 1995, Messrs. Miller, T.W. Eubank (Coda's President) and
Henderson met with ECT representatives to discuss in additional detail Coda's
business strategies and operations. ECT expressed a strong interest in pursuing
a transaction with Coda and initiated preliminary financial and engineering due
diligence activities during the week of June 24, 1995.
On July 11, 1995, ECT presented a preliminary proposal to Messrs. Miller,
Eubank and Henderson by which ECT or an affiliate would join with other equity
partners and certain members of Coda's management to form a new corporation to
acquire Coda for $7.25 per share of Coda Common Stock. Under the proposal, ECT
would own 75% to 90% of the new corporation and the management investors would
own the remainder, all of which would be based upon the amount of equity
contributed by each party. In conjunction with bank financing, ECT would
provide additional financing in the form of subordinated debt and a volumetric
production payment in order to finance the remaining amount necessary to acquire
100% of Coda's Common Stock. While Messrs. Miller, Eubank and Henderson
expressed interest in the preliminary proposal, they voiced dissatisfaction with
the proposed acquisition price of $7.25 per share. Subsequent to this meeting,
Mr. Miller individually discussed the preliminary proposal with each member of
the Board of Directors, and each member of the Board of Directors agreed that
Coda should demand a higher price. Mr. Miller later communicated to ECT that
Coda's Board of Directors did not believe that $7.25 per share represented an
adequate offer and that ECT should reconsider the offer price.
On July 19, 1995, Mr. Miller met with certain ECT representatives in order
to discuss various issues, including other potential equity partners, personnel
issues, operational issues and ECT's offered price for Coda Common Stock.
On July 21, 1995, ECT submitted a non-binding written expression of
interest for the acquisition of all of the outstanding shares of Coda Common
Stock for $8.00 per share in cash, subject to the satisfactory disposition of
Taurus and several other conditions, including the participation of certain
23
<PAGE>
members of Coda's management in the Surviving Corporation and completion of
ECT's due diligence efforts. Mr. Miller, via telephone conference call,
informed Coda's Board of Directors and the Special Committee on July 25, 1995,
of the ECT letter. During this meeting, the Board of Directors and the Special
Committee expressed its interest in further pursuing ECT's indication of
interest and agreed that ECT should conclude its due diligence efforts in order
to finalize its offer.
From July 24, 1995, to approximately August 18, 1995, ECT conducted further
extensive financial, engineering, land, legal, environmental and operational due
diligence. During these due diligence activities, ECT determined that it would
prefer to acquire Coda through a merger transaction between Coda and a
subsidiary of JEDI, subject to the Surviving Corporation retaining certain
members of Coda's management team.
On August 23, 1995, representatives of ECT met with Coda's full Board of
Directors, including the Special Committee and the Special Committee's legal
counsel, to present a Letter of Understanding whereby ECT (or an affiliate
thereof) proposed to acquire through a cash merger all of the outstanding Coda
Common Stock for $8.00 per share. The Letter of Understanding contained certain
non-binding provisions pertaining to the price, structure, covenants and other
proposed terms of the proposed Merger. The Letter of Understanding contained
certain binding terms, including a confidentiality provision and provisions
limiting Coda's ability to solicit other offers and requiring Coda to pay a
break-up fee to, and reimburse certain out-of-pocket expenses of, ECT under
certain conditions. The offer was contingent upon, among other things, the sale
of Taurus on terms acceptable to ECT and the continuation and participation of
certain members of Coda management in the management of the Surviving
Corporation. At such time, Coda had received a non-binding written indication
of interest regarding a possible sale of Taurus on terms generally acceptable to
Coda and ECT, but with terms and conditions still to be negotiated. The Letter
of Understanding was extensively discussed and negotiated among the Special
Committee, the Board of Directors and ECT's representatives throughout the day
and evening of August 23, 1995. The Special Committee approved the Letter of
Understanding recognizing that any definitive agreement providing for a business
combination would be subject to a full review by, and receipt of a fairness
opinion from, the Special Committee's financial advisor. Acting on that
approval, the Board of Directors authorized Coda's management to execute the
Letter of Understanding and commence the preparation of definitive agreements.
The Letter of Understanding was executed late in the evening of August 23, 1995,
and on August 24, 1995, Coda issued a press release announcing the proposed
transaction.
Thereafter and through October 30, 1995, the Original Merger Agreement and
related agreements were extensively negotiated between JEDI and Coda. In
addition, JEDI engaged in extensive discussions with the Management Group and
their counsel concerning the terms of their involvement in the Surviving
Corporation.
On October 30, 1995, acting on the unanimous recommendation and approval of
the Special Committee, the Board of Directors of Coda approved the execution of
the Original Merger Agreement. Messrs. Douglas H. Miller, Jarl P. Johnson, Grant
W. Henderson and Tommie E. Lohman, four of Coda's directors, abstained from
voting on the Original Merger Agreement and related resolutions because of their
interests in respect of the transactions. Messrs. Miller, Johnson and Henderson
have entered into agreements with Purchaser pursuant to which they would be
employed by the Surviving Corporation subsequent to the Merger and would acquire
equity interests in Purchaser immediately prior to the Effective Time and
options to acquire equity interests in the Surviving Corporation at the
Effective Time. See "-- Interests of Certain Persons in the Merger." Mr.
Lohman is an officer and director of Taurus, the disposition of which was then a
condition to the closing of the Merger. At the time of the vote on the
24
<PAGE>
Original Merger Agreement, Mr. Lohman had advised Coda that he was active in
trying to locate a buyer for Taurus in a transaction that would provide a
continuing role for Taurus' management.
During the weeks following the execution of the Letter of Understanding and
the public announcement that the sale of Taurus would be a condition to the
Merger, Coda received inquiries from several parties requesting information
concerning Taurus and expressing an interest in acquiring Taurus. Two parties
(including the party who had expressed an interest in acquiring Taurus prior to
the execution of the Letter of Understanding) separately conducted extensive due
diligence on Taurus, and further discussions were held with each regarding a
potential sale. Initial drafts of definitive stock purchase agreements were
submitted by both parties, and a non-binding letter of intent was entered into
between Coda and one party. Ultimately, however, negotiations with both
prospective purchasers failed to progress beyond preliminary stages, and by
December 20, 1995, Coda management had concluded that a timely sale of Taurus
upon terms satisfactory to JEDI was not feasible or likely.
At a regularly scheduled meeting of Coda's Board of Directors held on
December 13, 1995, the Board of Directors was apprised of the then current
status of the negotiations regarding a sale of Taurus.
In light of the concern that the closing condition could not be satisfied,
on December 20 and 21, 1995, Messrs. Miller and Henderson discussed with
representatives of JEDI the prospect of removing the sale of Taurus as a
condition to the Merger. These discussions resulted in a proposal by JEDI that
in exchange for the removal of such condition, the consideration to be paid
pursuant to the Merger be reduced from $8.00 to $7.75 per share of Coda Common
Stock to reflect reduced value of the transaction to JEDI if proceeds
anticipated from the sale of Taurus were not received. Mr. Miller apprised the
Special Committee of this development, as well as all other members of Coda's
Board of Directors. On December 21, 1995, the Special Committee met by
conference call to discuss JEDI's proposal.
The Special Committee considered that the proposed reduction in the merger
consideration from $8.00 to $7.75 per share of Coda Common Stock reflected
reduced value of the transaction to JEDI if proceeds anticipated from the sale
of Taurus were not received. The Special Committee also considered the
uncertainty associated with leaving this condition in the Original Merger
Agreement and the advantage of removing the condition and proceeding to a
consummation of the Merger as soon as practicable, and the cost of extending
the Original Merger Agreement to allow additional time to sell Taurus (the
Original Merger Agreement provided that Purchaser could terminate such agreement
if Coda did not present to JEDI by December 29, 1995, an agreement pertaining to
the sale of Taurus satisfactory to JEDI; provided, that Coda could extend this
period for 30 days upon paying Purchaser $175,000 and an additional 30 days upon
the payment to Purchaser of an additional $75,000).
On December 22, 1995, Coda's Board of Directors met by conference call.
The Board of Directors reviewed the revised JEDI offer and a proposed form of
the First Amendment. The Special Committee recommended to the Board of
Directors that, subject to confirmation by Bear Stearns that in its opinion the
Merger (as contemplated by the First Amendment) was fair, from a financial point
of view, to Coda's stockholders (other than members of the Management Group, as
to whom no opinion would be rendered), the consummation of the Merger upon the
revised terms and conditions set forth in the First Amendment was in the best
interests of Coda and its stockholders. Acting on the recommendation and
approval of the Special Committee and subject to confirmation by Bear Stearns of
its fairness opinion, Coda's Board of Directors authorized and approved the
execution of the First Amendment by Coda management, which was executed on
December 22, 1995, and a press release announcing its execution was issued on
that same date.
25
<PAGE>
In addition to reducing the purchase price from $8.00 to $7.75 per share of
Coda Common Stock and removing the sale of Taurus as a condition to the Merger,
the First Amendment expressly provided that its validity was subject to (i) the
receipt, on or prior to January 15, 1996, by Coda of oral or written
confirmation, in form and substance acceptable to the Special Committee and the
Board of Directors, from Bear Stearns that the Merger, based on the revised
merger consideration, was fair, from a financial point of view, to the
stockholders of Coda (except for the Management Group, as to whom no opinion
would be rendered), and (ii) the execution, on or prior to January 15, 1996, of
amendments to the Subscription Agreement and the Stockholders Agreement (each as
defined in "THE MERGER -- Interests of Certain Persons in the Merger")
satisfactory to JEDI, in its sole discretion. The First Amendment also modified
the Original Merger Agreement to provide that Coda would not be permitted to
negotiate or enter into any agreement providing for the sale or disposition of
Taurus without obtaining the prior written consent of JEDI.
On January 2, 1996, the Special Committee met by conference call and
received the oral report of Bear Stearns that the Merger, based upon the revised
$7.75 per share to be offered by JEDI and the terms of the First Amendment, was
fair, from a financial point of view, to Coda's stockholders (other than the
Management Group, as to whom no opinion was rendered). On January 5, 1996, the
Board of Directors met by conference call. At this meeting, the Special
Committee reported to the Board of Directors on its receipt of the updated
fairness opinion of Bear Stearns. Based upon such opinion and upon the advice
and recommendation of the Special Committee, the Board of Directors ratified,
adopted and approved the First Amendment. In addition, the Board authorized and
approved the execution of the Second Amendment.
Three additional changes were made to the Original Merger Agreement
pursuant to the Second Amendment. Exhibit 2.1 of the Original Merger Agreement,
the Restated Certificate of Incorporation of the Surviving Corporation, was
amended so as to authorize the issuance by the Surviving Corporation of up to
40,000 shares of 15% Cumulative Preferred Stock. Pursuant to such Restated
Certificate of Incorporation, holders of each share of 15% Cumulative Preferred
Stock will be entitled to receive cumulative preferred dividends at the rate of
$150 per share per annum in cash, which dividends will accrue and be payable in
equal semi-annual installments. Dividends not paid in cash may be paid by the
issuance of additional shares of 15% Cumulative Preferred Stock, based on a
value per share equal to $1,000. Additional dividends will accrue on any unpaid
dividends at the rate of 15% per annum. In addition, the 15% Cumulative
Preferred Stock will be redeemed as a whole at a redemption price of $1,000 per
share, plus all accrued and unpaid (and undeclared) dividends, after the
earliest to occur of (i) the closing of the sale or other disposition of Taurus
or (ii) certain events as described in the Stockholders Agreement.
The Second Amendment also amended and restated Schedule 3.6(a)(1) of the
Original Merger Agreement, which lists the Specified Options and the Specified
Warrants, to reflect changes in the number of options and warrants to purchase
Coda Common Stock contributed by the Management Group in exchange for options to
purchase Surviving Corporation common stock.
Finally, the Second Amendment revised Section 9.3(a) of the Original Merger
Agreement to provide that the liability of JEDI to make indemnification payments
required thereunder (which liability extends only to the extent of all dividends
or other distributions paid in respect of capital stock of the Surviving
Corporation prior to or upon the dissolution of the Surviving Corporation that
have been made to JEDI or any of its affiliates by the Surviving Corporation
during the applicable period) will not be calculated so as to include any
dividends or other distributions paid in respect of the 15% Cumulative Preferred
Stock.
26
<PAGE>
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; REASONS FOR
THE MERGER
Coda's Board of Directors and the Special Committee have approved the
Merger and the Merger Agreement, having determined that the acquisition of Coda
pursuant to the Merger Agreement and the transactions related thereto are fair
to, and in the best interests of, Coda and its stockholders. ACCORDINGLY,
CODA'S BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE RECOMMEND THAT THE HOLDERS
OF CODA COMMON STOCK VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER.
The Special Committee and the full Board of Directors have extensively
considered the Merger, the Merger Agreement and related documents. The Special
Committee held six meetings, three of which were telephone meetings, to consider
matters relating to the Merger and the Merger Agreement.
The Special Committee conducted meetings on August 23, 1995, at the offices
of Coda. The Special Committee met with attorneys from Locke Purnell Rain
Harrell (A Professional Corporation) ("Locke Purnell") and unanimously agreed to
retain Locke Purnell as legal counsel to the Special Committee. After retaining
Locke Purnell, the Special Committee and such counsel held discussions
concerning the fiduciary duties and obligations of the Special Committee in
connection with the proposed sale of Coda. The Special Committee next met with
representatives of Bear Stearns to discuss the possibility of retaining Bear
Stearns to act as financial advisor to the Special Committee in connection with
the proposed sale, at which meeting there were discussions concerning Bear
Stearns' qualifications to act as financial advisor and to render a fairness
opinion with respect to the Merger. After meeting with Bear Stearns, the
members of the Special Committee met, discussed the qualifications of Bear
Stearns and agreed unanimously to retain Bear Stearns as financial advisor in
connection with the proposed Merger.
The Special Committee and Locke Purnell then participated in negotiations
of the Letter of Understanding with ECT at a meeting of the full Board of
Directors of Coda held on August 23, 1995, at Coda's offices, at which meeting
the Board of Directors considered the Letter of Understanding. Based upon
certain other considerations, including discussions at prior Board of Directors'
meetings, the mix of financial and other data previously made available to the
Board of Directors generally, the non-binding nature of the Letter of
Understanding as to price, structure, covenants and other terms of the proposed
Merger and the fact that no better offer for Coda had been received from third
parties following the April 26, 1995, announcement of a possible management
buyout of Coda, the Special Committee recommended to the Board of Directors that
the Letter of Understanding be approved.
A member of the Special Committee, acting as the Committee's representative
and accompanied by Locke Purnell, actively participated in negotiations relating
to the Original Merger Agreement in Houston with representatives of Coda and ECT
and their respective counsel. In addition, Locke Purnell participated in
numerous meetings and telephone conferences in connection with the consideration
of the Merger and the negotiation of the Original Merger Agreement. During that
period, members of the Special Committee reviewed various drafts of the Original
Merger Agreement and other related documents. The members of the Special
Committee also participated in telephone conferences in respect of issues
relating to the Merger at various times during the course of the negotiations of
the Original Merger Agreement.
The Special Committee met with representatives of Bear Stearns on September
27, 1995. At this meeting, the Special Committee was advised by Bear Stearns of
its analysis (including the valuation methods applied) of the proposed Merger.
Bear Stearns further advised the Special Committee that in its opinion the
Merger was fair, from a financial point of view, to the stockholders of Coda
(other than the Management Group, as to whom no advice was rendered).
27
<PAGE>
The Special Committee met with Locke Purnell at the offices of Coda on
October 24, 1995, prior to a meeting of the full Board of Directors. At that
meeting, the Special Committee and Locke Purnell further discussed the terms of
the Original Merger Agreement. The members of the Special Committee then
participated in the meeting of the full Board of Directors of Coda held on such
date, at which meeting representatives of Bear Stearns also were present to
answer any questions concerning Bear Stearns' fairness analysis of the proposed
Merger. At the October 24, 1995 meeting of Coda's Board of Directors, Coda's
management and legal counsel provided an extensive presentation on the Merger
(including management's interest in the Merger). No action was taken by the
Board of Directors at this time pending the conclusion of negotiations on the
Original Merger Agreement. At this meeting, the Special Committee reported to
the full Board of Directors on its actions in connection with the consideration
of the proposed Merger and the negotiations of the Original Merger Agreement and
related agreements.
The Special Committee met again on October 30, 1995, by telephone
conference call immediately prior to a meeting of the full Board of Directors of
Coda. The Special Committee discussed matters relating to the terms of the
Original Merger Agreement and confirmed with Bear Stearns that its fairness
opinion had not changed. The Special Committee then participated by telephone
conference in a meeting of the full Board of Directors, during which final
discussions were held concerning the Merger and the Original Merger Agreement.
Upon the conclusion of such discussions, the Special Committee advised the full
Board of Directors of the Special Committee's unanimous recommendation that Coda
enter into the Original Merger Agreement. After discussion, the Board of
Directors, acting upon the Special Committee's unanimous recommendation, then
(with Messrs. Miller, Johnson, Henderson and Lohman abstaining) voted to approve
the Original Merger Agreement and the Merger and to submit the Original Merger
Agreement and the Merger to the vote of the stockholders of Coda.
The Special Committee met again on December 21, 1995, by telephone
conference call. The Special Committee discussed matters relating to the First
Amendment and the proposed revised terms of the Merger. The Special Committee
then participated by telephone conference call in a meeting of the full Board of
Directors, during which discussions were held concerning the Merger and the
First Amendment. Upon the conclusion of such discussions, the Special Committee
advised the full Board of Directors of the Special Committee's recommendation,
subject to the confirmation by Bear Stearns that its conclusions as to the
fairness, from a financial point of view, of the Merger had not changed as a
result of the First Amendment, that Coda enter into the First Amendment and
consummate the Merger Agreement and the Merger upon such revised terms. After
discussion, the Board of Directors, acting upon the Special Committee's
recommendation, then (with Messrs. Miller and Henderson abstaining and Mr.
Lohman voting against the proposed matters) voted to approve the First Amendment
and to submit the Merger Agreement and the Merger, as so amended, to the vote of
the stockholders of Coda, subject again to confirmation by Bear Stearns of its
opinion.
On January 2, 1996, the Special Committee met again by conference call and
received the oral report of Bear Stearns that in its opinion the Merger, as
contemplated by the First Amendment, was fair, from a financial point of view,
to Coda's stockholders (other than the Management Group, as to whom no opinion
was rendered).
On January 5, 1996, the Board of Directors met by conference call. At this
meeting, the Special Committee reported to the Board of Directors on its receipt
of the oral updated fairness opinion of Bear Stearns. Based upon such opinion
and upon the advice and recommendation of the Special Committee, the Board of
Directors (with Messrs. Henderson and Lohman abstaining) then ratified, adopted
and approved the First Amendment. In addition, the Board authorized and
approved the execution of the Second Amendment.
28
<PAGE>
In determining to recommend approval of the Merger Agreement and the
Merger, the Board of Directors and the Special Committee considered the
following factors: (i) the terms and conditions of the Merger Agreement; (ii)
the fact that since April 26, 1995, the date Coda announced Mr. Miller's
interest in forming an investor group for an acquisition of Coda, Coda had
received no indications that any other person would be willing to make an offer
for Coda on terms better than those contained in the Merger Agreement; (iii) the
fact that since August 24, 1995, the date Coda first announced ECT's proposal to
acquire Coda, there had been no indications that any other person would be
willing to make an offer for Coda on terms better than those contained in the
Merger Agreement (including the outcome of a limited market check performed by
Bear Stearns); (iv) the trading price of Coda Common Stock over the past three
years and the fact that the $7.75 per share price in the Merger Agreement
represents a premium of approximately 11% over the closing sales price for Coda
Common Stock on the Nasdaq National Market on April 25, 1995, the last trading
day prior to the public announcement by Coda of Mr. Miller's interest in
acquiring Coda, and a premium of approximately 32% over the average closing
sales price on the Nasdaq National Market for the quarter ended March 31, 1995,
and the advantage offered to Coda stockholders as a result of a sale at a cash
purchase price at a premium over the trading price for Coda Common Stock prior
to April 1995 as compared to the disadvantage of no longer owning an equity
interest in Coda following the consummation of the Merger; (v) the written
financial and comparative analyses prepared by Bear Stearns in connection with
its fairness opinion (as described in "-- Opinion of Financial Advisor"); (vi)
the advice of Bear Stearns at a January 2, 1996, meeting of the Special
Committee and the written opinion of Bear Stearns that, as of the date of such
opinion, the Merger was fair, from a financial point of view, to Coda's
stockholders (other than members of the Management Group, as to whom no advice
was rendered), and Bear Stearns' confirmation on January 18, 1996 that its
opinion had not changed; (vii) the fact that the Merger Agreement permits Coda,
under specified conditions, to terminate the Merger Agreement, subject to
certain terms and conditions, if any person makes a bona fide offer to acquire
Coda that the Board of Directors believes in its good faith judgment would yield
a better value to the Coda stockholders than the Merger Agreement; (viii)
information with respect to the financial condition, results of operations and
business of Coda contained in Coda's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, and its Quarterly Reports on Form 10-Q for the
periods ended March 31, June 30 and September 30, 1995; and (ix) the strategic
direction of Coda's business and future prospects of the oil and gas industry.
Certain members of the Board of Directors had, and currently have, certain
interests which may present them with a potential conflict of interest in
connection with the Merger. See "-- Interests of Certain Persons in the
Merger."
OPINION OF FINANCIAL ADVISOR
On August 23, 1995, the Special Committee agreed to retain Bear Stearns to
act as financial advisor to the Special Committee and to render an opinion as to
the fairness of the Merger, from a financial point of view, to the stockholders
of Coda.
In requesting Bear Stearns' fairness opinion, the Special Committee did not
give any special instructions to Bear Stearns or impose any limitations upon the
scope of the investigations that Bear Stearns deemed necessary to enable it to
deliver its opinion. However, pursuant to the Letter of Understanding between
Coda and ECT, Bear Stearns was prohibited from soliciting alternative bids from
third parties, although Bear Stearns was permitted to perform a limited market
check (the "Limited Market Check") of the proposed Merger between August 23,
1995 and September 6, 1995.
29
<PAGE>
The Special Committee engaged Bear Stearns as its financial advisor because
Bear Stearns is a nationally recognized investment banking firm and because of
its record and experience in rendering fairness opinions. Bear Stearns, as part
of its investment banking business, is regularly engaged in the valuation of
businesses and securities, oil and gas properties and businesses, mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements, and valuations for estate, corporate and other purposes.
Except as provided below in this paragraph, prior to this engagement,
neither Bear Stearns nor any affiliate of Bear Stearns had performed any
investment banking or other financial services for or had any other material
relationship with Coda, JEDI, ECT or Enron Capital Management Limited
Partnership. Bear Stearns has in the past acted as an underwriter (including as
a lead or managing underwriter) of various issuances of securities by Enron
Corp. and one of its other subsidiaries and has acted as an underwriter of a
project financing for a project in which Enron Corp. was a participant.
On September 27, 1995, Bear Stearns communicated to the Special Committee
its oral opinion that the Merger, based on the then-proposed $8.00 per share
offer price and the terms of the Original Merger Agreement, was fair, from a
financial point of view, to the stockholders of Coda (other than the members of
the Management Group, as to whom no opinion was rendered).
On January 2, 1996, Bear Stearns communicated to the Special Committee its
oral opinion that the Merger, based on the revised $7.75 per share to be offered
by JEDI and the terms of the First Amendment, was fair, from a financial point
of view, to the stockholders of Coda (other than the members of the Management
Group, as to whom no opinion was rendered). On January 18, 1996, Bear Stearns
confirmed its oral opinion by delivering the written opinion set forth in
Appendix B (the "Fairness Opinion").
In connection with the Fairness Opinion, Bear Stearns, among other things,
(i) reviewed the Proxy Statement; (ii) reviewed Coda's Annual Reports to
Stockholders and Annual Reports on Form 10-K for the fiscal years ended December
31, 1992 through 1994, and its Quarterly Reports on Form 10-Q for the periods
ended March 31, June 30 and September 30, 1995; (iii) reviewed certain operating
and financial information, including budgets, provided by Coda management
relating to Coda's business and prospects (the budget data was prepared by Coda
management at Bear Stearns' request using certain historical reserve and other
financial data and with various scenarios incorporating differing assumptions
regarding future commodities prices and amounts of annual oil and natural gas
reserve acquisitions as specified by Bear Stearns and applying Coda's recent
historical experience regarding reserve life and finding costs of acquired oil
and natural gas properties); (iv) met with certain members of Coda senior
management to discuss Coda's operations, historical financial statements and
future prospects; (v) reviewed the estimates of oil and gas reserves of Coda as
of January 1, 1995 as prepared by Lee Keeling and Associates, Inc. ("Keeling");
(vi) reviewed certain estimates of oil and gas reserves of Coda as of July 1,
1995, and January 1, 1996, each as prepared by Coda management and staff; (vii)
reviewed the historical trading prices and volumes of Coda Common Stock; (viii)
reviewed publicly available financial data and stock market performance data of
companies that they deemed generally comparable to Coda; (ix) reviewed the terms
of recent acquisitions of assets or companies that they deemed generally
comparable to Coda; and (x) conducted such other studies, analyses, inquiries
and investigations as they deemed appropriate.
In the course of its discussions with the Special Committee, Bear Stearns
presented certain written financial and comparative analyses. Bear Stearns
advised the Special Committee at the September 27, 1995 and January 2, 1996
meetings that it had employed three separate methodologies in assessing Coda's
value: (i) an income value analysis ("Income Value") based on (A) market
multiples of comparable companies, (B) precedent merger and acquisition
transactions and (C) discounted cash flow calculations;
30
<PAGE>
(ii) a net asset valuation analysis ("Net Asset Value") based on the present
values of estimated future net cash flows of Coda's oil and natural gas reserves
before income taxes calculated at various discount rates; and (iii) a market
value analysis ("Market Value") based on the historical trading prices of Coda
Common Stock and the results of the Limited Market Check performed by Bear
Stearns.
For purposes of the following discussion, the $7.75 per share price to be
offered by JEDI pursuant to the Merger is defined herein as the "Offer Price"
and the aggregate consideration to be paid to Coda's stockholders, optionholders
and warrantholders of approximately $179.8 million (which amount assumes the
cash payment of (i) $7.75 per share for all outstanding shares of Coda Common
Stock, and (ii) the difference between (A) $7.75 per underlying share of Coda
Common Stock and (B) the exercise or strike price of all outstanding options and
warrants, including the Specified Options and Specified Warrants) is defined
herein as the "Merger Consideration." As set forth in "-- Background of the
Merger," the Offer Price was determined as a result of negotiations between Coda
and JEDI.
Income Value - Comparable Companies. In this analysis, Bear Stearns
compared the purchase multiples implied by the Offer Price to market trading
multiples of companies it deemed generally comparable to Coda. In identifying a
group of comparable companies for Coda, Bear Stearns selected 12 independent oil
and gas producers that they considered to be generally comparable to Coda based
on the following principal factors: (i) size, (ii) characteristics and location
of reserves, (iii) similar acquisition/exploitation growth strategy and (iv)
market capitalization. Bear Stearns' selected group of comparable companies
(the "Comparable Companies") consisted of Basin Exploration, Inc., Cross Timbers
Oil Company, Devon Energy Corporation, Flores & Rucks, Inc., HS Resources, Inc.,
Nuevo Energy Company, Parker & Parsley Petroleum Company, Plains Resources,
Inc., Snyder Oil Corporation, Stone Energy Corporation, Tide West Oil Company
and Vintage Petroleum, Inc.
In comparing the trading attributes of the Comparable Companies to Coda,
Bear Stearns focused on, among other things, an analysis of the following
valuation measures: (i) stock price divided by latest twelve months ("LTM") and
projected aftertax cash flow (defined generally as cash flow from operations
before working capital and extraordinary items) per share ("CFPS"), and (ii)
enterprise value ("Enterprise Value"; defined generally as aggregate equity
market value ("Equity Value"; defined generally as an amount equal to the total
number of shares of common stock outstanding multiplied by the latest reported
closing stock price per share) plus long-term debt, preferred equity and
minority interest less net working capital) to (A) LTM earnings before interest,
taxes, depreciation, amortization and exploration expenses ("EBITDA"), (B)
proved reserves as measured in barrels of oil equivalent ("BOE"), estimated
based on a ratio of six thousand cubic feet ("Mcf") of natural gas to one barrel
("Bbl") of oil, and (C) present value of estimated future net cash flows
discounted by ten percent per annum ("SEC PV-10" value) on a pretax and aftertax
basis.
To impute the equity values for Coda Common Stock set forth below, Bear
Stearns calculated the harmonic mean multiples of the Comparable Companies
(excluding those multiples that were less than half or greater than twice the
median multiples), multiplied that number by Coda's (i) CFPS for the twelve
months ended September 30, 1995, (ii) budgeted CFPS for the fiscal years ended
December 31, 1995 and 1996, as prepared by Coda management, (iii) EBITDA for the
twelve months ended September 30, 1995, (iv) estimated proved reserve quantities
(measured in BOE) as of January 1, 1995, and (v) pretax and aftertax SEC PV-10
values as of January 1, 1995, and, in the case of Enterprise Value multiples,
subtracted net indebtedness ("Net Debt"; defined as long-term debt, preferred
equity and minority interest less net working capital and proceeds from the
assumed exercise of outstanding options and warrants) as of October 31, 1995.
Based upon the harmonic mean multiples of the Comparable Companies, Bear Stearns
imputed the following per share equity values for Coda:
31
<PAGE>
<TABLE>
<CAPTION>
Implied Coda Harmonic
Multiple Based Mean Multiple Imputed Equity
on Merger of Comparable Value Per
Valuation Multiple Consideration Companies Coda Share
- ------------------ -------------- ------------- ---------------
<S> <C> <C> <C>
Stock Price / LTM CFPS 6.5x 5.9x $7.17
Stock Price / Calendar 1995E CFPS/(1)/ 6.3x 5.7x 7.02
Stock Price / Calendar 1996E CFPS/(1)/ 5.6x 4.6x 6.37
Enterprise Value / LTM EBITDA 7.8x 7.3x $6.89
Enterprise Value / Proved BOE $6.49 $5.30 5.52
Enterprise Value / Pretax SEC PV-10 1.4x 1.4x 7.73
Enterprise Value / Aftertax SEC PV-10 1.8x 1.5x 6.26
</TABLE>
__________
(1) E = Estimated.
Income Value - Precedent Acquisitions. Bear Stearns reviewed certain
publicly available information on 41 oil and natural gas property acquisition
transactions (the "Precedent Reserve Transactions") involving assets in the mid-
continent region of the United States that occurred between January 1, 1993, and
September 30, 1995. Based upon data reported by independent third party sources
that Bear Stearns deemed reliable, Bear Stearns calculated arithmetic mean
purchase price multiples (defined as the aggregate purchase price divided by the
proved reserves acquired, measured in BOE) paid in the Precedent Reserve
Transactions of (i) $4.25 per proved BOE for those transactions occurring during
the period January 1, 1993, to September 30, 1995, and (ii) $4.11 per proved BOE
for those transactions occurring during the period January 1, 1995, to September
30, 1995. Bear Stearns imputed the following per share equity values for Coda
based on its analysis of Precedent Reserve Transactions by applying the mean
purchase multiples to the proved reserves (measured in BOE) of Coda as of
January 1, 1996 as estimated by Coda management, adding the book value of Coda's
non-oil and natural gas property assets as of October 31, 1995, and subtracting
Net Debt as of October 31, 1995.
Imputed Equity
Value Per Coda Share
--------------------
Precedent Reserve Transaction Dates:
January 1, 1993 - September 30, 1995 $5.67
January 1, 1995 - September 30, 1995 5.39
Bear Stearns also reviewed certain publicly available information on 20
merger and acquisition transactions (the "Precedent M&A Transactions") that
occurred from January 1993 to September 1995 involving assets or companies they
deemed generally comparable to Coda. The Precedent M&A Transactions were
selected by Bear Stearns based on, among other considerations, one or more of
the following principal factors: (i) similar reserve characteristics, such as
location, reserve life, oil and natural gas mix and proved developed content,
(ii) transactions involving an acquisition of a going-concern exploration and
production company, or (iii) transaction size greater than $100 million. To
calculate the imputed equity values set forth below, Bear Stearns computed
harmonic mean valuation multiples of the Precedent M&A Transactions (excluding
those multiples that were less than half or greater than twice the median
multiples), multiplied that number by Coda's (i) CFPS for the twelve months
ended September 30, 1995, (ii) EBITDA for the twelve months ended September 30,
1995, (iii) proved reserve quantities
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<PAGE>
(measured in BOE) estimated as of January 1, 1996, and (iv) pretax SEC PV-10
values estimated as of January 1, 1996, and, in the case of Enterprise Value
multiples, subtracted Net Debt as of October 31, 1995. Based upon the harmonic
mean multiples of the Precedent M&A Transactions, Bear Stearns imputed the
following per share equity values for Coda:
<TABLE>
<CAPTION>
Implied Coda Harmonic
Multiple Based Mean Multiple Imputed Equity
on Merger of Precedent M&A Value Per
Valuation Multiple Consideration Transactions Coda Share
- ------------------ -------------- ------------- ---------------
<S> <C> <C> <C>
Equity Value / LTM Aftertax Cash Flow 6.5x 7.4x $8.85
Enterprise Value / LTM EBITDA 7.8x 6.7x 6.07
Enterprise Value / Proved BOE $6.09 $5.04 5.66
Enterprise Value / Pretax SEC PV-10 Value 1.2x 1.1x 6.90
</TABLE>
Income Value - Discounted Cash Flow Analysis. Under this analysis, Bear
Stearns reviewed estimates of future unleveraged free cash flows ("Unlevered
Free Cash Flows"; defined as cash flow from operations, plus interest expense,
net of related income tax effects, and less capital expenditures) of Coda for
the years ended December 31, 1996 through 2000, based on budgets provided by
Coda management at the request of Bear Stearns and that were prepared according
to certain assumptions developed by Bear Stearns. Six scenarios of Unlevered
Free Cash Flows were evaluated in which the principal variables were (i) oil and
natural gas prices, and (ii) Coda's future acquisition of additional oil and
natural gas properties. The three oil and natural gas pricing scenarios used by
Bear Stearns were based on benchmarks for New York Mercantile Exchange ("NYMEX")
sales prices per barrel of oil and per Mcf of natural gas ("Flat Pricing Case,"
"Escalated Pricing Case I" and "Escalated Pricing Case II"). The principal
assumptions regarding benchmark oil and natural gas prices and lifting costs
incorporated in Bear Stearns' three pricing scenarios are summarized in the
following table:
33
<PAGE>
<TABLE>
<CAPTION>
Lifting
Pricing Cost
Scenario Oil ($/Bbl) Gas ($/Mcf) Escalation
- ------------ ------------- ------------- ------------
<S> <C> <C> <C>
Flat $18.00 $1.80 flat 0.0% per
Pricing flat beginning year
Case beginning in 1996
in 1996
Escalated $18.00 in $1.80 in 1.75% per
Pricing 1996, 1996, year
Case I escalating escalating
2.5% per 3.5% per
year year
thereafter thereafter
Escalated $18.00 in $1.80 in 3.5% per
Pricing 1996, 1996, year
Case II escalating escalating
5.0% per 7.0% per
year year
thereafter thereafter
</TABLE>
With regard to its three oil and natural gas pricing scenarios, Bear
Stearns noted that (i) long-term NYMEX futures market prices for oil had
generally declined during the period from its September 27, 1995 and January 2,
1996 meetings with the Special Committee, and (ii) it reviewed only flat and
escalated oil and natural gas pricing scenarios for purposes of assessing
fairness, recognizing that such future prices may in fact increase or decrease
from current levels.
In the budgets requested by Bear Stearns, Coda management calculated
estimated future average oil and gas sales prices by applying appropriate
quality and transportation adjustments to the benchmark prices applicable to
each pricing scenario. With regard to future oil and natural gas property
acquisition assumptions, Bear Stearns reviewed Unlevered Free Cash Flows for
Coda assuming Coda either completes: (i) no additional oil and natural gas
property acquisitions (the "No Future Acquisitions" scenarios), and (ii) $25
million of oil and natural gas property acquisitions each year (the "Future
Acquisitions" scenarios). In the Future Acquisitions scenarios, it was assumed
that Coda acquires oil and natural gas properties with generally similar average
reserve characteristics and finding costs as those property acquisitions it has
completed during the past five fiscal years. Among other factors involved in
Bear Stearns' discounted cash flow analysis, Bear Stearns utilized (i) discount
rates of 8.6%, 9.6% and 10.6% (the midpoint of which was determined by computing
the weighted average cost of capital for Coda based on its capital structure as
of October 31, 1995, and certain other assumptions), and (ii) terminal value
multiples of 4.4x, 5.4x and 6.4x Coda's estimated EBITDA for the year ended
December 31, 2000 (the midpoint of which was determined based on the harmonic
mean LTM EBITDA multiple of the Comparable Companies after the application of a
25% discount). This methodology resulted in the following imputed per share
equity values for Coda:
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<PAGE>
<TABLE>
<CAPTION>
Implied Equity Value Per Coda Share
-----------------------------------
Budget Scenario High/ (1)/ Median/(2)/ Low/(3)/
------------------ ---------- ----------- --------
<S> <C> <C> <C>
No Future Acquisitions:
Flat Pricing Case $ 8.09 $ 6.52 $5.07
Escalated Pricing Case I $ 9.41 $ 7.63 $5.99
Escalated Pricing Case II $10.84 $ 8.83 $6.99
Future Acquisitions:
Flat Pricing Case $11.11 $ 8.56 $6.21
Escalated Pricing Case I $13.38 $10.46 $7.78
Escalated Pricing Case II $15.83 $12.52 $9.47
</TABLE>
__________
(1) Reflects results based on the highest terminal value multiple applied (6.4x)
and the lowest discount rate applied (8.6%).
(2) Reflects results based on the median terminal value multiple applied (5.4x)
and the median discount rate applied (9.6%).
(3) Reflects results based on the lowest terminal value multiple applied (4.4x)
and the highest discount rate applied (10.6%).
In its discounted cash flow analysis, Bear Stearns noted that it had placed
more weight on imputed equity values under the Flat Pricing Case scenarios due
to the uncertainties regarding the appreciation potential of future oil and
natural gas prices.
Asset Value. In this analysis, Bear Stearns, utilizing the Offer Price,
calculated the implied value of Coda's oil and natural gas reserves (the
"Implied Reserve Value") to be $259 million. The Implied Reserve Value was
derived by adding Coda's Net Debt as of October 31, 1995, to the Merger
Consideration, and subtracting the book value of Coda's non-oil and natural gas
assets. Bear Stearns compared the Implied Reserve Value to the pretax SEC PV-10
values of Coda's aggregate proved, probable and possible reserves (the "Total
Reserves") as of (i) January 1, 1995, as estimated by Keeling, and (ii) January
1, 1996, as estimated by Coda management. Bear Stearns noted that the Implied
Reserve Value (i) compared favorably to the estimated pretax SEC PV-10 value of
Coda's Total Reserves of $236 million as of January 1, 1995, and (ii) was
approximately equal to the estimated pretax SEC PV-10 value of Coda's Total
Reserves of $261 million as of January 1, 1996. In addition, Bear Stearns
compared the Implied Reserve Value to the present values of estimated future net
pretax cash flows of Coda's Total Reserves as of January 1, 1996, under the
three oil and natural gas pricing scenarios, the Flat Pricing Case, Escalated
Pricing Case I and Escalated Pricing Case II, at discount rates of 10%, 15% and
20%. Bear Stearns noted that the Implied Reserve Value exceeded the present
values of Coda's Total Reserves under the Escalated Pricing Case I scenario at
discount rates higher than 15% and the Escalated Pricing Case II scenario at
discount rates higher than 20%. Bear Stearns further indicated that it
considered these discount rates to be generally appropriate given the
uncertainties regarding future oil and natural gas prices.
Market Value. In this analysis, Bear Stearns compared the Offer Price to
the historical trading prices of Coda Common Stock since 1990. Bear Stearns
noted that the Offer Price represents an approximate 24% premium to the closing
price of Coda Common Stock on August 23, 1995, one day prior to the initial
announcement of the proposed Merger, and a near all-time high trading price for
Coda Common Stock. In addition, pursuant to its Limited Market Check, Bear
Stearns contacted eight independent exploration and production companies that it
considered to be generally active acquirors of oil and natural gas properties in
areas similar to the locations of Coda's assets. With regard to these
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<PAGE>
contacts, Bear Stearns noted the following: (i) virtually all of the parties
were aware of the proposed Merger, (ii) only one such party had requested public
data from Coda, and (iii) none of the parties contacted made an offer to
purchase Coda Common Stock or Coda's assets. Finally, Bear Stearns indicated
that the market has been generally cognizant of the fact that Coda was a
possible takeover candidate since the April 26, 1995 announcement that Mr.
Miller was forming an investor group for a possible acquisition of Coda and
since that time Coda received (i) few requests for public information from
interested parties, (ii) no indications of interest, and (iii) no firm offers,
at any price, to purchase Coda Common Stock or Coda's assets other than the
proposed Merger.
Based on the above analyses, Bear Stearns opined that the Merger was fair,
from a financial point of view, to the stockholders of Coda (other than the
members of the Management Group, as to whom no opinion was rendered).
Bear Stearns has rendered its written opinion of January 18, 1996, that the
Merger was fair, from a financial point of view, to the stockholders of Coda
(other than the members of the Management Group, as to whom no opinion was
rendered). In rendering its updated opinion, Bear Stearns performed procedures
to update certain of its analyses made in connection with its Fairness Opinion
and reviewed the assumptions on which such analyses were based and the factors
considered in connection therewith. Bear Stearns considered, among other
things, Coda's recent financial performance and recent market conditions and
developments based on the foregoing.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or a summary description. Bear
Stearns believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the methodologies employed and factors
considered by it, without considering all methodologies and factors, may create
an incomplete view of the process underlying its analyses and Fairness Opinion.
In its analyses, Bear Stearns made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters. Any
estimates contained therein are not necessarily indicative of actual values,
which may be significantly more or less favorable than as set forth therein.
Estimates of values of companies do not purport to be precise or necessarily
reflect the prices at which companies may actually be sold. Because such
estimates are inherently subject to uncertainty, Bear Stearns does not assume
responsibility for the accuracy of these estimates.
As compensation for rendering the Fairness Opinion, Coda paid Bear Stearns
a fee of $350,000. Of such fee, $100,000 was paid upon execution of an
engagement letter between Bear Stearns and Coda, $150,000 was paid at the time
Bear Stearns rendered its oral opinion, based on the Original Merger Agreement,
to the Special Committee and the balance of $100,000 was paid at the time the
Preliminary Proxy Statement was originally filed with the Commission. In
addition, Coda has agreed to reimburse Bear Stearns for certain out-of-pocket
expenses, including legal fees, and has agreed to indemnify Bear Stearns against
certain liabilities, including certain liabilities under the federal securities
laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect to
the Merger, stockholders should be aware that certain members of management and
certain members of the Board of Directors at the time of approval of the Merger
Agreement had, and currently have, certain interests which may present them with
potential conflicts of interest in connection with the Merger, as summarized
below.
36
<PAGE>
MANAGEMENT AGREEMENTS
Members of the Management Group have entered into various agreements with
Purchaser relating to these persons' relationships with the Surviving
Corporation subsequent to the consummation of the Merger. These agreements will
terminate automatically if the Merger Agreement is terminated. The agreements
are summarized below:
Subscription Agreement. Purchaser has entered into a Subscription
Agreement dated as of October 30, 1995, as amended by Amendment No. 1 to
Subscription Agreement dated as of January 10, 1996, with members of the
Management Group (as amended, the "Subscription Agreement") which provides for
the acquisition by such persons of Purchaser Common Stock and the grant to them
of nonqualified stock options to purchase shares of Surviving Corporation common
stock (the "Replacement Options"). Under the Subscription Agreement, each
member of the Management Group who is acquiring Purchaser Common Stock is paying
$100 per share for shares of Purchaser Common Stock, which is the same price per
share being paid by JEDI for the remaining shares of Purchaser Common Stock.
Under the Subscription Agreement, the Management Group will acquire Purchaser
Common Stock immediately prior to the Effective Time in exchange for varying
combinations of (i) proceeds from limited recourse promissory notes payable to
Purchaser in the aggregate principal amount of $937,300 (the "Notes"), (ii) Coda
Common Stock, which is valued for this purpose at $7.75 per share, and (iii)
cash. Purchaser Common Stock so acquired will not have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or any state
securities laws and will not have the benefit of any registration rights, but
will be subject to the Stockholders Agreement described below. See "--
Stockholders Agreement." By virtue of the Merger, each share of Purchaser
Common Stock will be converted into one share of Surviving Corporation common
stock.
The Subscription Agreement provides that the Specified Options
(representing certain Coda stock options held by certain members of the
Management Group) and Specified Warrants (representing warrants to purchase Coda
Common Stock held by certain members of the Management Group) will not be
exercised prior to the Effective Time and shall, as of the Effective Time, be
canceled without exercise and without payment of consideration. Concurrently,
the Management Group will enter into Nonstatutory Stock Option Agreements
governing the Replacement Options providing for the right for a period of 10
years from and after the Effective Time to purchase shares of Surviving
Corporation common stock for $.01 per share. However, the Replacement Options
may only be exercised while the holder remains an employee of the Surviving
Corporation and for a limited period of time thereafter. The number of shares
of Surviving Corporation common stock underlying the Replacement Options each
member of the Management Group receives is based on the amount of cash the
holder would have received if his Specified Options or Specified Warrants had
been converted into cash in the Merger on the same basis as other outstanding
options and warrants to purchase Coda Common Stock were converted, divided by
the $100 per share purchase price paid by JEDI and the other Management Group
members for their shares of Purchaser Common Stock. Thus, if the Replacement
Options are exercised, the holders will have effectively paid the same purchase
price per share as JEDI and the Management Group paid for their shares of common
stock of the Surviving Corporation.
The Notes will be due on the fifth anniversary of the Effective Time, will
bear interest at the mid-term applicable federal rate (annual compounding) for
the month in which the Effective Time occurs (5.91% for December 1995), will be
secured by the Surviving Corporation common stock purchased with the proceeds
thereof and certain rights of the maker under the Stockholders Agreement
described below, and will provide that in no event will an individual maker's
liability thereunder for any deficiency on his respective Note (after the sale
and disposition of all collateral securing same) exceed 35% of the original
principal balance of the Note.
37
<PAGE>
The members of the Management Group, their current positions with Coda
and/or Diamond and the number of shares of fully diluted Surviving Corporation
common stock to be acquired by them are set forth in the following table:
<TABLE>
<CAPTION>
Name of Member of Fully Diluted
Management Group Surviving Corporation Ownership
and Current Position with Common Stock Replacement ----------------------
Coda (and/or Diamond if Noted) Direct Ownership Options Shares %
- ---------------------------------------- --------------------- ----------- ----------------------
<S> <C> <C> <C> <C>
Randell A. Bodenhamer, 2,216 159 2,375 .25
Vice President - Land; Executive Vice
President, Diamond Energy
Operating Company
Joe I. Callaway, 475 475 950 .10
Vice President - General Counsel
J. David Choisser, 1,065 360 1,425 .15
Vice President - Controller
J. William Freeman, 1,187 1,188 2,375 .25
Vice President - Engineering
Roy Harney, 475 0 475 .05
Manager - Engineering, Diamond Energy
Operating Company
Grant W. Henderson, 2,375 2,375 4,750 .51
Executive Vice President, Chief Financial
Officer and Director
Jarvis A. Hensley, 475 0 475 .05
Vice President - Operations, Diamond
Energy Operating Company
Chris A. Jackson, 475 475 950 .10
Manager - Production
Jarl P. Johnson, 2,615 1,185 3,800 .40
Vice Chairman of the Board, Director;
President, Diamond Energy Operating Company
Douglas H. Miller, 0 23,750 23,750 2.51
Chairman of the Board, Chief Executive
Officer and Director
Gary M. Nelson, 237 238 475 .05
Manager - Data Processing
Gary R. Scoggins, 237 238 475 .05
Vice President - Human Resources
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Name of Member of Fully Diluted
Management Group Surviving Corporation Ownership
and Current Position with Common Stock Replacement ----------------------
Coda (and/or Diamond if Noted) Direct Ownership Options Shares %
- ---------------------------------------- --------------------- ----------- ----------------------
<S> <C> <C> <C> <C>
Claude A. Seaman, 237 238 475 .05
Manager - Financial
Reporting
J.W. Spencer, III, 1,305 1,070 2,375 .25
Vice President - Operations
Scott E. Studdard, 237 238 475 .05
Manager - Tax Department ------ ------ ------ ----
Total 13,611 31,989 45,600 4.82
====== ====== ====== ====
</TABLE>
Stockholders Agreement. Purchaser, JEDI and the Management Group have
entered into a Stockholders Agreement dated as of October 30, 1995, as amended
by Amendment No. 1 to Stockholders Agreement dated as of January 10, 1996 (as
amended, the "Stockholders Agreement"), which provides generally that all
parties, including JEDI and the Management Group, (i) have rights of first
refusal to acquire additional shares of Surviving Corporation common stock that
may be issued by the Surviving Corporation and (ii) are restricted from
transferring their Surviving Corporation common stock. The Surviving
Corporation has a right to match any third party offer to purchase shares of
Surviving Corporation common stock from any stockholder, and, in the event that
the Surviving Corporation does not purchase those shares, the other stockholders
may have a right to include a pro rata portion of their Surviving Corporation
common stock in the transaction. The Stockholders Agreement provides that, if
the employment of a member of the Management Group terminates for any reason
(including death or disability) other than his voluntary termination (except
upon retirement at age 65 or older or the expiration of the term of any
employment agreement he has with the Surviving Corporation) or his termination
by the Surviving Corporation for cause, then the Surviving Corporation shall
have a right to purchase such member's shares of Surviving Corporation common
stock at a purchase price to be determined from time to time by the Surviving
Corporation pursuant to a formula that values the shares on the basis of a
comparison of the discretionary cash flow and EBITDA (as defined therein) of the
Surviving Corporation and a group of peer companies. The Stockholders Agreement
also provides that, if the employment of a member of the Management Group
terminates for any reason other than voluntary termination or termination of
such member for cause, then such member shall have the right to require the
Surviving Corporation to purchase such member's shares of Surviving Corporation
common stock based on the previously described formula. The purchase price
under the formula will vary depending on the financial performance of the
Surviving Corporation and the group of peer companies. The Stockholders
Agreement provides that each member of the Management Group shall have the right
(the "Special Management Rights") to receive from JEDI, upon the occurrence of
certain events (generally an initial public offering, a business combination
with another person or the liquidation of the Surviving Corporation) (each, a
"Trigger Event"), an amount, which is payable in cash or additional shares of
Surviving Corporation common stock depending upon the cause of the Trigger
Event, designed to result in the Management Group receiving in connection with
the Trigger Event one-third of the proceeds, attributable to the shares of
Surviving Corporation common stock purchased by JEDI, above the amount of
proceeds necessary for JEDI to achieve an internal annual rate of return on that
investment of 15%. The individual member's interest in such Special Management
Rights is proportional to such member's ownership of the fully diluted common
stock of the Surviving Corporation, as reflected in the table above. The
Stockholders Agreement also provides that if the employment of a member of the
Management Group terminates, his Special Management Rights shall terminate and,
if the termination is other than a voluntary termination or a termination for
cause, he may be entitled to receive an amount based on the discretionary cash
flow
39
<PAGE>
and EBITDA formula discussed above. The Stockholders Agreement further
provides that, after the Effective Time, the Surviving Corporation will
establish an employee benefit plan for the benefit of its employees who are not
members of the Management Group and will contribute to the plan 1,900 shares of
Surviving Corporation common stock. Furthermore, pursuant to the Stockholders
Agreement, 4% of the Special Management Rights will be allocated thereto.
The Stockholders Agreement will terminate and no party thereto will
have any further obligations or rights thereunder upon the earliest to occur of
(i) the termination of the Merger Agreement in accordance with its terms, (ii)
October 30, 2005, (iii) the date on which an initial public offering of
Surviving Corporation common stock is consummated or of any business transaction
involving the Surviving Corporation whereby Surviving Corporation common stock
becomes a publicly traded security, (iv) the date of the dissolution,
liquidation or winding-up of the Surviving Corporation and (v) the date of the
delivery to the Surviving Corporation of a written termination notice executed
by certain parties to the Stockholders Agreement.
Business Opportunity Agreement. ECT, Purchaser, JEDI and the
Management Group have also entered into a Business Opportunity Agreement (the
"Business Opportunity Agreement") that is intended to make it clear that Enron
Corp. and its affiliates have no duty to make business opportunities available
to the Surviving Corporation in most circumstances. The Business Opportunity
Agreement also provides that ECT and its affiliates may pursue certain business
opportunities to the exclusion of the Surviving Corporation. The Business
Opportunity Agreement may limit the business opportunities available to the
Surviving Corporation and the opportunity of the Management Group to earn
incentive compensation under the Stockholders Agreement or otherwise. In
addition, there may be circumstances in which the Surviving Corporation will
offer business opportunities to certain affiliates of Enron Corp. If an Enron
Corp. affiliate is offered such an opportunity and decides to pursue it, the
Surviving Corporation may be unable to pursue it.
Employment Agreements. Messrs. Miller, Johnson, Henderson, Randell A.
Bodenhamer, J. William Freeman and J.W. Spencer, III, have entered into
employment agreements (the "Employment Agreements") with Purchaser to become
effective at the Effective Time. The Employment Agreements are for a period of
five years from the Effective Time (three years in the case of Messrs. Johnson
and Spencer) and provide for the payment of base salaries, together with other
benefits generally available to employees of the Surviving Corporation, and
positions with the Surviving Corporation as set forth below:
<TABLE>
<CAPTION>
Position with Surviving
Name Corporation Annual Base Salary
-------- ----------------------- ------------------
<S> <C> <C>
Randell A. Bodenhamer...... Vice President - Land $145,000
J. William Freeman......... Vice President - Engineering $170,000
Grant W. Henderson......... President and Chief Financial $225,000
Officer
Jarl P. Johnson............ Vice Chairman of the Board and $250,000
Chief Operating Officer
Douglas H. Miller.......... Chairman of the Board and $350,000
Chief Executive Officer
J.W. Spencer, III.......... Vice President - Operations $170,000
</TABLE>
Each of these persons would receive his salary for the remaining term of
his Employment Agreement if the Surviving Corporation were to terminate his
Employment Agreement other than for cause. The Employment Agreements provide
that the employees agree not to compete with the Surviving
40
<PAGE>
Corporation for a period of six months after their voluntary termination or
termination for cause; in the case of Mr. Miller, the covenant not to compete is
for a period of two years, except that the noncompetition period is one year in
the event of incapacity, involuntary termination other than for cause or his
resignation due to a breach by Surviving Corporation of Mr. Miller's Employment
Agreement.
See also "-- Operation and Management of Surviving Corporation After the
Merger" for a discussion of Messrs. Miller's, Johnson's and Henderson's
appointment to the Surviving Corporation's Board of Directors.
OTHER INTERESTS
For a description of JEDI's and Purchaser's obligations to indemnify and to
provide insurance coverage to certain persons, see "-- Indemnification and
Insurance."
On May 17, 1995, the Board of Directors authorized Coda's management to
enter into indemnification agreements (in substantially the same form as
indemnification agreements previously entered into by Coda with certain
officers, directors and employees of Coda) with each current officer and/or
director and certain employees of Coda or its subsidiaries who did not have a
written indemnification agreement in place.
On October 30, 1995, the Board of Directors authorized Coda to pay to
Messrs. Earl Ellis, Worthy Warnack and David Keener $20,000, $15,000 and
$15,000, respectively, as fees for their service on the Special Committee. These
sums are subject to upward revision depending upon the amount of activities on
their part subsequent to October 30, 1995, and prior to the Effective Time.
Pursuant to the terms of Coda's 1989 Incentive Stock Option Plan, 1993
Incentive Stock Option Plan and 1990 Compensation Plan for Directors
(collectively, the "Plans"), all unmatured installments of options and warrants
outstanding shall automatically be accelerated and exercisable in full by
holders of options and/or warrants under the Plans, as interpreted by the Board
of Directors, upon the consummation of the Merger. Certain officers, directors
and employees of Coda and its subsidiaries hold options and/or warrants to
purchase Coda Common Stock under the Plans.
INDEMNIFICATION AND INSURANCE
The parties to the Merger Agreement have agreed that, for a period of six
years after the Effective Time, the certificate of incorporation of the
Surviving Corporation and each of its subsidiaries will contain provisions that
acknowledge and agree that, to the fullest extent permitted by law, the
provisions relating to limitation on liability that are set forth in Coda's
existing certificate of incorporation as of the date of the Merger Agreement
shall remain effective with respect to individuals who at any time from and
after the date of the Merger Agreement to and including the Effective Time were
directors, officers, employees, fiduciaries or agents of Coda or any Coda
subsidiary in respect of actions or omissions occurring at or prior to the
Effective Time (including without limitation, the matters contemplated by the
Merger Agreement). Pursuant to the Merger Agreement, the Surviving Corporation
shall not amend (in any manner that would diminish the effect of such
provisions) or repeal such provisions for a period of six years from the
Effective Time.
The Merger Agreement further provides that, for a period of six years after
the Effective Time, the bylaws of the Surviving Corporation and each of its
subsidiaries will contain provisions that acknowledge and agree that, to the
fullest extent permitted by law, the provisions relating to indemnification and
advancement of expenses that are set forth in Coda's existing bylaws, as of the
date
41
<PAGE>
of the Merger Agreement, shall remain effective with respect to individuals who
at any time from and after the date of the Merger Agreement to and including the
Effective Time were directors, officers, employees, fiduciaries or agents of
Coda or of any Coda subsidiary in respect of acts or omissions occurring at or
prior to the Effective Time (including, without limitation, the matters
contemplated by the Merger Agreement). Pursuant to the Merger Agreement, the
Surviving Corporation shall not amend or repeal such provisions for a period of
six years from the Effective Time.
If, at any time during such six year period and prior to an underwritten
public offering of capital stock of the Surviving Corporation, the Surviving
Corporation is unable to make any indemnification payments required by the
paragraphs above, then JEDI will be liable for such payments, but only to the
extent of all dividends or other distributions paid in respect of the capital
stock of the Surviving Corporation (other than dividends or other distributions
paid in respect of the 15% Cumulative Preferred Stock of the Surviving
Corporation) prior to or upon the dissolution of the Surviving Corporation that
have been made to JEDI or any of its Affiliates (as defined in Rule 405 of
Regulation C promulgated under the Securities Act) by the Surviving Corporation
during such period.
Furthermore, the parties to the Merger Agreement have agreed that the
Surviving Corporation will, for a period of six years from the Effective Time,
maintain in effect the current directors' and officers' liability insurance
coverage maintained by Coda on the date of the Merger Agreement with respect to
matters occurring through the Effective Time. The Surviving Corporation may
substitute policies of at least the same coverage and amounts and containing
terms and conditions that are no less advantageous to such officers and
directors so long as such substitution does not result in gaps or lapses in
coverage. However, in no event will the Surviving Corporation be required to
expend, to maintain or procure such insurance coverage, any amount per annum in
excess of 50% of the aggregate premiums paid in 1995. These obligations of the
Surviving Corporation may not be terminated or modified so as to adversely
affect any director, officer, employee, fiduciary or agent who benefits from
such obligations without the consent of each affected person.
In the event the Surviving Corporation or any of its successors or assigns
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity after such consolidation or
merger, or transfers all or substantially all of its assets to any person, then,
in each such case, the Merger Agreement provides that the successors and assigns
of the Surviving Corporation or, at JEDI's option, JEDI, shall assume the
indemnification obligations of the Surviving Corporation described above.
MISCELLANEOUS PROVISIONS
Voting of Stock Held by Purchaser. Purchaser has agreed to vote all shares
of Coda Common Stock, if any, held by it in favor of the approval and adoption
of the Merger Agreement and the Merger at the Special Meeting. As of the date
hereof, Purchaser does not hold any shares of Coda Common Stock.
JEDI's Commitment to Fund the Merger. JEDI has agreed, at the closing of
the Merger, to cause to be deposited in trust with the Paying Agent cash in the
aggregate amount equal to the sum of (i) the product of (A) the number of shares
of Coda Common Stock underlying then-outstanding but unexercised options and
warrants to purchase Coda Common Stock (except for the Specified Options and the
Specified Warrants) and (B) the difference between (x) $7.75 per underlying
share of Coda Common Stock and (y) the strike price or exercise price of the
option or warrant and (ii) the product of (A) the number of shares of Coda
Common Stock outstanding immediately prior to the Effective Time (other than
shares of Coda
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Common Stock held by Purchaser, Coda, or any Coda subsidiary, all of which will
be canceled without payment of any consideration) and (B) $7.75.
Access and Information. Coda and its subsidiaries have agreed to allow
Purchaser and Purchaser's affiliates, accountants, lenders, counsel and other
representatives full access to all of their properties, books, contracts,
commitments, records and personnel and to promptly furnish Purchaser with a copy
of (i) each report, schedule or other document filed or received by them
pursuant to the requirements of federal or state securities laws and (ii) all
other information concerning their business, properties and personnel as
Purchaser may reasonably request. JEDI and Purchaser have agreed to keep all
such information confidential.
Reasonable Best Efforts. Each of JEDI, Purchaser and Coda has agreed,
subject to the terms and conditions of the Merger Agreement, to cooperate with
each other and to use its reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, in each case consistent with the
fiduciary duties of their respective Boards of Directors, all things necessary,
proper or advisable (i) under applicable laws and regulations to consummate and
make effective the transactions contemplated by the Merger Agreement as soon as
reasonably practicable, including to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings and (ii) to lift
any injunction or other legal bar to the Merger as soon as reasonably
practicable (and, in such case, to proceed with the Merger as expeditiously as
possible); provided, however, that neither the obligation described in this
paragraph nor anything contained in the Merger Agreement will require any party
to the Merger Agreement to incur expenses in connection with the transactions
contemplated by the Merger Agreement that are not reasonable under the
circumstances in relation to the size of the transaction contemplated by the
Merger Agreement, or require any party or any affiliate of any party to hold
separate or make any divestiture of a significant asset or otherwise agree to
any material restriction on the operations of any party in order to obtain any
waiver, consent or approval required by the Merger Agreement.
Obligations of JEDI and Purchaser. JEDI has agreed to take all action
necessary to cause Purchaser to perform all of Purchaser's, and Surviving
Corporation to perform all of Surviving Corporation's, agreements, covenants and
obligations under the Merger Agreement and to consummate the Merger on the terms
and conditions set forth in the Merger Agreement. Purchaser and JEDI have agreed
to be liable for any breach of any representation, warranty, covenant or
agreement of Purchaser or Surviving Corporation and for any breach of the
covenant set forth in this paragraph; provided, however, that JEDI will not be
responsible for, or provide any guaranties of, any actions of Purchaser or any
obligation or liability otherwise under this paragraph after the Effective Time
other than its obligation to deposit sufficient funds with the Paying Agent as
required under the Merger Agreement (see "-- JEDI's Commitment to Fund the
Merger") and its obligation to provide for the indemnification of Coda's
officers and directors as required under the Merger Agreement. See "--
Indemnification and Insurance."
Certain Employee Benefit Matters. Each of Purchaser and Coda have agreed
that, as of the date of the Merger Agreement, it anticipates that Surviving
Corporation will not become a participating employer in any employee benefit or
compensation plans sponsored or maintained by Enron Corp. (the parent
corporation of ECT) for the benefit of its subsidiaries or affiliated companies.
The Merger Agreement provides that, for a period of 24 months following the
Effective Time, the Surviving Corporation will maintain in place Coda's current
health and 401(k) plans or substantially equivalent plans.
Public Announcements. So long as the Merger Agreement is in effect, JEDI,
Purchaser and Coda have agreed that none of them will issue a press release or
otherwise make any public statement with respect to the transactions
contemplated by the Merger Agreement without the consent of the others, unless
such press release or public statement is required by law, regulation or rules
of any applicable market or
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exchange, in which case such press release or public statement may be made after
providing the other parties a reasonable opportunity to comment thereon.
EFFECTIVE TIME; EFFECT OF MERGER
Effective Time. The Effective Time of the Merger will be the date and time
when a properly executed certificate of merger, in such form as is required by
and executed in accordance with the DGCL, is duly filed with the Secretary of
State of the State of Delaware, or at such later time as the parties to the
Merger Agreement designate in such filing as the Effective Time. It is
anticipated that, subject to the satisfaction or waiver, if permissible, of the
conditions to consummation of the Merger set forth in the Merger Agreement, such
filing will be made as promptly as practicable after the Merger Agreement has
been approved by Coda's stockholders.
Effect of Merger. As of the Effective Time, Purchaser will be merged with
into Coda and Purchaser's separate corporate existence will terminate. Coda will
be the Surviving Corporation and will own all of Purchaser's assets and will be
responsible for all of Purchaser's liabilities. Coda, as the Surviving
Corporation, will continue to be governed by the DGCL, and the separate
corporate existence of Coda with all its rights, privileges, immunities, powers
and franchises will continue unaffected by the Merger, except as provided in the
Merger Agreement. The Merger will have the effects set forth in Section 259 of
the DGCL.
At the Effective Time, the certificate of incorporation of Coda, as in
effect prior to the Effective Time, will be amended and restated to read in its
entirety as set forth in Exhibit 2.1 to the Merger Agreement, and such restated
certificate of incorporation, as so amended, shall be the restated certificate
of incorporation of the Surviving Corporation. The bylaws of Coda as in effect
at the Effective Time will be the bylaws of the Surviving Corporation and will
be amended and restated to conform to the bylaws of Purchaser as in effect
immediately prior to the Effective Time. The directors of Purchaser and the
officers of Coda designated by Purchaser immediately prior to the Effective
Time, subject to the applicable provisions of the certificate of incorporation
and bylaws of the Surviving Corporation, will be the directors and officers,
respectively, of the Surviving Corporation until their respective successors are
duly elected or appointed and qualified.
For a discussion of certain other effects of the Merger on the outstanding
shares of Coda Common Stock, see "-- General" and "-- Operation and Management
of Surviving Corporation After the Merger."
SURRENDER OF CERTIFICATES
Prior to the Effective Time, Coda and Purchaser have agreed to appoint the
National Bank of Boston as the Paying Agent to receive, hold and disburse the
funds to which holders of shares of Coda Common Stock will become entitled upon
consummation of the Merger. As soon as practicable after the Effective Time, the
Surviving Corporation will mail to each person who was a record holder of shares
of Coda Common Stock immediately prior to the Effective Time (other than
Purchaser, Coda, Coda's subsidiaries and holders of shares who perfect their
statutory appraisal rights under Section 262 of the DGCL), a form of letter of
transmittal and instructions advising the holders of the procedure for
surrendering for payment their Certificates. Holders of shares of Coda Common
Stock should not submit their Certificates to the Paying Agent until they have
received such materials. Upon surrender of a Certificate to the Paying Agent,
together with a duly executed and completed letter of transmittal and any other
required documents, the holder of the Certificate will receive in exchange, and
the Paying Agent will pay (via U.S. mail, postage prepaid) as soon as
practicable to such holder, cash in an amount equal to the product of the number
of shares of Coda Common Stock represented by the Certificate surrendered
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and $7.75, without any interest thereon and less any required withholding of
taxes. The surrendered Certificates will then be canceled.
If the payment is to be made to a person other than the person in whose
name a surrendered Certificate is registered, the person requesting such payment
must present the Paying Agent with all documents required to evidence that the
stock has been transferred to such person and that all applicable transfer or
other taxes have been paid.
The Surviving Corporation will pay all charges and expenses (except those
taxes described above and expenses incurred by the holders of Certificates in
surrendering their Certificates), including those of the Paying Agent, in
connection with the distribution of the consideration to be paid to the holders
of Certificates in connection with the Merger.
No interest will accrue or be paid on the cash payable upon the surrender
of Certificates. No dividends will be paid to, or accrued for the benefit of,
former holders of shares of Coda Common Stock after the Effective Time. From and
after the Effective Time, until surrendered in accordance with the instructions
contained in the instruction letter from the Surviving Corporation, holders of
Certificates will cease to have any rights with respect to such shares except
the right to receive $7.75 per share in cash multiplied by the number of shares
of Coda Common Stock evidenced by such Certificates, without any interest
thereon, and any appraisal rights available under the DGCL.
On or after the one hundred eightieth day following the Effective Time, the
Corporation may by written request require the Paying Agent to pay to the
Surviving Corporation that portion of the funds deposited with the Paying Agent
(and any income earned thereon) that has not been disbursed, and holders of
Certificates shall thereafter look only to the Surviving Corporation for any
payment to be made pursuant to the Merger.
SURRENDER OF OPTIONS AND WARRANTS
Surrender of Options. Coda has agreed to use its reasonable best efforts to
cause all holders of options to purchase Coda Common Stock, except for the
Specified Options, to execute prior to the Effective Time an Option
Relinquishment and Release Agreement (herein so called). As soon as practicable
after the Effective Time, the Paying Agent will pay (via U.S. mail, postage
prepaid) to such holders who have previously delivered an Option Relinquishment
and Release Agreement cash in an amount equal to the product of (i) the number
of shares of Coda Common Stock subject to such option and (ii) the amount by
which $7.75 exceeds the exercise or strike price per share of Coda Common Stock
subject to such option immediately prior to the Effective Time, less any
required withholding taxes. In the event that an option holder fails to deliver
an Option Relinquishment and Release Agreement prior to the Effective Time, such
holder's options (the "Outstanding Options") shall, in accordance with the terms
and conditions of the governing stock option plan and the holder's stock option
agreement(s), be converted without any action on the part of the holder thereof
into the right to receive an amount equal to the product of (i) the number of
shares of Coda Common Stock underlying such option and (ii) $7.75 per share,
upon the exercise of such holder's options in accordance with, and within the
time period prescribed by, the applicable stock option plan and the holder's
stock option agreement(s). The Paying Agent will pay (via U.S. mail, postage
prepaid) to each holder of Outstanding Options the consideration set forth
above, less any required withholding taxes, as promptly as practicable after
receiving a valid exercise of such options by the holder thereof. As of the
Effective Time, the Specified Options will be canceled without exercise and
without payment of consideration and will cease to exist. See "-- Interests of
Certain Persons in the Merger -- Subscription Agreement."
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Surrender of Warrants. Coda has agreed to send to all holders of warrants
to purchase Coda Common Stock, except for the Specified Warrants (collectively,
the "Outstanding Warrants"), written notice (i) of the Merger, (ii) that
effective as of the Merger, all unvested warrants are deemed fully vested and
(iii) that all unexercised warrants held by such persons will be canceled as of
the Effective Time. Coda has also agreed to send to all such persons a Warrant
Relinquishment and Release Agreement (herein so called) for execution and
delivery by the warrant holder prior to the Effective Time, which will provide
that each holder, in lieu of having to exercise his warrants, receive cash in an
amount equal to the product of (i) the number of shares of Coda Common Stock
subject to such warrant and (ii) the amount by which $7.75 exceeds the exercise
or strike price per share of Coda Common Stock subject to such warrant
immediately prior to the Effective Time, less any required withholding taxes. As
soon as practicable after the Effective Time, the Paying Agent will pay (via
U.S. mail, postage prepaid) to such holders who have previously executed a
Warrant Relinquishment and Release Agreement the consideration set forth above,
less any required withholding taxes. As of the Effective Time, the Specified
Warrants will be canceled without exercise and without payment of consideration
and will cease to exist. See "-- Interests of Certain Persons in the Merger --
Subscription Agreement."
CONDITIONS TO CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligations to Effect the Merger. The respective
obligations of Coda and Purchaser to effect the Merger are subject to the
satisfaction, or waiver if applicable, at or prior to the Effective Time, of
various conditions, including, among other things, (i) the approval and adoption
of the Merger Agreement and the Merger by the requisite vote of the holders of
Coda Common Stock; (ii) the expiration or termination of the waiting period
applicable to the consummation of the Merger under the Hart-Scott-Rodino Act;
(iii) the absence of the enactment, issuance, promulgation, enforcement or entry
by any federal or state governmental authority or other agency or commission or
court of any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) that is then in effect and
has the effect of making the Merger illegal or otherwise preventing or
prohibiting consummation of the Merger; (iv) the confirmation by Coda at the
time of the Special Meeting that the written opinion of Bear Stearns, dated the
date of this Proxy Statement and attached hereto as Appendix B, advising Coda
that the Merger is fair to the Coda stockholders (other than the Management
Group, as to whom no advice is rendered), from a financial point of view, has
not been withdrawn; and (v) the absence of any pending action, proceeding or
investigation brought by any person or entity before any governmental entity
challenging, affecting or seeking material damages in connection with the
transactions contemplated by the Merger Agreement.
Conditions to the Obligations of JEDI and Purchaser. Additional conditions
to the obligations of JEDI and Purchaser to effect the Merger include (i) the
performance in all material respects by Coda of its agreements contained in the
Merger Agreement required to be performed on or prior to the Effective Time;
(ii) that the representations and warranties of Coda contained in the Merger
Agreement that are qualified with respect to materiality are true and correct in
all respects, and such representations and warranties that are not so qualified
are true and correct in all material respects, each when made and on and as of
the Effective Time as if made at such time (except to the extent they expressly
relate to the date of the Merger Agreement or any other particular date); (iii)
the receipt by JEDI and Purchaser of a certificate of the President or Chief
Executive Officer of Coda, dated the closing date, with respect to the matters
set forth in (i) and (ii) above; (iv) the receipt by Coda of all required
permits, consents, authorizations, approvals, registrations, qualifications,
designations and declarations required to be delivered by Coda, on terms and
conditions satisfactory to Purchaser, and, to the extent required to be
submitted prior to the Effective Time, that all required filings and notices
shall have been submitted by Coda; (v) the receipt by Purchaser of the opinions
of Haynes and Boone, L.L.P. and Joe Callaway, General Counsel to Coda, dated the
closing date of the Merger, with respect to certain matters; (vi) that
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the number of shares of Coda Common Stock held by stockholders dissenting in
accordance with Section 262 of the DGCL shall not exceed 10% of the outstanding
shares of Coda Common Stock; (vii) that none of Messrs. Douglas H. Miller, Grant
W. Henderson, J. William Freeman, J.W. Spencer, III, Randell A. Bodenhamer or
Jarl P. Johnson shall have breached or anticipatorily breached any of the
Employment Agreements, the Subscription Agreement, the Stockholders Agreement or
the Business Opportunity Agreement, and none of Messrs. Douglas H. Miller, Grant
W. Henderson or J. William Freeman shall have died or become disabled; (viii)
the receipt by Purchaser of the written resignations, effective as of the
Effective Time, of each director of Coda and its subsidiaries; (ix) that each
holder of Outstanding Warrants shall have executed a Warrant Relinquishment and
Release Agreement; (x) that all members of Coda's management shall have repaid
all indebtedness owed by them to Coda; and (xi) assuming the representations and
warranties of Coda made in the Merger Agreement were made without regard to any
"materiality qualifications," that the amount that would be required to be
contributed to the Surviving Corporation at the Effective Time so that the
Surviving Corporation would be in the same economic position as it would have
been if the representations and warranties, without regard to any such
materiality qualifications, had been true and correct in all respects, would in
the aggregate not exceed $7.5 million.
Conditions to the Obligations of Coda. Other conditions to the obligations
of Coda to effect the Merger include (i) the performance in all material
respects by JEDI and Purchaser of their respective agreements contained in the
Merger Agreement required to be performed on or prior to the Effective Time;
(ii) that the representations and warranties of JEDI and Purchaser contained in
the Merger Agreement be true and correct in all material respects when made and
on and as of the Effective Time as if made at such time (except to the extent
they expressly relate to the date of the Merger Agreement or any other
particular date); (iii) the receipt by Coda of a certificate of the President or
Chief Executive Officer (or comparable officer) of JEDI and Purchaser, dated the
closing date, with respect to the matters set forth in (i) and (ii) above; and
(iv) the receipt by Coda of the legal opinion of Vinson & Elkins L.L.P., dated
the closing date, with respect to certain matters.
Coda has no obligation to consummate the Merger if any condition to its
obligation to consummate the Merger is not satisfied on or prior to the
Effective Time, and JEDI and Purchaser have no obligation to consummate the
Merger if any condition to their obligations to consummate the Merger is not
satisfied on or prior to the Effective Time. Any of the conditions to the
obligations of Coda, JEDI or Purchaser to consummate the Merger may be waived by
the party that is, or whose stockholders are, entitled to the benefits thereof.
Reference is made to Article X of the Merger Agreement for a complete
statement of the conditions precedent to the obligations of the respective
parties to consummate the Merger.
CERTAIN REGULATORY MATTERS
Certain acquisition transactions such as the Merger are reviewed by the
Antitrust Division and the FTC to determine whether such transactions comply
with applicable antitrust laws. Under the provisions of the Hart-Scott-Rodino
Act, the Merger may not be consummated until certain information has been
furnished to the Antitrust Division and the FTC and a thirty-day waiting period,
subject to possible extension by the Antitrust Division or the FTC, has been
satisfied. Coda and JEDI filed such information with the Antitrust Division and
the FTC on November 9, 1995, and the applicable waiting period prescribed under
the Hart-Scott-Rodino Act expired on December 9, 1995. Neither the Antitrust
Division nor the FTC raised any objections or made any comments with respect to
the Merger.
At any time before or after consummation of the Merger, the Antitrust
Division or the FTC could take any action under the antitrust laws as either of
them deems necessary or desirable in the public
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interest, including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of Coda or JEDI. At any time before or after
the Effective Time of the Merger, and notwithstanding that the Hart-Scott-Rodino
Act waiting period has expired, any state could take any action under such
state's antitrust laws as it deems necessary or desirable. Such action could
include seeking to enjoin the consummation of the Merger or seeking divestiture
of Coda by JEDI or businesses of Coda or JEDI. Private parties may also seek to
take legal action under the antitrust laws under certain circumstances.
As discussed above, consummation of the Merger is conditioned upon, among
other things, the absence of any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) that is
then in effect and has the effect of making the Merger illegal or otherwise
preventing or prohibiting consummation of the Merger. In addition, consummation
of the Merger is conditioned upon receipt of all required permits, consents,
authorizations, approvals, registrations, qualifications, designations and
declarations. See "-- Conditions to Consummation of the Merger."
REPRESENTATIONS AND WARRANTIES
Coda. The Merger Agreement contains various representations and warranties
of the parties thereto. The Merger Agreement includes representations by Coda as
to (i) the corporate organization, existence, standing, power and qualification
as a foreign corporation of Coda and its subsidiaries; (ii) the capitalization
of Coda; (iii) its subsidiaries and other investments; (iv) the due and valid
execution and delivery of the Merger Agreement and the legal, valid and binding
effect of the same; (v) the Merger Agreement's noncontravention of any
agreement, law and charter or bylaw provision and the absence of the need
(except as specified) for governmental or third party filings, authorizations or
consents to the Merger; (vi) documents filed with the Commission and the
accuracy of the information contained therein, including the financial
statements; (vii) the absence of certain changes or events; (viii) pending or
threatened litigation; (ix) the accuracy of the information with respect to Coda
and its subsidiaries contained in this Proxy Statement and its compliance with
the federal securities laws; (x) the accuracy of information disclosed by Coda
in the Merger Agreement; (xi) the status of certain employee benefits and labor
matters; (xii) certain environmental matters; (xiii) the inapplicability of the
Public Utility Holding Company Act of 1935 to Coda or its subsidiaries; (xiv)
the status and extent of Coda's fixed price contracts and hydrocarbon price
swaps, hedges, futures or similar instruments; (xv) the inapplicability of
Section 203 of the DGCL to the Merger and related transactions; (xvi) the
receipt of the Fairness Opinion from Bear Stearns; (xvii) brokers and finders
employed by Coda; (xviii) compliance with applicable laws; (xix) certain tax
matters; (xx) the absence of certain agreements; (xxi) information with respect
to certain engineering reports; (xxii) information with respect to certain oil
and gas reserve reports; (xxiii) good and defensible title to Coda's properties;
(xxiv) the validity, existence and status of insurance policies; and (xxv)
certain transactions with affiliates.
The representations and warranties of Coda are contained in Article VII of
the Merger Agreement.
Purchaser. The Merger Agreement also includes representations and
warranties by Purchaser as to (i) the corporate organization, existence,
standing, power and qualification as a foreign corporation of Purchaser; (ii)
the due and valid execution and delivery of the Merger Agreement and the legal,
valid and binding effect of the same; (iii) the Merger Agreement's non-
contravention of any agreement, law and charter or bylaw provision and the
absence of the need (except as specified) for governmental or third party
filings, authorizations or consents to the Merger; (iv) the accuracy and
adequacy of the information supplied by Purchaser for inclusion in this Proxy
Statement; (v) Purchaser's capitalization; (vi) the availability of funds
sufficient to consummate the Merger; (vii) Purchaser's belief that Surviving
Corporation will be able to meet its obligations as they become due following
the Merger; (viii) the
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absence of any broker or finder employed by Purchaser; and (ix) the full
opportunity to review Coda and its subsidiaries.
The representations and warranties of Purchaser are contained in Article V
of the Merger Agreement.
JEDI. The Merger Agreement also includes representations and warranties by
JEDI as to (i) the organization, existence, standing and power of JEDI; (ii) the
partners comprising the JEDI partnership and their relative partnership
percentages; (iii) the due and valid execution and delivery of the Merger
Agreement and the legal, valid and binding effect of the same; (iv) the Merger
Agreement's non-contravention of agreements, laws or partnership agreement
provisions and the absence of the need (except as specified) for governmental or
third party filings, authorizations or consents to the Merger; (v) the accuracy
of JEDI's financial statements; (vi) the availability of funds sufficient to
consummate the Merger and the other transactions contemplated by the Merger
Agreement; (vii) JEDI's belief that Surviving Corporation will be able to meet
its obligations as they become due following the Merger; (viii) the accuracy and
adequacy of the information supplied by JEDI for inclusion in this Proxy
Statement; (ix) the absence of any broker or finder employed by JEDI; and (x)
the full opportunity to review Coda and its subsidiaries.
The representations and warranties of JEDI are contained in Article VI of
the Merger Agreement.
BUSINESS OF CODA PENDING THE MERGER
In the Merger Agreement, Coda has agreed that, during the period from the
date the Merger Agreement to the Effective Time, except as otherwise
contemplated by the Merger Agreement or unless Purchaser otherwise consents in
writing, the businesses of Coda and its subsidiaries will be conducted only in
the usual and ordinary course consistent with past practice, and Coda and its
subsidiaries shall each use its reasonable best efforts to preserve
substantially intact its present business organization, keep available the
services of its present officers and employees, maintain and keep its material
assets in as good repair and condition as of the date of the Merger Agreement,
ordinary wear and tear and damage due to casualty excepted, and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and on-going business shall be materially
unimpaired at the Effective Time.
By way of amplification and not limitation of the provisions described in
the preceding paragraph, the Merger Agreement provides that, between the date of
the Merger Agreement and the Effective Time, except pursuant to the terms of the
Merger Agreement or unless Purchaser otherwise consents in writing:
(i) Coda has agreed that it will not, nor will it propose to, except as
required by the Merger Agreement; (A) sell or pledge or agree to sell or pledge
any capital stock owned by it in any of its subsidiaries; (B) amend its
certificate of incorporation or bylaws; (C) split, combine or reclassify its
outstanding capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of the
capital stock, or declare, set aside or pay any dividend or other distribution
payable in cash, stock or property or (D) directly or indirectly redeem,
purchase or otherwise acquire or agree to redeem, purchase or otherwise acquire
any shares of its capital stock;
(ii) Coda has agreed that it will not, nor will it permit any of its
subsidiaries to, (A) except as required or contemplated by the Merger Agreement,
issue, deliver or sell or agree to issue, deliver or sell any additional shares
of, or stock appreciation rights or rights of any kind to acquire any shares of,
its capital stock of any class, any voting debt, or any options, rights or
warrants to acquire, or securities convertible into, shares of capital stock,
other than issuances of Coda Common Stock pursuant to the
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exercise of outstanding stock options or outstanding warrants; (B) amend in any
respect existing agreements evidencing outstanding options or outstanding
warrants (including, without limitation, the exercise or strike prices thereof)
or the applicable plans pursuant to which such options, warrants or rights were
granted, except to permit the acceleration of the vesting or exercisability of
outstanding options and outstanding warrants in connection with the settlement
thereof; (C) acquire or lease, or agree to acquire or lease, any material
capital asset or assets, or make any other capital expenditures, that exceed
Coda's capital expenditure budgets for the fourth quarter of 1995 and the first
quarter of 1996, in the aggregate for all such assets or other capital
expenditures in both quarters, by $2.0 million or more (including in such
calculation the proceeds of any sale/leaseback transactions); (D) dispose of, or
agree to dispose of, capital assets or any other assets other than in the
ordinary course, with a value in the aggregate in excess of $2.0 million; (E)
(1) create, incur, assume or permit additional material indebtedness (including
obligations in respect of capital leases), other than periodic drawdowns under
Coda's credit facilities existing as of the date of the Merger Agreement,
provided that such drawdowns are in the ordinary course of business consistent
with past practice, and provided further that the amount available under such
facilities as of the date of the Merger Agreement is not increased, (2) assume,
guarantee, endorse or otherwise become liable or responsible for the obligations
of any other person (other than a subsidiary of Coda, or as to a subsidiary,
another subsidiary of Coda) in an amount in excess of $10,000 (excluding
suspense account obligations assumed in connection with acquisitions by Coda
whereby Coda also receives the funds held in suspense or an adjustment to the
purchase price is made in an equal amount), (3) encumber or grant a security
interest in any material company asset other than for Coda's credit facilities
existing on the date of the Merger Agreement or (4) make any loans or advances
to any other person (excluding intercompany transactions), enter into any
agreement or instrument relating to the borrowing of money or the extension of
credit or enter into any other material transaction, other than in each case in
the ordinary course of business consistent with past practice; (F) acquire, or
agree to acquire, oil or gas properties or other assets of a type not covered by
Coda's capital expenditure budget, or acquire, or agree to acquire, by merging
or consolidating with, or by purchasing the assets of or a substantial equity
interest in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, for
an aggregate purchase price in excess of $5.0 million; (G) enter into or renew
any material agreements, contracts or other commitments that are not expected to
be fully performed within thirty days after the Effective Time, excluding oil
and gas leases, farmout agreements, gas sales or purchase contracts, joint
operating agreements, unit operating agreements and unit agreements entered into
in the ordinary course of business or (H) adopt, enter into, amend or terminate
any contract, agreement, commitment or arrangement with respect to any of the
foregoing;
(iii) Coda has agreed that it will not, nor will it permit any of its
subsidiaries to, except as required to comply with applicable law and except as
otherwise provided in the Merger Agreement and other than acceleration of
vesting permitted by the Merger Agreement (A) adopt, enter into, terminate or
amend any bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or other plan,
agreement, trust, fund or other arrangement for the benefit or welfare of any
current or former director, officer or employee (other than the adoption of any
special compensation for the members of the Special Committee); (B) increase in
any manner the compensation or fringe benefits of any director (other than the
adoption of any special compensation for the members of the Special Committee),
executive officer or employee (provided, however, that Coda is permitted to
award normal salary increases to employees (other than executive officers) of
Coda in the ordinary course of business that are consistent with past practice
(including, without limitation, in connection with any promotion of such
employee) and that, in the aggregate, do not result in a material increase in
compensation expense to Coda and its subsidiaries relative to the level in
effect prior to such increase), unless consented to by Purchaser; (C) pay any
benefit not provided under any existing plan or arrangement, except as disclosed
in the disclosure schedules to the Merger Agreement; (D) grant any awards under
any stock option plan or any other bonus, incentive, performance or other
compensation plan
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or arrangement or employee benefit plan (including, without limitation, the
grant of stock options, stock appreciation rights, stock-based or stock-related
awards, performance units or restricted stock or the removal of existing
restrictions in any plans or agreements or awards made thereunder); (E) take any
action to fund, or in any other way secure the payment of, compensation or
benefits under any employee plan, agreement, contract or arrangement or plan,
other than in the ordinary course of business consistent with past practice; or
(F) adopt, enter into, amend or terminate any contract, agreement, commitment or
arrangement to do any of the foregoing;
(iv) Coda has agreed that it will not, nor will it permit its subsidiaries
to, make any change in its accounting policies or procedures, except as required
under generally accepted accounting principles;
(v) Coda has agreed to use its reasonable best efforts to refrain from
taking, and to use its reasonable best efforts to cause its subsidiaries to
refrain from taking, any action that would, or reasonably might be expected to,
result in any of its representations and warranties set forth in the Merger
Agreement being or becoming untrue in any material respect as of the Effective
Time, or in any of the conditions to the Merger set forth in Article X of the
Merger Agreement not being satisfied, or (unless such action is required by
applicable law) that would adversely affect the ability of Coda to obtain any of
the regulatory approvals required to consummate the Merger;
(vi) Coda has agreed that it will not settle or compromise any claim for
appraisal rights in respect of the Merger;
(vii) Coda has agreed that it will maintain in full force and effect all of
its policies of insurance in existence as of the date of the Merger Agreement or
insurance comparable to the coverage afforded by such policies;
(viii) Coda has agreed not to enter into any natural gas or other future or
options trading or be a party to any price swaps, hedges, futures or similar
instruments without first obtaining the consent of Purchaser; and
(ix) pursuant to the First Amendment, Coda has agreed not to negotiate nor
enter into any agreement providing for the sale of Taurus, whether by merger,
sale of all or substantially all of the assets of Taurus, sale of all of the
capital stock of Taurus or otherwise, without, in each such case, obtaining the
prior written consent of JEDI.
OBLIGATIONS OF JEDI AND PURCHASER PENDING THE MERGER
Each of JEDI and Purchaser has agreed to use its reasonable best efforts to
refrain from taking any action that would, or reasonably might be expected to,
result in any of its representations and warranties set forth in the Merger
Agreement being or becoming untrue in any material respect as of the Effective
Time, in any of the conditions to the Merger not being satisfied, or (unless
such action is required by applicable law) that would adversely affect the
ability of JEDI or Purchaser to obtain any of the regulatory approvals required
to consummate the Merger.
AMENDMENT, WAIVER AND TERMINATION
The Merger Agreement may be amended by mutual written agreement of the
parties, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval of the Merger Agreement by the Coda
stockholders, but, after such approval by the Coda stockholders, no
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amendment may be made to the Merger Agreement that under applicable law requires
further approval of the Coda stockholders without such further approval. In
addition, at any time prior to the Effective Time, the parties may extend the
time for the performance of any of the obligations or other acts of the other
parties to the Merger Agreement, waive any inaccuracies in the representations
and warranties of any other party contained in the Merger Agreement or in any
documents delivered pursuant thereto by any other party and waive compliance
with any of the agreements or conditions contained in the Merger Agreement.
Under certain conditions, the Merger Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval by the
stockholders of Coda. The conditions under which the Merger Agreement may be
terminated include termination (i) by mutual consent of the Boards of Directors
of Coda and Purchaser; (ii) by either Coda or Purchaser if the Merger shall not
have been consummated on or before March 15, 1996 (unless such circumstance is
the result of a breach of the terms of the Merger Agreement by the party wishing
to exercise the termination right); (iii) by Purchaser if there has been a
material breach on the part of Coda, or by Coda if there has been a material
breach on the part of Purchaser or JEDI, of any representation, warranty,
covenant or agreement set forth in the Merger Agreement, which breach has not
been cured within 15 business days following receipt by the breaching party of
written notice of such breach; (iv) by either Coda or Purchaser upon written
notice to the other party if any governmental entity of competent jurisdiction
shall have issued (A) a final permanent order enjoining or otherwise prohibiting
the consummation of any of the transactions contemplated by the Merger
Agreement, and in any such case the time for appeal or petition for
reconsideration of such order shall have expired without such appeal or petition
being granted, or (B) any order or directive that does not directly enjoin or
otherwise prohibit the consummation of the transactions contemplated by the
Merger Agreement, but that would, if JEDI, Purchaser or Coda were to comply with
such order or directive as a condition to consummating the transactions
contemplated by the Merger Agreement, have a material adverse effect on the
business, operations or financial condition of either JEDI or the Surviving
Corporation and its subsidiaries, taken as a whole; (v) by Coda if (A) the Board
of Directors of Coda reasonably believes that an Other Acquisition Transaction
(defined below) is a Superior Proposal (defined below) (see "-- No Solicitation
of Other Bids"), (B) the ten business day period specified in Coda's agreement
not to solicit shall have expired (see "-- No Solicitation of Other Bids") and
(C) simultaneously with such termination Coda enters into a definitive agreement
to effect such Other Acquisition Transaction; (vi) by either Purchaser or Coda
if the required approval of Coda stockholders is not received in a vote duly
taken at the Special Meeting; (vii) by Purchaser if the Board of Directors of
Coda or any committee thereof (A) shall have amended, modified, rescinded or
repealed the recommendation of Coda's Board of Directors to the stockholders of
Coda to approve the Merger and the adoption of the Merger Agreement, or (B)
shall have adopted any other resolution in connection with the Merger Agreement
and the transactions contemplated hereby inconsistent with such recommendation
of the consummation of the transactions contemplated thereby; and (viii) by
Purchaser, if any representation or warranty of Coda shall have become untrue
such that the condition that Coda shall have performed in all material respects
its agreements contained in the Merger Agreement required to be performed on or
prior to the Effective Time and that Coda's representations and warranties shall
be true and correct when made and at the Effective Time would be incapable of
being satisfied by March 15, 1996, or by Coda if any representation or warranty
of Purchaser or JEDI shall have become untrue such that the condition that JEDI
and Purchaser shall have performed in all material respects their respective
agreements contained in the Merger Agreement required to be performed on or
prior to the Effective Time and that JEDI and Purchaser's representations and
warranties shall be true and correct when made and at the Effective Time would
be incapable of being satisfied by March 15, 1996.
In the event of the termination of the Merger Agreement, no party to the
Merger Agreement will have any obligation or liability to the other party,
except that (i) JEDI and Purchaser will hold in
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confidence all information regarding Coda; (ii) the provisions of the Merger
Agreement regarding the payment of expenses and termination fees will survive;
(iii) certain provisions regarding the construction and interpretation of the
Merger Agreement will survive; and (iv) no party will be relieved from liability
for any breach of the Merger Agreement. See "-- Expenses; Termination Fees."
The amendment, waiver and termination provisions of the Merger Agreement
are contained in Article XI of the Merger Agreement.
EXPENSES; TERMINATION FEES
Except as set forth below, whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses.
If the Merger Agreement is terminated by Purchaser pursuant to clauses
(iii), (v), (vi) or (vii) of the second paragraph of "-- Amendment, Waiver and
Termination" above, then Coda has agreed, by wire transfer of immediately
available funds to an account designated by Purchaser, to reimburse Purchaser
and its affiliates, not later than two business days after Purchaser submits to
Coda statements therefor, for all reasonable and necessary out-of-pocket fees
and expenses (including, without limitation, all reasonable fees and expenses of
counsel, accountants, financial institutions, experts and consultants) incurred
in connection with or related to the authorization, preparation, negotiation,
execution and performance of the Merger Agreement, the arranging of financing
for the Merger and all other matters related to the consummation of the
transactions contemplated thereby up to a maximum amount of $750,000 (exclusive
of any expenses and fees specifically agreed to by Coda and incurred in
connection with any proposed placement of subordinated debt to finance or
refinance the transactions contemplated by the Merger Agreement) in the case of
a termination pursuant to clauses (iii), (v) or (vii) of the second paragraph of
"-- Amendment, Waiver and Termination" above and up to a maximum amount of
$500,000 (exclusive of any expenses and fees specifically agreed to by Coda and
incurred in connection with any proposed placement of subordinated debt to
finance or refinance the transactions contemplated by the Merger Agreement) in
the case of a termination pursuant to clause (vi) of the second paragraph of "--
Amendment, Waiver and Termination" above. The parties have further agreed that a
payment contemplated by this paragraph will not limit Purchaser's or JEDI's
right to pursue all other available remedies if Coda has breached the Merger
Agreement, although neither JEDI nor Purchaser will be permitted to recover such
fees and expenses more than once.
If the Merger Agreement is terminated by Coda pursuant to clause (iii) of
the second paragraph of "-- Amendment, Waiver and Termination" above, then JEDI
has agreed, by wire transfer of immediately available funds to an account
designated by Coda, to reimburse Coda, not later than two business days after
Coda submits to Purchaser statements therefor, for all reasonable and necessary
out-of-pocket fees and expenses (including, without limitation, all reasonable
fees and expenses of counsel, accountants, financial institutions, experts and
consultants) incurred in connection with or related to the authorization,
preparation, negotiation, execution and performance of the Merger Agreement, and
all other matters related to the consummation of the transactions contemplated
thereby up to a maximum amount of $750,000 (exclusive of any expenses and fees
specifically agreed to by Coda and JEDI and incurred in connection with any
proposed placement of subordinated debt to finance or refinance the transactions
contemplated by the Merger Agreement). The parties have further agreed that a
payment contemplated by this paragraph will not limit Coda's right to pursue all
other available remedies if either Purchaser or JEDI has breached the Merger
Agreement, although Coda will not be permitted to recover such fees and expenses
more than once.
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In addition to payment of the expenses as described above, if the Merger
Agreement is terminated for any reason other than a termination by Purchaser
pursuant to clause (ii) or (viii) of the second paragraph of "-- Amendment,
Waiver and Termination" above, or by Coda pursuant to clause (iii) of the second
paragraph of "-- Amendment, Waiver and Termination" above, then if (i) a
Terminating Other Acquisition Transaction (as defined in the Merger Agreement)
is consummated or (ii) an Other Acquisition Transaction (as defined below under
"-- No Solicitation of Other Bids") that provides a better value to the holders
of Coda Common Stock than the Merger would have provided is consummated prior to
the first anniversary of the date of the Merger Agreement, then Coda shall pay
to Purchaser, by wire transfer of immediately available funds to an account
designated by Purchaser, the Break-Up Fee not later than the second business day
following such consummation. The parties have agreed that a payment contemplated
by this paragraph will not limit Purchaser's right to pursue all other available
remedies if Coda has breached the Merger Agreement.
If (i) prior to the termination of the Merger Agreement, any person (other
than Purchaser or any affiliate thereof) or group (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder)
becomes the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 20% of the outstanding Coda Common Stock; (ii) either
the Merger Agreement is terminated pursuant to clause (vi) of the second
paragraph of "-- Amendment, Waiver and Termination" above or such beneficial
owner takes any action to oppose or prevent the consummation of the Merger and
the Merger Agreement is terminated for any reason; and (iii) an Other
Acquisition Transaction is consummated within one calendar year of the date of
the Special Meeting, then Coda shall pay to Purchaser, by wire transfer of
immediately available funds to an account designated by Purchaser, the Break-Up
Fee plus all out-of-pocket fees and expenses (of the type and subject to the
limitations set forth above) not later than two business days after Purchaser
submits to Coda a request therefor. Notwithstanding the foregoing, in no event
shall Coda be required to pay the Break-Up Fee more than once as a result of the
consummation of any combination of the transactions described above. A payment
as set forth above shall not limit Purchaser's right to pursue all other
available remedies if Coda has breached the Merger Agreement.
The provisions regarding the payment of the termination fees and expenses
are contained in Section 12.3 of the Merger Agreement.
NO SOLICITATION OF OTHER BIDS
Prior to the Effective Time, Coda has agreed not to, nor to permit any of
its subsidiaries to, nor to authorize or permit any of its officers, directors
or employees or any investment banker, financial advisor, attorney, accountant
or other representative retained by it or any of its subsidiaries to, directly
or indirectly, initiate, solicit, negotiate or encourage (including by way of
furnishing information), or take any other action to facilitate or entertain,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any proposal or offer to acquire all or substantially
all of the business of Coda and its subsidiaries, or all or substantially all of
the capital stock of Coda, whether by merger, purchase of assets, tender offer,
exchange offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transaction being referred to as
an "Other Acquisition Transaction") or agree to endorse or recommend any such
Other Acquisition Transaction or enter into an agreement relating to an Other
Acquisition Transaction. However, pursuant to the terms of the Merger Agreement,
Coda and its subsidiaries may negotiate with a corporation, partnership, person
or other entity or group (a "Potential Acquirer") if (i) the Potential Acquirer
has, in circumstances not involving any prior breach by Coda of the provisions
described above, made a tender or exchange offer for, or a proposal to the Board
of Directors of Coda to acquire, a majority of the capital stock of Coda or made
a proposal for a merger, purchase of all or substantially all of the assets of
Coda or other business combination
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transaction involving a change of control of Coda; (ii) Coda's Board of
Directors believes, based in part upon the advice of its financial advisor, and
after having an opportunity to discuss any such proposal with the Potential
Acquirer, that such Potential Acquirer has the financial wherewithal to
consummate such offer or transaction and such offer or transaction would yield a
better value to Coda's stockholders than would the Merger (a "Superior
Proposal") and (iii) based upon the advice of counsel to Coda to such effect
given to the Board of Directors of Coda (notice of which advice has been
communicated to Purchaser), Coda's Board of Directors determines in good faith
that there is a significant risk that the failure to negotiate with the
Potential Acquirer could constitute a breach of the Board's fiduciary duties to
the stockholders of Coda. Coda has agreed to promptly advise Purchaser in
writing of any request for non-public written information or of any Other
Acquisition Transaction, or any inquiry that could reasonably be expected to
lead to any Other Acquisition Transaction, the terms and conditions of such
request, Other Acquisition Transaction or inquiry, the identity of the person
making any such request, Other Acquisition Transaction or inquiry, and whether
Coda has elected to negotiate with a Potential Acquirer in accordance with the
preceding sentence. Coda has agreed to use its reasonable best efforts to keep
Purchaser fully informed of the status and details of any such request, Other
Acquisition Transaction, inquiry or negotiation. Coda has further agreed not to
enter into a definitive agreement for an Other Acquisition Transaction with a
Potential Acquirer with which Coda is permitted to negotiate, as described
above, unless (i) at least 10 business days prior to Coda's execution thereof,
Coda shall have furnished Purchaser with a description of all of the material
terms thereof and (ii) Coda shall have terminated the Merger Agreement in
accordance with Section 11.1(e) thereof.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
All representations, warranties, agreements and covenants set forth in the
Merger Agreement will terminate at the Effective Time or upon termination of the
Merger Agreement, as the case may be, except that (i) the agreements set forth
in Sections 9.3, 9.5(b), 9.8 and 9.9 and Articles III and XII (excluding Section
12.3) of the Merger Agreement will survive the Effective Time indefinitely and
(ii) the agreements set forth in the penultimate sentence of Section 9.1 and in
Article XII (including Section 12.3) of the Merger Agreement will survive
termination indefinitely.
SOURCES AND AMOUNT OF FUNDS
The total amount of funds required by JEDI and Purchaser to acquire all of
the then-outstanding shares of capital stock of Coda (including options and
warrants to purchase Coda Common Stock, but excluding the Specified Options, the
Specified Warrants and shares of Coda Common Stock held by Purchaser), is
estimated to be approximately $176.2 million. The actual amount payable will
depend, in part, on (i) the number of shares of Coda Common Stock outstanding at
the Effective Time and entitled to receive the Merger consideration and (ii) the
number of options and warrants to purchase Coda Common Stock outstanding at the
Effective Time. See "-- Interests of Certain Persons in the Merger." Coda will
also need approximately $6.5 million in cash to pay the fees and expenses
associated with effecting the Merger and the financing thereof (including (A) an
estimated $3.9 million expected to be paid to ECT Securities Corp., an affiliate
of Enron Capital Management Limited Partnership (the general partner of JEDI),
as transaction fees in connection with the Loan (defined below), the $90 million
equity investment referred to below and the $20 million 15% Cumulative Preferred
Stock investment referred to below, (B) $360,000 in fees and expenses to Bear
Stearns in connection with the preparation and delivery of its fairness opinion;
(C) approximately $350,000 in legal fees and expenses; (D) approximately
$150,000 in printing expenses and postage; (E) approximately $100,000 in
accounting fees and expenses; (F) approximately $75,000 in Paying Agent and
solicitation fees and expenses; (G) approximately $450,000 in insurance expenses
relating to the continued coverage of Coda's directors and officers (see "--
Indemnification and Insurance"); (H) approximately $400,000 in banking expenses;
(I) a $150,000
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transaction fee payable to TGV Partners; (J) a $50,000 fee payable to the
members of the Special Committee; and (K) approximately $500,000 of
miscellaneous expenses). Coda also has agreed to provide loans in exchange for
limited recourse promissory notes to certain members of the Management Group in
the aggregate principal amount of $937,300 to purchase shares of capital stock
of Purchaser. See "--Interests of Certain Persons in the Merger."
ECT Securities Corp. is a broker-dealer registered as such under the
Exchange Act. In connection with the transaction, it has performed and will
continue to perform investment banking services. These services consist of
assistance in structuring the transaction pursuant to which Coda is being
acquired, assisting with negotiations, assisting with arrangements for a portion
of the financing and performing other services typically performed by investment
bankers in transactions of this type. Prior to the negotiations regarding the
proposed Merger, ECT Securities Corp. had no relationships with Coda or any of
its affiliates, and its only current relationships with Coda and its affiliates
are those provided in the contractual arrangements described in this Proxy
Statement.
JEDI expects Purchaser to have available at the Effective Time
approximately $190 million from (i) a $90 million equity investment to be made
in Purchaser by JEDI prior to the Effective Time and (ii) proceeds of a $100
million loan to be made to Purchaser by JEDI prior to the Effective Time (the
"Loan"). JEDI expects to make the $90 million equity investment and the Loan
from a capital call on its partners, from additional borrowings under its $470
million revolving credit facility and from other sources of cash available to
JEDI. As of November 30, 1995, JEDI had available for borrowing approximately
$285 million under such revolving credit facility. Coda and JEDI currently
intend to restructure or otherwise refinance Coda's existing bank credit
facility. Coda has begun discussions with its existing bank group regarding the
terms of a restructured credit facility. Consummation of the Merger will require
the banks' consent under the terms of Coda's existing credit facility. The
obligation of JEDI and Purchaser to consummate the Merger under the Merger
Agreement is not subject to a condition that any financing be available to JEDI
or Purchaser.
JEDI will make its equity investment in Purchaser by purchasing for $90
million 900,000 shares of Purchaser Common Stock, which will be converted in the
Merger into 900,000 shares of Surviving Corporation common stock. Subsequent to
the Merger, JEDI will purchase for $20 million 20,000 shares of 15% Cumulative
Preferred Stock. The 15% Cumulative Preferred Stock will pay semi-annual
dividends at a per annum rate of 15% and will be subject to optional redemption
by the Surviving Corporation at any time and subject to mandatory redemption by
the Surviving Corporation upon the occurrence of certain events.
The Loan is currently expected to be a seven year unsecured, senior
subordinated loan. The Loan would initially bear interest at a floating rate,
but would become a fixed rate loan no later than six months after the date of
the Loan. The principal of the Loan would be due in full at maturity. The
agreement governing the Loan would contain various representations, warranties,
covenants and conditions. JEDI and Coda currently anticipate that the Surviving
Corporation will use the proceeds of an offering of up to $125.0 million of
senior subordinated indebtedness to refinance the Loan following closing of the
Merger.
OPERATION AND MANAGEMENT OF SURVIVING CORPORATION AFTER THE MERGER
Immediately following the Merger, JEDI and the Management Group will own
approximately 98.5% and 1.5%, respectively, of the outstanding shares of
Surviving Corporation common stock (approximately 95% and 5%, respectively, on a
fully diluted basis, including options granted to the Management Group). JEDI
also will purchase 20,000 shares of 15% Cumulative Preferred Stock in the
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Surviving Corporation (constituting all issued and outstanding shares of such
15% Cumulative Preferred Stock) subsequent to the Merger. JEDI is exploring the
possibility of selling a portion of its equity interest in the Surviving
Corporation to a limited number of institutional investors after the Effective
Time, although it currently expects to retain a majority of the Surviving
Corporation's equity even if such a sale is consummated. In connection with any
such sale, such institutional investor or investors may obtain the right to have
representatives on the Surviving Corporation's Board of Directors. The Surviving
Corporation is expected to continue to manage and operate Coda's business and
properties substantially as before the Merger and is expected to maintain Coda's
current offices.
The bylaws of the Surviving Corporation will provide that the Chairman of
the Board and the Vice Chairman of the Board of Directors of the Surviving
Corporation will be directors. As such, Mr. Douglas H. Miller, as Chairman of
the Board of the Surviving Corporation, and Mr. Jarl P. Johnson, as Vice
Chairman of the Board of the Surviving Corporation, will be directors of the
Surviving Corporation. The other five members of the Board of Directors will be
elected by the stockholders of the Surviving Corporation. JEDI anticipates that
Mr. Grant W. Henderson will also be elected to one of the other five positions
on the Board of Directors of the Surviving Corporation. In addition, the
respective executive officers of Coda, with the exception of Mr. T.W. Eubank,
Coda's President and Chief Operating Officer, will continue as executive
officers of Surviving Corporation. Mr. Henderson will assume the additional
title of President, and Mr. Johnson will assume the additional title of Chief
Operating Officer. See "-- Interests of Certain Persons in the Merger."
JEDI and Coda currently intend to study alternatives for maximizing Coda's
investment in Taurus. These alternatives could include a sale of Taurus, whether
by merger, sale of all or substantially all of the assets of Taurus or sale of
all of the capital stock of Taurus. Except as set forth in this Proxy Statement,
JEDI and Coda do not have any present plans or proposals that would relate to or
result in an extraordinary corporate transaction such as a merger,
reorganization or liquidation involving Coda or any of its subsidiaries or a
sale or other transfer of a material amount of assets of Coda or any other
material change in Coda's corporate structure or business or the composition of
its management.
If the Merger is consummated, Coda Common Stock will cease to be listed on
the Nasdaq National Market, public trading of Coda Common Stock will cease and
the registration of Coda Common Stock under the Exchange Act is expected to be
terminated.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS. THE DISCUSSION DOES NOT
ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF CODA
COMMON STOCK SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS,
SUCH AS DEALERS IN SECURITIES OR TRUSTS, NOR ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION. NO RULINGS WILL BE SOUGHT
FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER OR THE TRANSACTIONS RELATED THERETO. THE DISCUSSION
IS BASED UPON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE
DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE, AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. HOLDERS OF CODA COMMON
STOCK ARE URGED TO
57
<PAGE>
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN
TAX CONSEQUENCES OF THE MERGER AND THE RELATED TRANSACTIONS.
The receipt of cash for shares of Coda Common Stock pursuant to the Merger
or pursuant to the exercise of appraisal rights will be a taxable transaction
for federal income tax purposes and may also be a taxable transaction under
applicable state, local or foreign tax laws. The tax consequences will vary
depending upon, among other things, the particular circumstances of the
stockholder. In general, a stockholder who receives cash for shares of Coda
Common Stock pursuant to the Merger or pursuant to the exercise of appraisal
rights will recognize a gain or loss for federal income tax purposes equal to
the difference between the amount of cash received and such stockholder's
adjusted tax basis in the shares exchanged. Provided the shares of Coda Common
Stock constitute capital assets in the hands of the stockholder, the gain or
loss will be a capital gain or loss. If the holder has held the shares of Coda
Common Stock for more than one year at the time of the exchange, the gain or
loss will be a long-term capital gain or loss. The holding period and gain or
loss will be determined separately for each share, or block of shares, of Coda
Common Stock exchanged pursuant to the Merger Agreement or the appraisal
proceedings.
The foregoing discussion may not be applicable to certain types of
stockholders, including stockholders who acquired shares of Coda Common Stock
pursuant to the exercise of employee stock options or otherwise as compensation,
individuals who are not citizens or residents of the United States, foreign
corporations and entities that are otherwise subject to special tax treatment
under the Internal Revenue Code of 1986, as amended, such as insurance
companies, tax-exempt entities and regulated investment companies.
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting.
APPRAISAL RIGHTS
Pursuant to Section 262 of the DGCL, a stockholder may demand an appraisal
of the "fair value" of the stockholder's shares of Coda Common Stock in lieu of
accepting the payment to be made pursuant to the Merger. Under the DGCL, only
holders of shares of Coda Common Stock are entitled to exercise rights under
Section 262.
The following is a summary of Section 262 and the procedures that must be
followed to perfect appraisal rights thereunder. The complete text of Section
262 is set forth as Appendix C to this Proxy Statement. Under Section 262, a
corporation, not less than 20 days prior to the meeting at which a proposed
merger is to be voted on, must notify each of its stockholders entitled to
appraisal rights as of the record date of the meeting that such appraisal rights
are available and include in such notice a copy of Section 262. THIS PROXY
STATEMENT CONSTITUTES SUCH NOTICE TO CODA'S STOCKHOLDERS. Stockholders wishing
to exercise appraisal rights are urged to review carefully the complete text of
Section 262.
Stockholders should note that the term "stockholder," as used in Section
262, refers to the holder of record of the shares of Coda Common Stock as to
which appraisal rights are exercised, or a person duly authorized and expressly
purporting to act on behalf of the record holder. A person having a beneficial
interest in shares of Coda Common Stock should act promptly to cause the record
holder to follow the
58
<PAGE>
procedures described below properly and in a timely manner to perfect any
appraisal rights the beneficial owner may have. In addition, if shares of Coda
Common Stock are owned of record in a fiduciary capacity, such as by a trustee
or custodian, the demand for appraisal should be made in that capacity, and if
shares of Coda Common Stock are held of record by more than one person, as in a
joint tenancy, the demand should be executed by or on behalf of all owners. An
authorized agent may execute the demand on behalf of a holder of record;
however, the agent must identify the record owners and expressly disclose that,
in executing the demand, the agent is acting as authorized agent for such
owners. A record holder, such as a broker, who holds shares of Coda Common Stock
as nominee for one or more beneficial owners may exercise such owner's appraisal
rights with respect to all or a portion of such shares of Coda Common Stock. In
that case, the demand should specify the number of shares of Coda Common Stock
covered thereby. Where no such specification is made, the demand will be
presumed to cover all shares held of record by such nominee.
Each stockholder electing to demand an appraisal must deliver to Coda,
before the taking of the vote on the Merger, a written demand for appraisal of
such stockholder's shares of Coda Common Stock. Such demand must inform Coda of
the identity of the stockholder and the stockholder's intent to demand the
appraisal of the stockholder's shares of Coda Common Stock. A proxy or vote
against the Merger, or an abstention or broker non-vote, will not constitute
such a demand; a stockholder electing to take such action must do so by a
separate written demand. Such demands should be mailed or delivered to Mr. Joe
Callaway, Vice President, General Counsel and Assistant Secretary, Coda Energy,
Inc., 5735 Pineland Drive, Suite 300, Dallas, Texas 75231. Within ten days after
the Effective Time, the Surviving Corporation will notify each stockholder who
has made a proper written demand and who has not voted in favor of or consented
to the Merger as of the Effective Time. A vote in favor of the Merger will have
the effect of waiving the appraisal rights.
The right of appraisal may be lost if the procedural requirements of
Section 262 are not followed exactly. If the right of appraisal is lost, the
stockholder will be entitled to receive $7.75 in cash, without interest, for
each share of Coda Common Stock owned at the Effective Time upon surrender of
the Certificates representing such shares of Coda Common Stock.
Stockholders should also note that Section 262 provides for an appraisal of
the "fair value" of shares of Coda Common Stock "exclusive of any element of
value arising from the accomplishment or expectation" of the Merger.
Accordingly, an appraisal proceeding may result in a determination that the
"fair value" of a share of Coda Common Stock is greater than, equal to or less
than $7.75.
Within 120 days after the Effective Time, Coda or any stockholder who has
complied with the foregoing procedures may file a petition in the Delaware Court
of Chancery (the "Court") demanding a determination of the fair value of the
shares of Coda Common Stock of all stockholders who have complied with such
procedures. However, since Coda has no obligation to file such a petition and
does not currently intend to do so if any stockholders exercise appraisal
rights, any stockholder who desires that such a petition be filed is advised to
do so on a timely basis. If neither Coda nor any such stockholder files such a
petition within that 120-day period, all appraisal rights will terminate and any
such stockholders will only be entitled to receive $7.75 in cash, without
interest, for each share of Coda Common Stock. Any stockholder may withdraw the
stockholder's demand for appraisal at any time within 60 days after the
Effective Time (or thereafter with the written consent of Coda) and receive,
pursuant to the terms of the Merger, $7.75 in cash, without interest, for each
share of Coda Common Stock. Notwithstanding the foregoing, no appraisal
proceeding in the Court may be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
59
<PAGE>
Within 120 days after the Effective Time, any stockholder who has complied
with the foregoing procedures may also deliver to Coda a written request for a
statement listing the aggregate number of shares of Coda Common Stock with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares of Coda Common Stock. Such a statement must be
mailed to the stockholder within ten days after his written request therefor is
received by Coda.
Upon the filing of any petition by a stockholder demanding appraisal,
service of a copy thereof must be made upon Coda, which must, within 20 days
after such service, file in the office of the Register in Chancery in which the
petition was filed a duly verified list containing the names and addresses of
all stockholders who have demanded appraisal for their shares of Coda Common
Stock and with whom agreement as to the value of such shares of Coda Common
Stock has not been reached. If a petition is filed by Coda, the petition must be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, will give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to Coda and to the
stockholders shown on such list at the addresses set forth therein, and such
notice must also be given by publishing a notice at least one week prior to the
day of the hearing in a newspaper of general circulation published in the City
of Wilmington, Delaware or such other publication as the Court deems advisable.
The forms of the notices by mail and by publication must be approved by the
Court, and the costs thereof will be borne by Coda.
After determining the stockholders entitled to an appraisal under Section
262, the Court will appraise the shares of Coda Common Stock, determining their
fair value, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the "fair value." In determining such fair
value, the Court must take all relevant factors into account. The Delaware
Supreme Court has stated that such factors include "market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which were known or which could be ascertained as of the date of merger which
throw any light on future prospects of the merged corporation." The Delaware
Supreme Court has also stated that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings.
The Court will direct the payment of the appraised value of the shares of
Coda Common Stock, together with interest, if any, by Coda to the stockholders
entitled thereto upon surrender of the Certificates representing such shares of
Coda Common Stock. The costs of the appraisal may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal proceeding
(including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts) to be charged pro rata against the value of all of the
shares of Coda Common Stock entitled to an appraisal.
After the Effective Time, no stockholder who has demanded appraisal rights
will be entitled to vote shares of Coda Common Stock held by such stockholder
for any purpose or to receive dividends or other distributions on his or her
shares of Coda Common Stock (except dividends or other distributions payable to
stockholders of record prior to the Effective Time).
ANY STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS BUT WHO DOES NOT
FOLLOW THE PROCEDURES PROVIDED UNDER SECTION 262 IN A PROPER AND TIMELY MANNER
WILL BE UNABLE TO PERFECT APPRAISAL RIGHTS. IN THAT CASE, THE SHARES OF CODA
COMMON STOCK OWNED BY SUCH STOCKHOLDER IMMEDIATELY PRIOR TO THE EFFECTIVE TIME
WILL BE CONVERTED INTO THE RIGHT TO RECEIVE $7.75 PER SHARE IN CASH, WITHOUT
INTEREST, PURSUANT TO THE MERGER.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are (i) certain selected historical consolidated financial
information of Coda as of and for the years ended December 31, 1990, 1991, 1992,
1993 and 1994, and as of and for the nine months ended September 30, 1994 and
1995; and (ii) certain selected pro forma consolidated financial information of
Coda giving effect to the acquisition of Taurus, the acquisition of certain oil
and gas properties (the "Mobil Properties") in December 1994, and the
acquisition of the SOCO Properties for the year ended December 31, 1994, and as
of and for the nine months ended September 30, 1995. The financial data set
forth below should be read in conjunction with the financial statements of Coda
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" incorporated by reference in this Proxy Statement from Coda's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 and the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and the
Pro Forma Combined Condensed Financial Statements included elsewhere herein.
See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
Pro Forma/(2)/
-----------------------------
Nine Months Year Nine Months
Year Ended December 31,/(1)/ Ended September 30,/(1)/ Ended Ended
--------------------------------------------- ------------------------ December 31, September 30,
1990 1991 1992 1993 1994 1994 1995 1994 1995
-------- -------- -------- -------- -------- --------- ---------- ------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues................... $15,428 $22,782 $23,637 $ 40,050 $ 71,586 $ 50,362 $ 71,315 $ 89,970 $ 76,504
Income (loss) from continuing
operations................ 1,829 (65) (734) 2,334 3,329 2,025 3,917 3,664 4,269
Income (loss) from
continuing operations
per common and common
equivalent share......... 0.15 (0.01) (0.06) 0.15 0.15 0.09 0.17 0.16 0.19
Cash dividends per share.. 0 0 0 0 0 0 0 0 0
December 31,/(1)/ September 30,/(1)/ Pro Forma/(2)/
--------------------------------------------- ------------------------ ----------------------
1990 1991 1992 1993 1994 1994 1995 September 30, 1995
-------- -------- -------- -------- -------- --------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............... $41,738 $56,010 $82,226 $132,754 $203,102 $180,059 $209,683 $225,683
Long-term debt............. 14,494 28,794 56,563 59,651 105,063 83,893 107,930 123,930
Working capital............ 8,173 982 606 4,032 4,982 5,060 5,350 4,250
Book value per share....... 1.57 1.53 1.47 2.99 3.36 3.30 3.50 3.50
</TABLE>
- ----------
(1) Reflects revenues and earnings since date of acquisition of various assets
that materially affect comparability with prior years. (See Note 3 of Notes
to Consolidated Financial Statements included in Coda's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, incorporated by
reference herein.)
(2) See "PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS" included elsewhere
in this document for a discussion of the preparation of this data.
61
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited pro forma combined condensed statements of
operations of Coda for the year ended December 31, 1994, and the nine months
ended September 30, 1995, have been prepared as if the acquisition of Taurus,
the acquisition of the Mobil Properties and the acquisition of the SOCO
Properties (collectively, the "Acquisitions") had occurred on January 1, 1994.
The accompanying unaudited pro forma combined condensed balance sheet of Coda as
of September 30, 1995 has been prepared as if the acquisition of the SOCO
Properties had occurred on that date. See also "RECENT DEVELOPMENTS REGARDING
CODA."
Coda's historical financial information was obtained from either the audited
consolidated financial statements included in Coda's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 or the unaudited consolidated
financial statements included in Coda's Form 10-Q for the quarterly period ended
September 30, 1995 which have been incorporated by reference herein. The
historical financial information of the Acquisitions was obtained from internal
company reports of the respective sellers and is unaudited. The unaudited pro
forma combined condensed financial statements do not purport to represent the
financial position or results of operations that would have occurred had such
transactions been consummated on the dates indicated or Coda's financial
position or results of operation for any future date or period. These unaudited
pro forma combined condensed financial statements should be read in conjunction
with the historical financial statements.
62
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Taurus Mobil Properties
Historical Historical Pro Forma
Four Months Eleven Months SOCO Adjustments
Coda Ended Ended Properties for the Pro Forma
Historical April 30, 1994 November 30, 1994 Historical Acquisitions Combined
---------- -------------- ----------------- ---------- -------------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales........... $50,683 $ 51 $5,467 $5,129 $61,330
Gas marketing, gathering
and processing............. 20,081 7,683 27,764
Other income................ 822 54 256 937 $(1,193)/(1)/ 876
------- ------ ------ ------ ------------- ---------
Total revenues.............. 71,586 7,788 5,723 6,066 (1,193) 89,970
------- ------ ------ ------ ------------- ---------
Costs and expenses:
Oil and gas production...... 21,646 2,595 3,596 27,837
Gas marketing, gathering
and processing............. 17,357 6,663 24,020
Depletion, depreciation
and amortization........... 16,419 351 272/(2)/ 20,449
3,407/(3)/
General and administrative.. 3,144 303 (1,193)/(1)/ 2,254
Interest.................... 5,281 174 1,644/(4)/ 7,099
Business combination........ 1,829 1,829
------- ------ ------ ------ ------------- ---------
Total costs and expenses.... 65,676 7,491 2,595 3,596 4,130 83,488
------- ------ ------ ------ ------------- ---------
Income (loss) before
income taxes............... 5,910 297 3,128 2,470 (5,323) 6,482
Income tax expense.......... 2,581 29 208/(5)/ 2,818
------- ------ ------ ------ ------------- ---------
Net income (loss)........... $ 3,329 $ 268 $3,128 $2,470 $ (5,531) $ 3,664
======= ====== ====== ====== ============= =========
Net income per common
and common equivalent
share...................... $0.15 $0.16
======= =========
Weighted average number of
common and common
equivalent shares
outstanding................ 22,288 978/(6)/ 23,266
======= ============= =========
</TABLE>
63
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Pro Forma
Adjustments
SOCO for the
Coda Properties Acquisition of the Pro Forma
Historical Historical SOCO Properties Combined
---------- ---------- ------------------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales........... $44,840 $5,159 $49,999
Gas marketing, gathering
and processing............. 25,722 25,722
Other income................ 783 921 $(921)/(1)/ 783
------- ------ ----------- ---------
Total revenues.............. 71,345 6,080 (921) 76,504
------- ------ ----------- ---------
Costs and expenses:
Oil and gas production...... 20,045 3,425 23,470
Gas marketing, gathering
and processing............. 21,935 21,935
Depletion, depreciation
and amortization........... 14,555 1,316/(3)/ 15,871
General and administrative.. 2,361 (921)/(1)/ 1,440
Interest.................... 6,330 805/(4)/ 7,135
------- ------ ----------- ---------
Total costs and expenses.... 65,226 3,425 1,200 69,851
------- ------ ----------- ---------
Income (loss) before
income taxes............... 6,119 2,655 (2,121) 6,653
Income tax expense.......... 2,202 182/(5)/ 2,384
------- ------ ----------- ---------
Net income (loss)........... $ 3,917 $2,655 $ (2,303) $ 4,269
======= ====== =========== =========
Net income per common
and common equivalent
share...................... $0.17 $0.19
======= =========
Weighted average number of
common and common
equivalent shares
outstanding................ 22,972 22,972
======= =========
</TABLE>
64
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Pro Forma
Adjustments
for the
Coda Acquisition of the Pro Forma
Historical SOCO Properties Combined
---------- ------------------- ---------
(in thousands)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............ $ 4,449 $(1,100)/(7)/ $ 3,349
Accounts receivable, net............. 10,800 10,800
Other current assets................. 1,462 1,462
-------- ------------- ---------
Total current assets................... 16,711 (1,100) 15,611
Due from stockholders.................. 81 81
Oil and gas properties, net............ 154,124 17,100/(7)/ 171,224
Gas plants and gathering
systems, net......................... 34,536 34,536
Other properties, net.................. 2,197 2,197
Other assets........................... 2,034 2,034
-------- ------------- ---------
$209,683 $ 16,000 $225,683
======== ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of
long-term debt..................... $ 453 $ 453
Accounts payable..................... 9,660 9,660
Other current liabilities............ 1,248 1,248
-------- ---------
Total current liabilities.............. 11,361 11,361
Long-term debt......................... 107,930 $ 16,000/(7)/ 123,930
Deferred tax liability................. 13,143 13,143
Stockholders' equity:
Common stock......................... 441 441
Additional paid-in capital........... 68,572 68,572
Retained earnings.................... 8,236 8,236
-------- ---------
Total stockholders' equity............. 77,249 77,249
-------- ------------- ---------
$209,683 $ 16,000 $225,683
======== ============= =========
</TABLE>
65
<PAGE>
NOTE TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In April 1994, the Company acquired 100% of the issued and outstanding
common stock of Taurus. The purchase price consisted of $3.25 million in cash
and 1,500,000 shares of Coda Common Stock. The cash portion of the purchase
price was funded pursuant to the Company's bank existing credit facility. The
majority of Taurus' existing debt was also refinanced with borrowings under the
credit facility. The acquisition of Taurus was accounted for as a purchase. As
part of the transaction, Mr. Tommie E. Lohman, President of Taurus and a
principal shareholder thereof, was appointed to the Board of Directors of the
Company and made a loan to the Company in the amount of $1.0 million. The loan
is payable in three annual installments of principal plus accrued interest
calculated at the rate of seven percent per annum.
In December 1994, the Company acquired its interest in the Mobil
Properties from affiliates of Mobil Corporation. The aggregate purchase price
was $13.3 million in cash, all of which was financed by borrowings under the
Company's existing bank credit facility. The acquisition was accounted for by
the purchase method of accounting. Prior to the acquisition, the Mobil
Properties were included in the consolidated financial statements of the seller
and were not accounted for as a separate entity.
In October 1995, Coda acquired from Snyder interests in 63 producing
oil and gas properties located in West Texas referred to herein. The aggregate
purchase price was $17.1 million in cash, of which $16.0 million was financed by
borrowings under Coda's existing credit facility. The acquisition was accounted
for by the purchase method of accounting. Prior to the acquisition, the SOCO
Properties were included in the consolidated financial statements of Snyder and
were not accounted for as a separate entity.
The accompanying unaudited pro forma combined condensed statements of
operations have been prepared as if the Acquisitions occurred on January 1,
1994, and reflect the following adjustments:
(1) To reclassify fees from overhead charges billed to working
interest owners, which are classified as a reduction of general
and administrative expenses in Coda's consolidated statements of
operations.
(2) To adjust depletion, depreciation and amortization to reflect the
acquisition of Taurus.
(3) To adjust depletion, depreciation and amortization to reflect the
effect of the acquisition of the SOCO and Mobil Properties.
Depletion, depreciation and amortization of oil and gas properties
is computed using the unit-of-production method.
(4) To adjust interest expense for the estimated amounts Coda would
have incurred on the incremental borrowings pursuant to Coda's
credit facility used to make the Acquisitions. The interest rate
used was based on the interest rate options provided for in Coda's
credit facility in effect at the time.
(5) To adjust the provision for income taxes for the change in
financial taxable income resulting from inclusion of the
historical results of the Acquisitions and adjustments (2), (3)
and (4).
(6) To adjust the weighted average shares outstanding for the shares
issued to the Taurus shareholders.
66
<PAGE>
The accompanying unaudited pro forma combined condensed balance sheet
has been prepared as if the acquisition of the SOCO Properties occurred on
September 30, 1995, and reflects the following adjustment:
(7) To record the purchase price of the SOCO Properties and the
related borrowings under the Company's credit facility.
67
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a discussion of Coda's financial condition and results of
operations during the two most recent fiscal years and for the first, second and
third fiscal quarters of 1995, see the discussions entitled "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in
Coda's annual report on Form 10-K for the fiscal year ended December 31, 1994,
and its quarterly reports on Form 10-Q for the quarters ended March 31, 1995,
June 30, 1995 and September 30, 1995, all of which reports are incorporated
herein by reference. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE"
and "RECENT DEVELOPMENTS REGARDING CODA."
DIVIDENDS ON AND
MARKET PRICES OF CODA COMMON STOCK
CODA
Coda Common Stock is quoted on the Nasdaq National Market under the
trading symbol "CODA." The following table sets forth, for the calendar periods
indicated, the high and low closing prices per share of Coda Common Stock, as
reported in the Nasdaq Monthly Statistical Report. These prices reflect inter-
dealer prices, without retail markup, markdown or commission, and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
--------- --------
<S> <C> <C>
1993
----
First Quarter............................. $ 5 1/8 $ 4
Second Quarter............................ 7 5/8 5 1/4
Third Quarter............................. 6 7/8 5 5/8
Fourth Quarter............................ 7 4 1/2
1994
----
First Quarter............................. $ 5 7/8 $ 4 5/8
Second Quarter............................ 6 7/8 4 5/8
Third Quarter............................. 7 1/4 5 7/8
Fourth Quarter............................ 7 5 5/8
1995
----
First Quarter............................. $ 6 3/8 $ 5 3/8
Second Quarter............................ 7 3/8 5 5/8
Third Quarter............................. 7 1/2 6 1/8
Fourth Quarter............................ 7 3/4 6 7/8
1996
----
First Quarter (through January 17, 1996).. $ 7 33/64 $ 7 5/16
</TABLE>
Payment of dividends on Coda Common Stock is prohibited by the terms of
Coda's credit agreement with NationsBank of Texas, N.A. In addition, under the
DGCL, dividends may only be paid out of current or prior year's earnings or
capital surplus. As of September 30, 1995, Coda met the requirements under the
DGCL for the payment of dividends and such conditions were also met for the
68
<PAGE>
fiscal year ended December 31, 1994. However, Coda has not paid cash dividends
to date on shares of Coda Common Stock and does not intend to pay dividends in
the foreseeable future.
On April 25, 1995, the last full trading day prior to the public
announcement that Mr. Douglas H. Miller, Chairman of the Board and Chief
Executive Officer of Coda, had informed Coda's Board of Directors that he was
actively pursuing discussions concerning a possible buyout of Coda, the reported
Nasdaq National Market high and low sales prices per share of Coda Common Stock
were $7 1/8 and $6 7/8, respectively. On August 23, 1995, the last full trading
day prior to the public announcement that ECT had submitted an offer to acquire
all of the outstanding shares of Coda Common Stock in a transaction in which
stockholders would receive $8.00 per share in cash, the reported Nasdaq National
Market high and low sales prices per share of Coda Common Stock were $6 1/2 and
$6 1/4, respectively. On October 30, 1995, the last full trading day prior to
the public announcement that Coda and JEDI had executed the Merger Agreement,
the reported Nasdaq National Market high and low sales prices per share of Coda
Common Stock were $7 3/8 and $7 5/16. On December 21, 1995, the last full
trading day prior to the public announcement that Coda and JEDI had executed the
First Amendment removing the condition to closing that Taurus be sold on terms
acceptable to JEDI and lowering the purchase price for Coda Common Stock to
$7.75 per share, the reported Nasdaq National Market high and low sales prices
per share of Coda Common Stock were $7 1/2 and $7 3/8, respectively. On January
10, 1996, the last trading day prior to the public announcement that Coda and
JEDI had executed the Second Amendment, the reported Nasdaq National Market high
and low sales prices per share of Coda Common Stock were $7 15/32 and $7 7/16,
respectively. On January 17, 1996, the most recent available date prior to
printing this Proxy Statement, the reported Nasdaq National Market high and low
sales prices per share of Coda Common Stock were $7 35/64 and $7 1/2,
respectively. Stockholders are urged to obtain current market quotations from
publicly-available sources.
JEDI AND PURCHASER
Purchaser is a privately-held corporation, and, therefore, no market value
information is available with respect to its capital stock. JEDI is a
privately-held limited partnership, and, therefore, no market value information
is available with respect to its capitalization.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the name and address of each stockholder of
Coda who is known by Coda to beneficially own more than five percent of the
outstanding Coda Common Stock, the number of shares beneficially owned by each,
and the percentage of outstanding Coda Common Stock so owned, as of December 1,
1995. As of December 1, 1995, there were 22,088,903 shares of Coda Common Stock
outstanding. All such information is derived from Schedules 13G filed by each
party named below with the Commission as of December 31, 1994.
69
<PAGE>
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of
of Beneficial Beneficial Percent of
Title of Class Owner Ownership Class
----------------------- ------------------ ---------- -------------
<S> <C> <C> <C>
Coda Common Stock Metropolitan Life 1,145,300 /(2)/ 5.18
Insurance
Company/(1)/
One Madison Avenue
New York, NY 10010
Coda Common Stock State Street 1,145,300 /(2)/ 5.18
Research &
Management
Company /(1)/
One Financial
Center, 30th Floor
Boston, MA
02111-2690
</TABLE>
- ----------
(1) State Street Research & Management Company ("State Street") is a registered
investment advisor. According to State Street, all securities reported by
it are in fact owned by its clients and State Street disclaims any
beneficial interest therein. According to information contained in the
Schedule G filed by Metropolitan Life Insurance Company ("Metropolitan
Life"), the shares of Coda Common Stock reported by State Street are the
same shares reported by Metropolitan Life.
(2) Metropolitan Life and State Street have sole investment power with respect
to all of the shares but have sole voting power with respect to only
811,000 shares.
The following table sets forth information as of December 1, 1995, with
respect to shares of Coda Common Stock beneficially owned by each of Coda's
present directors, Coda's Chief Executive Officer and the four other most highly
compensated executive officers (being Messrs. Eubank, Henderson, Johnson and
Lohman), and all of Coda's directors and executive officers as a group, and the
percentage of the outstanding Coda Common Stock so owned by each. As of December
1, 1995, there were 22,088,903 shares of Coda Common Stock outstanding.
<TABLE>
<CAPTION>
Directors and
Named Amount and Nature
Executive of Beneficial Percent of
Title of Class Officers Ownership/(1)/ Class
---------------------- --------------- ----------------- -------------
<S> <C> <C> <C>
Coda Common Stock Earl E. Ellis 217,736/(2)/ 1.0
Coda Common Stock T. W. Eubank 473,403/(3)/ 2.1
Coda Common Stock Walter B. Hailey, Jr. 225,554/(4)/ 1.0
Coda Common Stock Grant W. Henderson 31,728/(5)/ /(13)/
Coda Common Stock Frank P. Horlock 118,169/(6)/ /(13)/
Coda Common Stock Jarl P. Johnson 924,620/(7)/ 4.2
Coda Common Stock David A. Keener 149,698/(8)/ /(13)/
Coda Common Stock Tommie E. Lohman 551,148/(9)/ 2.5
Coda Common Stock Douglas H. Miller 778,953/(10)/ 3.4
Coda Common Stock Worthy R. Warnack, M.D. 123,048/(11)/ /(13)/
Coda Common Stock All directors and
executive officers
as a group (13 persons) 3,712,348/(12)/ 15.9
</TABLE>
- ----------
(1) Unless otherwise indicated, all shares are owned directly by the named
person and he has sole voting and investment power with respect to such
shares.
(2) Includes (i) warrants to purchase 25,000 shares exercisable within 60 days;
(ii) 6,000 shares owned by Suni Ellis, daughter of Mr. Ellis, as to which
beneficial ownership is disclaimed; and (iii) 72,750 shares held in Mr.
Ellis' account by a trustee under the Benjamin Jacobson & Sons Money
Purchase Pension Plan, over which Mr. Ellis holds dispositive power.
70
<PAGE>
(3) Includes (i) warrants to purchase 25,000 shares exercisable within 60 days;
(ii) options to purchase 51,000 shares exercisable within 60 days; and
(iii) 10,000 shares held in Mr. Eubank's account by a trustee under Coda's
401(k) Employee Savings Plan, over which Mr. Eubank holds dispositive
power.
(4) Includes (i) warrants to purchase 100,000 shares exercisable within 60
days; (ii) options to purchase 41,250 shares exercisable within 60 days;
(iii) 13,235 shares owned by Barbara Hailey, wife of Mr. Hailey, as to
which beneficial ownership is disclaimed; (iv) 350 shares owned by Michael
Hailey, son of Mr. Hailey, as to which beneficial ownership is disclaimed;
and (v) 28,800 shares owned by a trust of which Mr. Hailey is a co-trustee.
(5) Includes options to purchase 25,839 shares exercisable within 60 days.
(6) Includes warrants to purchase 100,000 shares exercisable within 60 days.
(7) Includes (i) warrants to purchase 25,000 shares exercisable within 60 days;
(ii) options to purchase 2,917 shares exercisable within 60 days; and (iii)
250,000 shares owned by a trust of which Mr. Johnson is the trustee.
(8) Includes (i) warrants to purchase 100,000 shares exercisable within 60
days; and (ii) options to purchase 41,250 shares exercisable within 60
days.
(9) Includes (i) warrants to purchase 25,000 shares exercisable within 60 days;
(ii) options to purchase 2,500 shares exercisable within 60 days; and (iii)
14,608 shares held in Mr. Lohman's account by a trustee under Coda's 401(k)
Employee Savings Plan, over which Mr. Lohman holds dispositive power.
(10) Includes (i) warrants to purchase 525,000 shares exercisable within 60
days; (ii) options to purchase 33,660 shares exercisable in 60 days; and
(iii) 12,240 shares held in Mr. Miller's account by a trustee under Coda's
401(k) Employee Savings Plan, over which Mr. Miller holds dispositive
power.
(11) Includes warrants to purchase 100,000 shares exercisable within 60 days.
(12) Includes (i) all shares, options and warrants referenced in notes (2)
through (11) above; (ii) 28,585 shares held directly or indirectly by other
executive officers of Coda; and (iii) options to purchase 89,706 shares
exercisable within 60 days held by other executive officers.
(13) Less than one percent.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as independent
certified public accountants to audit the books and accounts of Coda and its
consolidated subsidiaries for its current fiscal year. Ernst & Young LLP has
audited the books and accounts of Coda starting with Coda's fiscal year ended
June 30, 1990.
Coda expects that one or more representatives from Ernst & Young LLP will
be present at the Special Meeting with the opportunity to make statements if
they so desire. Coda expects that these representatives will also be able to
respond to appropriate questions from the floor at the Special Meeting.
OTHER BUSINESS
The only business to come before the meeting of which the management is
aware is set forth in this Proxy Statement. If any other business is presented,
it is intended that discretionary authority to vote the proxies shall be
exercised with respect thereto.
STOCKHOLDER PROPOSALS
If the Merger is consummated, the 1996 Annual Meeting of Stockholders of
Coda will not occur. If the Merger is not consummated, any stockholder desiring
to submit a proposal for inclusion in Coda's proxy statement and form of proxy
relating to the 1996 Annual Meeting of Stockholders of Coda must
71
<PAGE>
have advised the Secretary of Coda of such proposals in writing, not later than
January 15, 1996. All such proposals must comply with Rule 14a-8 promulgated by
the Commission under the Exchange Act.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. Incorporated by reference in this Proxy
Statement as of the date of filing, and subject in each case to information
contained in this Proxy Statement, are the following documents filed by Coda
with the Commission pursuant to the Exchange Act.
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1994;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1995;
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995;
(iv) Quarterly Report on Form 10-Q for the quarter ended September 30,
1995;
(v) Current Report on Form 8-K dated April 29, 1994, as amended by Form
8-K/A No. 1 dated June 14, 1994, and Form 8-K/A No. 2, dated
August 17, 1994;
(vi) Current Report on Form 8-K dated April 26, 1995;
(vii) Current Report on Form 8-K dated May 2, 1995;
(viii) Current Report on Form 8-K dated May 17, 1995;
(ix) Current Report on Form 8-K dated August 24, 1995;
(x) Current Report on Form 8-K dated October 30, 1995;
(xi) Current Report on Form 8-K dated December 22, 1995; and
(xii) Current Report on Form 8-K dated January 10, 1996.
CODA WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY AND ALL OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND NOT
ATTACHED HERETO AS AN APPENDIX (OTHER THAN EXHIBITS AND SCHEDULES TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS OR SCHEDULES ARE SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS). EXHIBITS AND SCHEDULES NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE PROVIDED UPON THE PAYMENT OF
A REASONABLE FEE. SUCH REQUESTS SHOULD BE DIRECTED TO CODA ENERGY, INC., 5735
PINELAND DRIVE, SUITE 300, DALLAS, TEXAS 75231 (TELEPHONE: (800) 486-2632 OR
(214) 692-1800), ATTENTION: KAREN FURRY, INVESTOR RELATIONS. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE MADE BY FEBRUARY 9, 1996.
All documents filed by Coda pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
in this Proxy Statement and to be a part hereof from the date of filing such
documents. Any statement contained in a document incorporated or deemed to be
incorporated
72
<PAGE>
by reference herein shall be modified or superseded, for purposes of this Proxy
Statement, to the extent that a statement contained herein or in any
subsequently filed document that is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
APPENDICES
EACH OF THE FOLLOWING APPENDICES CONSTITUTES A PART OF THIS PROXY STATEMENT
AND SHOULD BE CONSIDERED AS SUCH.
73
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AND
AMENDMENTS TO AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
CODA ACQUISITION, INC.,
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
AND
CODA ENERGY, INC.
DATED AS OF OCTOBER 30, 1995
<PAGE>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<C> <C>
ARTICLE I THE MERGER..................................................................1
Section 1.1 The Merger..............................................................1
----------
Section 1.2 Effective Time of the Merger............................................1
----------------------------
ARTICLE II THE SURVIVING CORPORATION..................................................2
Section 2.1 Certificate of Incorporation............................................2
----------------------------
Section 2.2 By-Laws.................................................................2
-------
Section 2.3 Board of Directors and Officers of the Surviving Corporation............2
------------------------------------------------------------
Section 2.4 Effects of Merger.......................................................2
----------------
ARTICLE III CONVERSION OF SECURITIES..................................................2
Section 3.1 Merger Consideration....................................................2
--------------------
Section 3.2 Paying Agent and Surrender of Certificates..............................3
------------------------------------------
Section 3.3 Dissenting Shares.......................................................4
-----------------
Section 3.4 Conversion of Sub Securities............................................4
----------------------------
Section 3.5 Stockholders to Have No Further Rights..................................4
--------------------------------------
Section 3.6 Stock Options and Warrants..............................................5
--------------------------
Section 3.7 Stockholders' Meeting...................................................6
---------------------
Section 3.8 Closing of the Company's Transfer Books.................................6
---------------------------------------
Section 3.9 Closing.................................................................6
-------
ARTICLE IV DEFINITIONS................................................................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SUB......................................12
Section 5.1 Organization and Qualification.........................................12
------------------------------
Section 5.2 Authority Relative to this Agreement...................................12
------------------------------------
Section 5.3 Information in Proxy Statement.........................................13
------------------------------
Section 5.4 Capitalization of Sub..................................................13
---------------------
Section 5.5 Financing..............................................................13
---------
Section 5.6 Operations of the Company Following the Merger.........................13
----------------------------------------------
Section 5.7 Finder's Fees..........................................................14
-------------
Section 5.8 Review of Company......................................................14
-----------------
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF JEDI....................................14
Section 6.1 Organization...........................................................14
------------
Section 6.2 Authority and Capacity.................................................14
----------------------
Section 6.3 Financial Information..................................................15
---------------------
Section 6.4 Operations of the Company Following the Merger.........................15
----------------------------------------------
Section 6.5 Information in Proxy Statement.........................................15
------------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 6.6 Finder's Fees..........................................................15
-------------
Section 6.7 Review of Company......................................................15
-----------------
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................16
Section 7.1 Organization and Qualification.........................................16
------------------------------
Section 7.2 Capitalization.........................................................16
--------------
Section 7.3 Subsidiaries...........................................................16
------------
Section 7.4 Authority Relative to this Agreement...................................17
------------------------------------
Section 7.5 Reports and Financial Statements.......................................18
--------------------------------
Section 7.6 Absence of Certain Changes or Events...................................18
------------------------------------
Section 7.7 Litigation.............................................................19
----------
Section 7.8 Information in Disclosure Documents....................................19
-----------------------------------
Section 7.9 Employee Benefits Plans; Labor Matters.................................19
--------------------------------------
Section 7.10 Environmental Matters..................................................21
---------------------
Section 7.11 Public Utility Holding Company Act.....................................22
----------------------------------
Section 7.12 Futures Trading and Fixed Price Exposure...............................22
----------------------------------------
Section 7.13 Takeover Provisions Inapplicable.......................................22
--------------------------------
Section 7.14 Fairness Opinion.......................................................23
----------------
Section 7.15 Finder's Fees..........................................................23
-------------
Section 7.16 Compliance with Applicable Laws........................................23
-------------------------------
Section 7.17 Taxes..................................................................23
-----
Section 7.18. Certain Agreements.....................................................24
------------------
Section 7.19. Engineering Reports....................................................24
-------------------
Section 7.20 Oil and Gas Reserve Information........................................24
-------------------------------
Section 7.21 Title to Property......................................................25
-----------------
Section 7.22 Insurance..............................................................25
---------
Section 7.23 Affiliate Transactions.................................................25
----------------------
Section 7.24 Taurus Energy..........................................................26
-------------
ARTICLE VIII CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME.........................26
Section 8.1 Conduct of Business by the Company.....................................26
----------------------------------
Section 8.2 Obligations of JEDI and Sub............................................28
----------------------------
Section 8.3 Notice of Breach.......................................................28
----------------
ARTICLE IX ADDITIONAL AGREEMENTS.....................................................29
Section 9.1 Access and Information.................................................29
----------------------
Section 9.2 Proxy Statement........................................................29
---------------
Section 9.3 Indemnification........................................................30
---------------
Section 9.4 HSR Act................................................................31
-------
Section 9.5 Reasonable Best Efforts................................................31
-----------------------
Section 9.6 No Solicitation........................................................32
---------------
Section 9.7 Taurus Disposition.....................................................33
------------------
Section 9.8 JEDI...................................................................33
----
Section 9.9 Certain Employee Benefit Matters.......................................34
--------------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE X CONDITIONS PRECEDENT.......................................................34
Section 10.1 Conditions to Each Party's Obligation to Effect the Merger.............34
----------------------------------------------------------
Section 10.2 Conditions to Obligation of the Company to Effect the Merger...........35
------------------------------------------------------------
Section 10.3 Conditions to Obligations of Sub to Effect the Merger..................35
-----------------------------------------------------
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER.........................................36
Section 11.1 Termination............................................................36
-----------
Section 11.2 Effect of Termination..................................................38
---------------------
Section 11.3 Amendment..............................................................38
---------
Section 11.4 Waiver.................................................................38
------
ARTICLE XII GENERAL PROVISIONS.......................................................38
Section 12.1 Non-Survival of Representations and Warranties.........................38
----------------------------------------------
Section 12.2 Notices................................................................38
-------
Section 12.3 Expenses; Termination Fees.............................................40
--------------------------
Section 12.4 Publicity..............................................................41
---------
Section 12.5 Interpretation.........................................................41
--------------
Section 12.6 Severability...........................................................41
------------
Section 12.7 Miscellaneous..........................................................42
-------------
</TABLE>
-iii-
<PAGE>
SCHEDULES AND EXHIBITS
Exhibit A - Opinion of Vinson & Elkins L.L.P.
Exhibit B-1 - Opinion of Haynes and Boone L.L.P.
Exhibit B-2 - Opinion of Joe Callaway
Exhibit 2.1 - Restated Certificate of Incorporation of Surviving Corporation
Exhibit 3.6(a)(2) - Option Relinquishment and Release Agreement
Exhibit 3.6(b)(2) - Warrant Relinquishment and Release Agreement
Schedule 3.6(a)(1) - Specified Options and Warrants
Schedule 6.1 - JEDI Partners
Schedule 7.1 - Charter, By-laws and Jurisdictions
Schedule 7.3 - Subsidiaries of Company and Interests in Other Entities
Schedule 7.4 - Conflicting Provisions and Regulatory Requirements
Schedule 7.6 - Recent Developments
Schedule 7.7 - Litigation
Schedule 7.9(a) - Employee Benefit Plans
Schedule 7.9(b) - ERISA and Plan Exceptions
Schedule 7.9(d) - Severance Agreements
Schedule 7.9(e) - Employee Benefits
Schedule 7.9(f) - Plan Developments
Schedule 7.10 - Environmental Issues
Schedule 7.12 - Trading Positions
Schedule 7.15 - Finder's Fees
Schedule 7.16 - Violations of Laws
Schedule 7.17 - Delinquent Taxes
Schedule 7.18 - Additional Agreements
Schedule 7.20 - Oil and Gas Exceptions
Schedule 7.22 - Insurance Coverage
Schedule 7.23 - Affiliate Transactions
Schedule 7.24 - Taurus Transactions
Schedule 8.1(c) - Capital Expenditure Budget
Schedule 8.1(d) - Additional Benefit Arrangements
Schedule 10.3(f) - Employment, Subscription and Stockholder Agreements
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
October 30, 1995, by and among Coda Acquisition, Inc., a Delaware corporation
("Sub"), Coda Energy, Inc., a Delaware corporation (the "Company") and Joint
Energy Development Investments Limited Partnership, a Delaware limited
partnership ("JEDI"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, JEDI and the Company desire to effect a merger of Sub with
and into the Company (the "Merger");
WHEREAS, the Board of Directors of the Company has appointed a special
committee of independent directors (the "Special Committee") to consider the
Merger;
WHEREAS, the Special Committee, with the advice and assistance of
Bear, Stearns & Co. Inc. and independent legal counsel, has unanimously
recommended (subject to the satisfaction of the conditions precedent set forth
herein) that the Board of Directors of the Company approve this Agreement and
the transactions contemplated hereby;
WHEREAS, the Board of Directors of the Company has determined it
advisable and in the best interests of the Company's stockholders to consummate
the Merger, upon the terms and subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of Sub has determined it advisable and
in the best interests of Sub's stockholders to consummate the Merger, upon the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
----------
set forth in this Agreement, and in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"), at the Effective Time (as hereinafter
defined), Sub shall be merged with and into the Company and the separate
corporate existence of Sub shall thereupon cease, and the Company, as the
surviving corporation in the Merger (the "Surviving Corporation"), shall by
virtue of the Merger continue its corporate existence in accordance with the
DGCL.
Section 1.2 Effective Time of the Merger. The Merger shall become
----------------------------
effective at the date and time (the "Effective Time") when a properly executed
certificate of merger, in such form as is required by and executed in accordance
with the DGCL, is duly filed with the Secretary of State of the State of
Delaware or at such later time as the parties hereto shall have provided in such
certificate.
<PAGE>
The parties hereto shall cause such filing to occur as soon as practicable on or
after the Closing Date (as hereinafter defined).
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation. At the Effective Time, the
----------------------------
Restated Certificate of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be amended to read in its entirety as set
forth in Exhibit 2.1 hereto, and such Restated Certificate of Incorporation, as
so amended, shall be the Restated Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law.
Section 2.2 By-Laws. The By-laws of the Company as in effect at the
-------
Effective Time shall be the By-laws of the Surviving Corporation and shall be
amended and restated to conform to the By-laws of Sub as in effect immediately
prior to the Effective Time, until thereafter further amended as provided by
law.
Section 2.3 Board of Directors and Officers of the Surviving
------------------------------------------------
Corporation. The directors of Sub and the officers designated by Sub prior to
- ------------
the Effective Time of the Company immediately prior to the Effective Time,
subject to the applicable provisions of the Certificate of Incorporation and By-
laws of the Surviving Corporation, shall be the directors and officers,
respectively, of the Surviving Corporation until their respective successors
shall be duly elected or appointed and qualified.
Section 2.4 Effects of Merger. The Merger shall have the effects set
-----------------
forth in Section 259 of the DGCL. The corporate existence of the Company, with
all its purposes, powers and objects, shall continue unaffected and unimpaired
by the Merger and, as the Surviving Corporation, it shall be governed by the
laws of the State of Delaware and shall succeed to all rights, assets,
liabilities, properties, privileges, powers, franchises and obligations of Sub
in accordance with the DGCL.
ARTICLE III
CONVERSION OF SECURITIES
Section 3.1 Merger Consideration. At the Effective Time, by virtue
--------------------
of the Merger and without any action on the part of Sub, the Company or their
respective stockholders (other than the filing of the certificate of merger
referred to in Section 1.2 hereof) (a) each share (a "Share") of common stock,
par value $0.02 per share, of the Company ("Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than (i) Shares held
by Sub, (ii) Shares held in the treasury of the Company or owned by any
subsidiary of the Company and (iii) Dissenting Shares (as hereinafter defined)
in respect of which appraisal rights are properly exercised and perfected) shall
be canceled and extinguished and be converted automatically into the right to
receive, pursuant to Section 3.2 hereof, $8.00 per Share in cash, without
interest thereon (the "Merger Consideration"), less any required withholding of
taxes, which Merger Consideration shall be payable upon surrender of the
certificate formerly representing such Share (a "Certificate") in the
-2-
<PAGE>
manner provided in Section 3.2(b), (b) each Share then held in the treasury of
the Company and each Share owned by any subsidiary of the Company shall be
canceled and retired without conversion thereof and without payment of any
consideration and shall cease to exist, and (c) each Share owned beneficially or
of record by Sub immediately prior to the Effective Time shall be canceled and
retired without conversion thereof and without payment of any consideration and
shall cease to exist.
Section 3.2 Paying Agent and Surrender of Certificates. (a) Prior to
------------------------------------------
the Effective Time, the Company and Sub shall appoint a bank reasonably
acceptable to the Company, and having a place of business in New York City, as
paying agent (the "Paying Agent") for the holders of Shares in connection with
the Merger to receive the funds to which holders of Shares shall become entitled
pursuant to Section 3.1. At Closing, JEDI shall cause to be deposited in trust
with the Paying Agent, cash in the aggregate amount equal to the sum of (i) the
cash consideration required pursuant to Section 3.6 to make payments with
respect to Outstanding Options and Outstanding Warrants and (ii) the product of
(A) the number of Shares outstanding immediately prior to the Effective Time
(other than Shares held by Sub and Shares held in the treasury of the Company)
and (B) the Merger Consideration. Such funds shall be invested by the Paying
Agent as directed by JEDI, provided that such investments shall be in
obligations of or guaranteed by the United States of America or of any agency
thereof and backed by the full faith and credit of the United States of America,
in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors
Services, Inc. or Standard & Poor's Corporation, respectively, or in deposit
accounts, certificates of deposit or banker's acceptances of, repurchase or
reverse repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital, surplus and undivided profits aggregating in
excess of $100 million (based on the most recent financial statements of such
bank which are then publicly available at the Commission (as hereinafter
defined) or otherwise); provided, however, that no loss on any investment made
pursuant to this Section 3.2(a) shall relieve JEDI or the Surviving Corporation
of its obligation to pay the Merger Consideration for each Share outstanding
immediately prior to the Effective Time. JEDI shall promptly replace, or cause
to be replaced, any monies lost through any investment made pursuant to this
Section 3.2(a).
(b) As soon as practicable after the Effective Time, JEDI shall cause
the Surviving Corporation to mail to each person who was a record holder of
Shares immediately prior to the Effective Time (other than holders of Dissenting
Shares, Sub, the Company and the Company's subsidiaries), a form of letter of
transmittal and instructions for use in effecting the surrender for payment of
Certificates that immediately prior to the Effective Time represented Shares.
Upon surrender of a Certificate to the Paying Agent, together with a duly
executed and completed letter of transmittal and any other required documents,
the holder of the Certificate shall receive in exchange , and the Paying Agent
will pay (via U.S. mail. postage prepaid) as soon as practicable to such holder,
cash in an amount equal to the product of the number of Shares represented by
the Certificate or Certificates surrendered and the Merger Consideration,
without any interest thereon and less any required withholding of taxes, and
such Certificate(s) shall forthwith be canceled. If the payment is to be made to
a person other than the person in whose name a surrendered Certificate is
registered, it shall be a condition of payment that (x) the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that (y) the person requesting such payment shall either pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the Certificate surrendered or establish to the
satisfaction of the Surviving Corporation or the Paying Agent that such tax has
been paid or is not applicable. The
-3-
<PAGE>
Surviving Corporation shall pay all charges and expenses (except those taxes
described in the immediately preceding sentence and expenses incurred by the
holders of Certificates in tendering their Certificates), including those of the
Paying Agent, in connection with the distribution of the Merger Consideration.
After the Effective Time, until surrendered in accordance with the provisions of
this Section 3.2(b), a Certificate shall represent only the right to receive the
Merger Consideration in cash multiplied by the number of Shares evidenced by
such Certificate, without any interest thereon. On or after the one-hundred
eightieth day following the Effective Time, the Surviving Corporation may by
written request require the Paying Agent to pay to the Surviving Corporation
that portion of the funds deposited with the Paying Agent pursuant to this
Section 3.2(b) (and any income earned thereon) that have not been disbursed
pursuant to this Section 3.2(b), and holders of Certificates shall thereafter
look only to the Surviving Corporation for any payment to be made pursuant to
this Section 3.2(b). Notwithstanding anything to the contrary, none of the
Paying Agent, the Surviving Corporation or any party hereto shall be liable to a
holder of a Certificate for any amount delivered to a public official pursuant
to applicable abandoned property, escheat or similar law.
Section 3.3 Dissenting Shares. Notwithstanding anything in this
-----------------
Agreement to the contrary, Shares that are issued and outstanding immediately
prior to the Effective Time and which are held by stockholders who have properly
exercised appraisal rights with respect thereto under Section 262 of the DGCL
(the "Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration as provided in Sections 3.1 and 3.2, but the
holders of Dissenting Shares shall be entitled to receive such payment of the
appraised value of such Shares held by them from the Surviving Corporation (or
the Paying Agent, if applicable) as shall be determined pursuant to Section 262
of the DGCL; provided, however, that if any such holder shall have failed to
perfect or shall withdraw or lose the right to appraisal and payment under the
DGCL, each such holder's Shares shall thereupon be deemed to have been converted
as of the Effective Time into the right to receive the Merger Consideration,
without any interest thereon and less any required withholding of taxes as
provided in Section 3.1, and upon surrender of the Certificate(s) representing
such Shares, in the manner provided in Section 3.2, such Shares shall no longer
be Dissenting Shares.
Section 3.4 Conversion of Sub Securities. At the Effective Time,
----------------------------
each share of common stock, par value $0.01 per share, of Sub issued and
outstanding immediately prior to the Effective Time shall be converted, by
virtue of the Merger and without any action on the part of the holder thereof,
into one fully paid and nonassessable share of the common stock of the Surviving
Corporation.
Section 3.5 Stockholders to Have No Further Rights. At and after the
--------------------------------------
Effective Time, the holder of a Certificate shall cease to have any rights as a
stockholder of the Company, except for (i) the right to surrender such
Certificate in exchange for the amount of Merger Consideration to which such
holder is entitled under this Agreement, or (ii) the rights available under the
DGCL for Dissenting Shares.
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Section 3.6 Stock Options and Warrants.
--------------------------
(a) Following the execution of this Agreement, the Company shall use
its reasonable best efforts to cause all holders of options to purchase Company
Common Stock granted under the Company's 1989 Incentive Stock Option Plan and
the 1993 Incentive Stock Option Plan, each as amended (collectively, the "Stock
Option Plans"), except for the options referred to in Schedule 3.6(a)(1) of the
Company Disclosure Schedule (the "Specified Options"), to execute prior to the
Effective Time an Option Relinquishment and Release Agreement (herein so called)
in the form attached hereto as Exhibit 3.6(a)(2). As soon as practicable after
the Effective Time, JEDI and the Surviving Corporation shall cause the Paying
Agent to pay (via U.S. mail, postage prepaid) to such holders who have
previously delivered an Option Relinquishment and Release Agreement the cash
amount equal to the product of (i) the number of shares of Company Common Stock
subject to such option (irrespective of whether such option is then exercisable)
and (ii) the amount by which $8.00 exceeds the exercise or strike price per
share of Company Common Stock subject to such option immediately prior to the
Effective Time, less any required withholding taxes. In the event that an option
holder fails to deliver an Option Relinquishment and Release Agreement prior to
the Effective Time, such holder's options (the "Outstanding Options") shall, in
accordance with the terms and conditions of the governing Stock Option Plan and
the holder's stock option agreement(s), be converted without any action on the
part of the holder thereof into the right to receive an amount equal to the
Merger Consideration, upon the exercise of such holder's options in accordance
with, and within the time period prescribed by, the applicable Stock Option Plan
and the holder's stock option agreement(s). The Surviving Corporation shall pay,
or cause the Paying Agent to pay (via U.S. mail, postage prepaid), to each
holder of Outstanding Options the Merger Consideration, less any required
withholding taxes, as promptly as practicable after receiving a valid exercise
of such options by the holder thereof. To the extent that options to purchase
Company Common Stock are exercised by holders prior to the Effective Time, such
holders shall receive Certificates evidencing the Shares underlying such options
and may surrender such Certificates to the Paying Agent after the Effective Time
for payment in cash, as provided in Article III hereof. As of the Effective
Time, the Specified Options shall be canceled without exercise and without
payment of consideration and shall cease to exist, in accordance with the
provisions of the subscription agreement executed by the holders of such options
relating to their equity ownership of the Surviving Corporation.
(b) Following the execution of this Agreement, the Company shall send
to all holders of warrants to purchase Company Common Stock granted under the
Company's Compensation Plan for Directors (the "Warrant Plan") and the warrant
to purchase Company Common Stock issued to Douglas H. Miller as of October 26,
1989 (together, the "Outstanding Warrants"), except for the warrants referred to
in Schedule 3.6(a)(1) of the Company Disclosure Schedule (the "Specified
Warrants"), written notice (i) of the Merger contemplated hereby, (ii) that all
unvested warrants are deemed fully vested pursuant to Section 6 of the Warrant
Plan or otherwise, and (iii) that all unexercised Warrants held by such persons
shall be cancelled as of the Effective Time pursuant to Section 6 of the Warrant
Plan or otherwise. In lieu of having to exercise their warrants, the Company
also shall send to all such persons a Warrant Relinquishment and Release
Agreement (herein so called) in the form attached hereto as Exhibit 3.6(b)(2)
for execution and delivery by the warrant holder prior to the Effective Time
permitting the holder to receive the cash amount equal to the product of (i) the
number of shares of Company Common Stock subject to such warrant (irrespective
of whether such warrant is then exercisable) and (ii) the amount by which $8.00
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exceeds the exercise or strike price per share of Company Common Stock subject
to such warrant immediately prior to the Effective Time (the "Warrant Merger
Consideration"), less any required withholding taxes. As soon as practicable
after the Effective Time, JEDI and the Surviving Corporation shall cause the
Paying Agent to pay (via U.S. mail, postage prepaid) to such holders who have
previously executed a Warrant Relinquishment and Release Agreement the Warrant
Merger Consideration, less any required withholding taxes. To the extent that
warrants to purchase Company Common Stock are exercised by holders prior to the
Effective Time, such holders shall receive Certificates evidencing the Shares
underlying such warrants and may surrender such Certificates to the Paying Agent
after the Effective Time for payment in cash, as provided in Article III hereof.
As of the Effective Time, the Specified Warrants shall be canceled without
exercise and without payment of consideration and shall cease to exist, in
accordance with the provisions of the subscription agreement executed by the
holders of such options relating to the equity ownership of the Surviving
Corporation.
Section 3.7 Stockholders' Meeting. The Company, acting through its
---------------------
Board of Directors, shall take all action necessary, in accordance with
applicable law and its Certificate of Incorporation and By-laws, to convene a
special meeting of the holders of Company Common Stock (the "Company Meeting")
as promptly as practicable for the purpose of considering and taking action to
authorize this Agreement and the Merger pursuant to the DGCL. Subject to its
fiduciary duties under applicable law as advised by outside counsel, the Board
of Directors of the Company will recommend that holders of Company Common Stock
vote in favor of and approve the Merger and the adoption of this Agreement at
the Company Meeting. At the Company Meeting, all of the shares of Company Common
Stock then owned by Sub, or with respect to which Sub holds the power to direct
the voting, will be voted in favor of approval of the Merger and adoption of
this Agreement.
Section 3.8 Closing of the Company's Transfer Books. At the
---------------------------------------
Effective Time, the stock transfer books of the Company shall be closed and no
transfer of Shares shall be made thereafter. In the event that, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged for the Merger Consideration as provided in
Sections 3.1 and 3.2.
Section 3.9 Closing. Unless this Agreement is terminated and the
-------
transactions contemplated herein abandoned pursuant to Section 11.1 and subject
to the satisfaction or, if permissible, waiver of the conditions set forth in
Article X, the consummation of the Merger and the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place (i) at the
offices of Vinson & Elkins L.L.P., Houston, Texas, at 11:00 A.M. local time on a
date to be specified by JEDI and the Company, but as soon as practicable (and in
any event within two business days) after the day on which the last of the
conditions set forth in Article X is fulfilled (other than deliveries of
instruments to be made at Closing) or, if permissible, waived by the relevant
party or (ii) at such other time and place as JEDI and the Company shall agree
upon in writing. The date on which the Closing occurs is referred to herein as
the "Closing Date."
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ARTICLE IV
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Agreement"shall have the meaning set forth in the opening paragraph.
"Antitrust Division" shall have the meaning set forth in Section 9.4.
"Approved Taurus Disposition Agreement" shall have the meaning set
forth in Section 9.7.
"CERCLA" shall mean the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980, as amended.
"Certificate" shall have the meaning set forth in Section 3.1.
"Closing" shall have the meaning set forth in Section 3.9.
"Closing Date" shall have the meaning set forth in Section 3.9.
"Code" shall have the meaning set forth in Section 7.9(b).
"Commission" shall have the meaning set forth in Section 7.5.
"Commonly Controlled Entity" shall have the meaning set forth in
Section 7.9(b).
"Company" shall have the meaning set forth in the opening paragraph.
"Company Common Stock" shall have the meaning set forth in Section
3.1.
"Company Disclosure Schedule" shall have the meaning set forth in
Section 7.1.
"Company Estimated Proved Reserves" shall have the meaning set forth
in Section 7.19(a).
"Company Material Adverse Effect" shall have the meaning set forth in
Section 7.1.
"Company Meeting" shall have the meaning set forth in Section 3.7.
"Company Reserve Report" shall have the meaning set forth in Section
7.19(a).
"Company SEC Reports" shall have the meaning set forth in Section 7.5.
"Company Voting Debt" shall have the meaning set forth in Section 7.2.
"Confidentiality Agreement" shall have the meaning set forth in
Section 9.1.
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<PAGE>
"Defensible Title" shall mean, subject to and except for the Permitted
Encumbrances, (i) the title of the Company and its Subsidiaries to such assets
is free and clear of all liens, encumbrances and defects of any kind whatsoever,
and (ii) as to those wells for which a "Working Interest" and a "Net Revenue
Interest" are set forth in the Company Engineering Report, the Company or its
Subsidiaries are entitled to receive the percentage of all Hydrocarbons
produced, saved and marketed from such wells in an amount not less than the Net
Revenue Interest set forth in the such engineering report, without reduction,
suspension or termination throughout the duration of the productive life of such
wells (except as set forth in such report), and such party is obligated to bear
the percentage of costs and expenses related to the maintenance, development and
operation of such wells in an amount not greater than the Working Interest set
forth in such engineering report, without increase throughout the productive
life of such wells, except increases that also result in a proportionate
increase in Net Revenue Interest and as set forth in such report.
"Dissenting Shares" shall have the meaning set forth in Section 3.3.
"DGCL" shall have the meaning set forth in Section 1.1.
"ECT" shall have the meaning set forth in Section 9.1.
"Effective Time" shall have the meaning set forth in Section 1.2.
"Environmental Laws" shall mean any and all laws, statutes,
ordinances, rules, regulations, or orders of any Governmental Entity pertaining
to health or the environment currently in effect in any or all jurisdictions in
which the Company and its Subsidiaries own property or conduct business,
including without limitation, the Clean Air Act, as amended, CERCLA, the Federal
Water Pollution Control Act, as amended, the Occupational Safety and Health Act
of 1970, as amended, RCRA, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Hazardous & Solid Waste Amendments Act
of 1984, as amended, the Superfund Amendments and Reauthorization Act of 1986,
as amended, the Hazardous Materials Transportation Act, as amended, the Oil
Pollution Act of 1990 ("OPA"), any state laws implementing the foregoing federal
laws, any state laws pertaining to the handling of oil and gas exploration and
production wastes or the use, maintenance, and closure of pits and impoundments,
and all other environmental conservation or protection laws.
"ERISA" shall have the meaning set forth in Section 7.9(a).
"Exchange Act" shall have the meaning set forth in Section 5.2.
"Fixed Price Contracts" means any contracts, commitments or agreements
for the purchase or sale of Hydrocarbons (i) having, as of the date hereof, a
remaining term of two months or more, wherein the purchase or sales price
thereunder throughout all or part of the life of such contract, commitment or
agreement is a fixed amount or an amount that is otherwise reasonably
determinable as of the date hereof pursuant to the terms of such contract,
commitment or agreement, or (ii) which the Company or any Subsidiary thereof has
hedged with futures contracts or otherwise; provided, that the term Fixed Price
Contracts will not include any contract, commitment or agreement wherein
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<PAGE>
the purchase or sales price thereunder throughout all of the life of the
contract, commitment or agreement is based on a market responsive reference
price for a Hydrocarbon.
"FTC" shall have the meaning set forth in Section 9.4.
"GAAP" shall have the meaning set forth in Section 6.3.
"Governmental Entity" shall have the meaning set forth in Section
7.16.
"HSR Act" shall have the meaning set forth in Section 5.2.
"Hydrocarbons" means oil, gas, condensate, casinghead gas, helium,
carbon dioxide, mineral and other liquid or gaseous hydrocarbons.
"Indebtedness" means any liability in respect of (A) borrowed money,
(B) capitalized lease obligations, (C) the deferred purchase price of property
or services (other than trade payables in the ordinary course of business) and
(D) guarantees of any of the foregoing.
"JEDI" shall have the meaning set forth in the opening paragraph.
"JEDI Material Adverse Effect" shall have the meaning set forth in
Section 6.2.
"Leases" shall have the meaning set forth in Section 7.20(e).
"Loss" shall have the meaning set forth in Section 10.3.
"Material Company Assets" shall have the meaning set forth in Section
7.21.
"Merger" shall have the meaning set forth in the recitals.
"Merger Consideration" shall have the meaning set forth in Section
3.1.
"Oil and Gas Interests" means, when used with respect to the Company
or its Subsidiaries, direct and indirect interests in and rights with respect to
Hydrocarbons and related properties and assets of any kind and nature, direct or
indirect, including working, royalty, and overriding royalty interests,
production payments, operating rights, net profits interests, other nonworking
interests, and nonoperating interests; and all revenues therefrom and all
contracts in connection therewith and claims and rights thereto (including all
oil and gas leases, operating agreements, unitization and pooling agreements and
orders, divisions orders, transfer orders, mineral deeds, royalty deeds, oil and
gas sales, exchange and processing contracts and agreements, and in each case,
interests thereunder), surface interests, fee interests, reversionary interests,
reservations and concessions; all easements, rights of way, licenses, permits,
leases and other interests associated with, appurtenant to, or necessary for the
operation of any of the foregoing; and all interests in equipment and machinery
(including tanks, batteries, pipelines, and gathering systems), pumps, water
plants, electric plants, gasoline and gas processing plants, refineries and
other tangible personal property and fixtures associated with, appurtenant to,
or necessary for the operation of any of the foregoing.
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<PAGE>
"Option Relinquishment and Release Agreement" shall have the meaning
set forth in Section 3.6(a).
"Other Acquisition Transaction" shall have the meaning set forth in
Section 9.6.
"Outstanding Options" shall have the meaning set forth in Section
3.6(a).
"Outstanding Warrants" shall have the meaning set forth in Section
3.6(b).
"Paying Agent" shall have the meaning set forth in Section 3.2.
"PBGC" shall have the meaning set forth in Section 7.9(b).
"Permitted Encumbrances" shall mean any of the following: (i) any
liens for taxes and assessments not yet delinquent or, if delinquent, that are
being contested in good faith in the ordinary course of business; (ii) any
obligations or duties to any municipality or public authority with respect to
any franchise, grant, certificate, license or permit, and all applicable laws;
(iii) any easements, rights-of-way, servitudes, permits and other rights in
respect of surface operations, pipelines or the like, and easements for
pipelines, power lines and other similar rights-of-way, and encroachments, on,
over or in respect of any property or lands of the Company and its Subsidiaries
or over which such party owns rights-of-way, easements, permits or licenses,
that do not unreasonably or materially interfere with the operation of any
property or lands for exploration and production of hydrocarbon or related
operations; (iv) all royalties, overriding royalties, net profits interests,
production payments, carried interests, reversionary interests, calls on
production and other burdens on or deductions from the proceeds of production
that do not operate to (A) reduce the Net Revenue Interest below that set forth
in the Company Engineering Report, or (B) increase the Working Interest of the
Company and its Subsidiaries above that set forth in the engineering report
without a proportionate increase in the Net Revenue Interest of such party; (v)
the terms and conditions of all leases, servitudes, production sales contracts,
division orders, contracts for sale, purchase, exchange, refining or processing
of hydrocarbons, unitization and pooling designations, declarations, orders and
agreements, operating agreements, agreements of development, area of mutual
interest agreements, farmout agreements, gas balancing or deferred production
agreements, processing agreements, plant agreements, pipeline, gathering and
transportation agreements, injection, repressuring and recycling agreements,
carbon dioxide purchase or sale agreements, salt water or other disposal
agreements, seismic or geophysical permits or agreements, and other agreements,
to the extent that such contracts and agreements do not (A) reduce the Net
Revenue Interest below that set forth in the Company Engineering Report, or (B)
increase the Working Interest above that set forth in the Company Engineering
Report, as applicable, without a proportionate increase in the Net Revenue
Interest of the applicable party; (vi) conventional rights of reassignment prior
to abandonment; (vii) materialmen's, mechanics', repairmen's, employees',
contractors', operators', tax and other similar liens or charges arising in the
ordinary course of business incidental to construction, maintenance or operation
of any of the assets (A) if they have not been filed pursuant to law, (B) if
filed, they have not yet become due and payable or payment is being withheld as
provided by law or (C) if their validity is being contested in good faith in the
ordinary course of business by appropriate action; and (viii) any other
encumbrances that (A) do not secure an
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<PAGE>
obligation in respect of borrowed money (B) do not interfere materially with the
operation, value or use of assets of the Company or its Subsidiaries.
"Plan" shall have the meaning set forth in Section 7.9(a).
"Potential Acquirer" shall have the meaning set forth in Section 9.6.
"Proxy Statement" shall have the meaning set forth in Section 5.3.
"RCRA" shall mean the Resource Conservation and Recovery Act of 1976,
as amended.
"Securities Act" shall have the meaning set forth in Section 7.5.
"Share" shall have the meaning set forth in Section 3.1.
"Special Committee" shall have the meaning set forth in the recitals.
"Specified Options" shall have the meaning set forth in Section
3.6(a).
"Specified Parties" shall mean Douglas H. Miller, Grant W. Henderson,
J. William Freeman, J. W. Spencer III, Randy Bodenhamer and Jarl P. Johnson.
"Specified Warrants" shall have the meaning set forth in Section
3.6(b).
"Stock Option Plans" shall have the meaning set forth in Section
3.6(a).
"Sub Material Adverse Effect" shall have the meaning set forth in
Section 5.1.
"Subsidiaries" shall have the meaning set forth in Section 7.3.
"Superior Proposal" shall have the meaning set forth in Section 9.6.
"Surviving Corporation" shall have the meaning set forth in Section
1.1.
"Taurus" shall have the meaning set forth in Section 7.24.
"Taurus Disposition" shall have the meaning set forth in Section 9.7.
"Taurus Disposition Agreement" shall have the meaning set forth in
Section 9.7.
"Taurus Disposition Notice" shall have the meaning set forth in
Section 9.7.
"Tax" shall mean all federal, state, local and foreign income,
profits, franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties and
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<PAGE>
assessments of any nature whatsoever together with all interest, penalties and
additions imposed with respect to such amounts.
"Tax Return" shall mean any return, declaration, report, estimate,
claim for refund, information return, statement, request for extension, or other
similar document relating to any tax, including any schedule or attachment
thereto, and including any amendment thereof.
"Terminating Other Acquisition Transaction" shall have the meaning set
forth in Section 11.1(e).
"Warrant Merger Consideration" shall have the meaning set forth in
Section 3.6(b).
"Warrant Plan" shall have the meaning set forth in Section 3.6(b).
"Warrant Relinquishment and Release Agreement" shall have the meaning
set forth in Section 3.6(b).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SUB
Sub hereby represents and warrants to the Company as follows:
Section 5.1 Organization and Qualification. Sub is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power to carry on its business as it is
now being conducted. Sub is duly qualified as a foreign corporation and is in
good standing in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities make such qualification
necessary, except where the failure to be so qualified or in good standing would
not, individually or in the aggregate, have a direct or indirect material
adverse effect on the business, assets, condition (financial or otherwise),
liabilities or operations of Sub or Sub's ability to consummate the Merger (a
"Sub Material Adverse Effect"). Complete and correct copies as of the date
hereof of the Certificate of Incorporation and By-laws of Sub have been
delivered to the Company.
Section 5.2 Authority Relative to this Agreement. Sub has the
------------------------------------
requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement by Sub and the consummation of the transactions contemplated hereby by
Sub have been duly authorized by all necessary corporate action on the part of
Sub. This Agreement has been duly executed and delivered by Sub and, assuming
the due authorization, execution and delivery of this Agreement by the Company
and JEDI, this Agreement constitutes a legal, valid and binding obligation of
Sub enforceable in accordance with its terms except as enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
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<PAGE>
Neither the execution, delivery and performance of this Agreement nor
the consummation of the transactions contemplated hereby will (i) conflict with
or violate the Certificate of Incorporation or By-laws of Sub or (ii) result in
any breach or constitute a default (with or without notice or lapse of time, or
both) or give rise in others of any rights of termination, cancellation or
acceleration under any indenture, contract, license, franchise, permit, order,
decree, concession, lease, instrument, judgment, statute, law, ordinance, rule
or regulation applicable to Sub or its assets, other than, in the case of clause
(ii) only, breaches, defaults, violations and losses of rights that would not
have a Sub Material Adverse Effect. Except as referred to herein, or in
connection or in compliance with the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the filing and
recordation of the certificate of merger pursuant to the DGCL, no filing or
registration with, or authorization, consent or approval of, any governmental or
regulatory body or authority or third party is necessary for the consummation by
Sub of the Merger or the other transactions contemplated by this Agreement,
except where the failure to make any such filing or registration or to obtain
such authorization, consent or approval would not prevent consummation of the
Merger or have a Sub Material Adverse Effect.
Section 5.3 Information in Proxy Statement. None of the information
------------------------------
supplied by Sub for inclusion in the preliminary and definitive proxy statement
of the Company and any amendments or supplements thereto (collectively the
"Proxy Statement") to be mailed to the stockholders of the Company in connection
with the Merger will, at the time of the mailing thereof or at the time of the
Company Meeting, 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 are
made, not misleading.
Section 5.4 Capitalization of Sub. The authorized capital stock of
---------------------
Sub consists of 1,000,000 shares of common stock, par value $0.01 per share,
1,000 of which shares, as of the date of this Agreement, are validly issued and
outstanding, fully paid and nonassessable and are owned by JEDI free and clear
of all liens, claims and encumbrances.
Section 5.5 Financing. Sub has or will have available to it at the
---------
time the Surviving Corporation is required to pay for the Shares pursuant to
Article III hereof sufficient funds to permit it to (i) pay for all of the
outstanding shares of Company Common Stock, (ii) pay for the cancellation of the
Outstanding Options and the Outstanding Warrants in accordance with Article III,
and (iii) pay amounts due to stockholders of the Company who have perfected
dissenters' rights in accordance with the DGCL.
Section 5.6 Operations of the Company Following the Merger. Based
----------------------------------------------
upon, among other things, Sub's review of the Company's financial condition and
operations, the Company's business plan and the representations made by the
Company in this Agreement, the financial condition of Sub and Sub's present
plans with respect to the Company and its subsidiaries following the Merger, Sub
has no reason to believe that, following the consummation of the Merger, the
Surviving Corporation will not be able to meet its obligations as they come due.
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<PAGE>
Section 5.7 Finder's Fees. Sub has not made any arrangements with
-------------
any broker, finder or investment banker that would require the Company to pay
any fee or commission if the Merger or the other transactions contemplated by
this Agreement are not consummated.
Section 5.8 Review of Company. Without in any way affecting the
-----------------
importance of, or impacting its reliance on, any other provision of this
Agreement, Sub acknowledges that it has had a full opportunity to request from
the Company and its representatives, and has received and reviewed, all oral and
written information concerning the Company and its Subsidiaries that Sub deems
relevant to its decision to enter into this Agreement and to consummate the
transactions contemplated hereby.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF JEDI
JEDI hereby represents and warrants to the Company as follows:
Section 6.1 Organization. JEDI is a limited partnership duly
------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has the partnership power to carry on its business as it is now
being conducted. Schedule 6.1 sets forth the names of the general partner and
the limited partners and their respective percentages of ownership.
Section 6.2 Authority and Capacity. JEDI has the requisite
----------------------
partnership power and authority to enter into this Agreement and to carry out
its obligations hereunder. The execution and delivery of this Agreement by JEDI
and the consummation of the transactions contemplated hereby by JEDI have been
duly authorized by all necessary partnership action on the part of JEDI. This
Agreement has been duly executed and delivered by JEDI and, assuming the due
authorization, execution and delivery of this Agreement by the Company and Sub,
this Agreement constitutes a legal, valid and binding obligation of JEDI
enforceable in accordance with its terms except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought.
Neither the execution, delivery and performance of this Agreement nor
the consummation of the transactions contemplated hereby will (i) conflict with
or violate the partnership agreement of JEDI, or (ii) result in any breach or
constitute a default (with or without notice or lapse of time, or both) under,
or give rise in others to any rights of termination, cancellation or
acceleration under, any indenture, contract, instrument, or loan agreement
pursuant to which JEDI is a borrower, or any license, franchise, permit, order,
decree, concession, lease, judgment, statute, law, ordinance, rule or regulation
applicable to JEDI or its assets, other than, in the case of clause (ii) only,
such breaches, defaults, violations and losses of rights that would not have a
Sub Material Adverse Effect or a JEDI Material Adverse Effect (as defined
below). Except as referred to herein, or in connection or in compliance with
the provisions of the HSR Act, the Exchange Act and the filing and recordation
of the certificate of merger pursuant to the DGCL, no filing or registration
with, or authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the
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consummation by JEDI of the Merger or the other transactions contemplated
hereby, except where failure to make such filing or registration or obtain such
authorization, consent or approval would not prevent consummation of the Merger
or have a Sub Material Adverse Effect or, individually or in the aggregate, a
direct or indirect material adverse effect on the business, assets, conditions
(financial or otherwise), liabilities or operations of JEDI or JEDI's ability to
consummate the Merger (a "JEDI Material Adverse Effect").
Section 6.3 Financial Information.
---------------------
(a) JEDI has furnished the Company with true and complete copies of
JEDI's audited consolidated financial statements as of December 31, 1994 and
unaudited interim financial statements as of June 30, 1995. As of their
respective dates, the audited financial statements and unaudited interim
financial statements of JEDI were (i) prepared in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP") during the
periods presented (except as may be indicated therein or in the notes thereto,
or in the case of the unaudited statements, subject to normal year-end audit
adjustments), (ii) present fairly, in all material respects, the financial
position of JEDI as of the dates thereof and the results of their operations and
cash flow for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments and any other
adjustments described therein and (iii) are, in all material respects, in
accordance with the books of account and records of JEDI.
(b) JEDI has or will have sufficient funds
available to perform its obligations under Section 9.8 of this Agreement.
Section 6.4 Operations of the Company Following the Merger. Based
----------------------------------------------
upon, among other things, JEDI's review of the Company's financial condition and
operations, the Company's business plan and the representations made by the
Company in this Agreement, the financial condition of Sub and Sub's present
plans with respect to the Company and its subsidiaries following the Merger,
JEDI has no reason to believe that, following the consummation of the Merger,
the Surviving Corporation will not be able to meet its obligations as they come
due.
Section 6.5 Information in Proxy Statement. None of the information
------------------------------
supplied by JEDI for inclusion in the Proxy Statement will, at the time of the
mailing thereof or at the time of the Company Meeting, 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 are made, not misleading.
Section 6.6 Finder's Fees. JEDI has not made any arrangements with
-------------
any broker, finder or investment banker that would require the Company to pay
any fee or commission if the Merger or the other transactions contemplated by
this Agreement are not consummated.
Section 6.7 Review of Company. Without in any way affecting the
-----------------
importance of, or impacting its reliance on, any other provision of this
Agreement, JEDI acknowledges that it has had a full opportunity to request from
the Company and its representatives, and has received and reviewed, all oral and
written information concerning the Company and its Subsidiaries that JEDI
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<PAGE>
deems relevant to its decision to enter into this Agreement and to consummate
the transactions contemplated hereby.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to JEDI and Sub as follows:
Section 7.1 Organization and Qualification. The Company is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power to carry on its business as
it is now being conducted. The Company is duly qualified as a foreign
corporation and is in good standing in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified or in
good standing would not, individually or in the aggregate, have a direct or
indirect material adverse effect on the business, assets, condition (financial
or otherwise), liabilities or operations of the Company and its Subsidiaries (as
hereinafter defined) taken as a whole or its ability to consummate the Merger (a
"Company Material Adverse Effect"). Complete and correct copies of the charter
and by-laws or comparable organizational documents of the Company and each of
its Subsidiaries as of the date hereof have been previously provided to Sub, and
a list of each jurisdiction in which the Company is duly qualified as a foreign
corporation has been delivered to Sub as Schedule 7.1 of a disclosure schedule
delivered by the Company to Sub on the date of this Agreement (the "Company
Disclosure Schedule").
Section 7.2 Capitalization. The authorized capital stock of the
--------------
Company consists of 40,000,000 shares of Company Common Stock and 7,500,000
shares of preferred stock, par value $0.001 per share. As of the date of this
Agreement, 22,088,903 shares of Company Common Stock were outstanding, no shares
of Company Common Stock were held in the treasury of the Company, no shares were
held by Subsidiaries of the Company and no shares of preferred stock were
outstanding. All the outstanding shares of Company Common Stock are validly
issued, fully paid and non-assessable and were issued free of preemptive rights.
As of the date hereof, there are no bonds, debentures, notes or other evidences
of indebtedness having the right to vote on any matters on which the Company's
stockholders may vote ("Company Voting Debt") issued or outstanding. Except for
(i) options to acquire 1,116,632 shares of Company Common Stock pursuant to the
Stock Option Plans, and (ii) warrants to purchase 1,300,000 shares of Company
Common Stock pursuant to the warrant agreements referred to in Section 3.6(b)
hereof, there are no options, warrants, calls or other rights, agreements or
commitments outstanding obligating the Company to issue, deliver or sell shares
of its capital stock or debt securities, or obligating the Company to grant,
extend or enter into any such option, warrant, call or other such right,
agreement or commitment.
Section 7.3 Subsidiaries. Schedule 7.3 of the Company Disclosure
------------
Schedule lists all subsidiaries of the Company (the "Subsidiaries"). Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to carry on its business as it is now
being conducted. Each Subsidiary is duly qualified as a foreign corporation,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes
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<PAGE>
such qualification necessary, except where the failure to be so qualified or in
good standing would not, individually or in the aggregate, have a Company
Material Adverse Effect. All the outstanding shares of capital stock of each
Subsidiary are validly issued, fully paid and nonassessable and are owned by the
Company free and clear of any liens, claims or encumbrances. There are no
existing options, warrants, calls or other rights, agreements or commitments of
any character relating to the issued or unissued capital stock or other
securities of any of the Subsidiaries. Other than the Subsidiaries and except
as set forth in Schedule 7.3, the Company does not directly or indirectly own
any interest in any other corporation, partnership, joint venture or other
business association or entity, excluding joint interest operations of oil and
gas wells and drilling ventures arising in the ordinary course of business.
Section 7.4 Authority Relative to this Agreement. The Company has
------------------------------------
the requisite corporate power and authority to enter into this Agreement and,
subject to approval of this Agreement by the holders of a majority of the
outstanding shares of the Company Common Stock, the corporate power and
authority to carry out its obligations hereunder. The execution and delivery of
this Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company (except for the approval of the holders of a majority
of the outstanding shares of Company Common Stock). This Agreement has been
duly executed and delivered by the Company and, assuming the due authorization,
execution and delivery of this Agreement by Sub and JEDI, this Agreement
constitutes a legal, valid and binding obligation of the Company enforceable in
accordance with its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
Except as set forth in Schedule 7.4 of the Company Disclosure
Schedule, neither the execution, delivery and performance of this Agreement nor
the consummation of the transactions contemplated hereby will (i) conflict with
or violate the Certificate of Incorporation or By-laws of the Company or any of
its Subsidiaries, or (ii) result in any breach or constitute a default (with or
without notice or lapse of time, or both) under, or give rise in others to any
rights of termination, cancellation or acceleration under, any indenture,
contract, loan agreement, license, franchise, permit, order, decree, concession,
lease, instrument, judgment, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or its or their respective
assets, other than, in the case of clause (ii) only, such breaches, defaults,
violations and losses of rights that would not, individually or in the
aggregate, have a Company Material Adverse Effect. Except as disclosed in
Schedule 7.4 of the Company Disclosure Schedule or, in connection or in
compliance with the provisions of the HSR Act, the Exchange Act and the filing
and recordation of the Certificate of Merger pursuant to the DGCL, no filing or
registration with, or authorization, consent or approval of, any governmental or
regulatory body or authority or third party is necessary for the consummation by
the Company of the Merger or the other transactions contemplated hereby, except
where failure to make such filing or registration or obtain such authorization,
consent or approval would not, individually or in the aggregate, prevent
consummation of the Merger or have a Company Material Adverse Effect.
-17-
<PAGE>
Section 7.5 Reports and Financial Statements. The Company has
--------------------------------
furnished Sub with true and complete copies of the Company's (i) Annual Reports
on Form 10-K for the fiscal years ended December 31, 1993 and December 31, 1994,
as filed with the Securities and Exchange Commission (the "Commission"), (ii)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30,
1993, September 30, 1993, March 31, 1994, June 30, 1994, September 30, 1994,
March 31, 1995 and June 30, 1995, as filed with the Commission, (iii) proxy
statements related to all meetings of its stockholders (whether annual or
special) held since January 1, 1993 and (iv) all other reports on Form 8-K and
registration statements declared effective by the Commission since December 31,
1992, except registration statements on Form S-8 relating to employee benefit
plans and reports on Form 10-C relating to securities quoted on the NASDAQ
Interdealer Quotation system, which are all the documents (other than
preliminary material) that the Company was required to file with the Commission
since January 1, 1993 (all items in clauses (i) through (iv) being referred to
herein collectively as the "Company SEC Reports"). As of their respective
dates, the Company SEC Reports complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports. As of their
respective dates, the Company SEC 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 therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates, the audited consolidated financial statements and unaudited
interim financial statements of the Company included in the Company SEC Reports
complied in all material respects with applicable accounting requirements of the
Securities Act and the Exchange Act, and with the published rules and
regulations of the Commission with respect thereto. The financial statements
included in the Company SEC Reports (i) have been prepared in accordance with
GAAP during the periods presented (except as may be indicated therein or in the
notes thereto or, in the case of the unaudited statements, subject to normal
year-end audit adjustments and except for the fact that such unaudited
statements do not contain all notes required by GAAP), (ii) present fairly, in
all material respects, the financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flow for the periods then ended (except as may be
indicated therein or in the notes thereto, or , in the case of the unaudited
interim financial statements, subject to normal year-end audit adjustments and
any other adjustments described therein and except for the fact that certain
information and notes have been condensed or omitted in accordance with the
Securities Act and the Exchange Act and the rules promulgated thereunder) and
(iii) are, in all material respects, in accordance with the books of account and
records of the Company. Neither the Company nor any of its Subsidiaries has any
liability or is subject to any loss contingency material to the Company and its
Subsidiaries, taken as a whole, other than as reflected or disclosed in the
financial statements or notes thereto included in the Company SEC Reports filed
prior to the date hereof or as otherwise disclosed on Schedule 7.6 of the
Company Disclosure Schedule. Any reports or other material filed by the
Company with the Commission after the date hereof and prior to the Effective
Time (other than preliminary material) shall be deemed to be included in the
defined term "Company SEC Reports" for purposes of this Agreement and the
Company shall be deemed to have made the representations set forth in this
Section 7.5 in respect of such reports or other material and any financial
statements set forth therein.
Section 7.6 Absence of Certain Changes or Events. Except as
------------------------------------
contemplated by this Agreement or as disclosed in Schedule 7.6 of the Company
Disclosure Schedule or in any of the
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<PAGE>
Company SEC Reports filed prior to the date hereof, there have not been (i)
since June 30, 1995 transactions, commitments, disputes, events, damage,
destruction or losses, whether or not covered by insurance, development or
condition (financial or otherwise) of any character (whether or not in the
ordinary course of business) individually or in the aggregate having, or which
could reasonably be expected to have, a Company Material Adverse Effect or (ii)
since December 31, 1994 (A) any entry into any commitment or transaction
material to the Company and its Subsidiaries taken as a whole (including,
without limitation, any borrowing or sale of assets) except in the ordinary
course of business consistent with past practice or (B) any action taken by the
Company or its Board of Directors in connection with the adoption or
implementation of any plan or arrangement or the entry into any agreement (x)
principally intended to discourage an Other Acquisition Transaction, or (y)
pursuant to which the officers, directors or employees of the Company or its
Subsidiaries have been granted any benefits payable or distributable upon
severance or upon a change of control of the Company or pursuant to which any
rights held by such persons have been accelerated to occur or vest at or prior
to a change of control, including without limitation any amendments to,
modifications of, or elections of other rights under existing benefit plans
(including the Stock Option Plans and Warrants).
Section 7.7 Litigation. Except as disclosed in the Company's Annual
----------
Report on Form 10-K for the year ended December 31, 1994 or as disclosed in
Schedule 7.7 of the Company Disclosure Schedule, there is no claim, suit, action
or proceeding pending or, to the knowledge of the officers of the Company,
overtly threatened, against or affecting the Company or any of its Subsidiaries
which, either individually or in the aggregate, has or could reasonably be
expected to have a Company Material Adverse Effect, nor, as of the date of this
Agreement, is there any judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against the Company or any of its Subsidiaries.
Section 7.8 Information in Disclosure Documents. None of the
-----------------------------------
information with respect to the Company or its Subsidiaries included or
incorporated by reference in the Proxy Statement will, at the time of the
mailing thereof and at the time of the Company Meeting, 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 are made, not misleading; provided, however,
that this provision shall not apply to, and no representation or warranty is
made by the Company with respect to, statements or omissions in the Proxy
Statement based upon information furnished by or on behalf of JEDI or Sub for
use therein. The Proxy Statement will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. No
representation or warranty made by the Company contained in this Agreement and
no statement in the Company Disclosure Schedule, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
Section 7.9 Employee Benefits Plans; Labor Matters.
--------------------------------------
(a) Schedule 7.9 (a) of the Company Disclosure Schedule lists each
"employee benefit plan," as such term is defined in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including, but not
limited to, employee benefit plans, such as foreign
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<PAGE>
plans, which are not subject to the provisions of ERISA) ("Plan"), sponsored,
maintained or contributed to by the Company or any of its Subsidiaries for the
benefit of the employees of the Company or any of its Subsidiaries, or that has
been so sponsored, maintained or contributed to by Company or any of its
Subsidiaries within six years prior to the Closing.
(b) Except as otherwise set forth in Schedule 7.9(b) of the Company
Disclosure Schedule or as previously disclosed in writing to Sub by the Company:
(i) the Company and its Subsidiaries do not contribute to or
have an obligation to contribute to, and have not at any time within six years
prior to the Closing contributed to or had an obligation to contribute to, a
multiemployer plan within the meaning of Section 3(37) of ERISA;
(ii) all reports and disclosures relating to the Plans
required to be filed with or furnished to governmental agencies, Plan
participants or Plan beneficiaries the failure to file of which would,
individually or in the aggregate, have a Company Material Adverse Effect have
been filed or furnished in accordance with applicable law in a timely manner,
and each Plan has been administered in substantial compliance with its governing
documents and in accordance with ERISA, the Internal Revenue Code of 1986, as
amended (the "Code"), and other applicable laws, except for any failure of
compliance or violation of applicable law which would not, individually or in
the aggregate, have a Company Material Adverse Effect;
(iii) there are no actions, suits, claims, governmental (and,
to the knowledge of the Company's officers, non-governmental) investigations or
audits pending (other than routine claims for benefits) or, to the knowledge of
the Company's officers, threatened against, or with respect to, any of the Plans
or their assets which, individually or in the aggregate, have or could
reasonably be expected to have a Company Material Adverse Effect;
(iv) no act, omission or transaction has occurred which would
result in imposition on the Company of (A) a breach of fiduciary duty liability
damages under Section 409 of ERISA, (B) a civil penalty assessed pursuant to
subsections (c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code, which (in the case of (A), (B)
or (C) above), individually or in the aggregate, could have a Company Material
Adverse Effect;
(v) each of the Plans intended to be qualified under Section
401 of the Code satisfies the requirements of such Section and has received a
favorable determination letter from the Internal Revenue Service regarding such
qualified status and has not, since receipt of the most recent favorable
determination letter, been amended or, to the knowledge of Company, operated in
a way which would adversely affect such qualified status;
(vi) no Plan is subject to Title IV of ERISA;
(vii) as to any Plan intended to be qualified under Section 401
of the Code, to the knowledge of the Company's officers there has been no
termination or partial termination of the Plan within the meaning of Section 411
(d) (3) of the Code which has had or could reasonably be expected to have a
Company Material Adverse Effect; and
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<PAGE>
(viii) with respect to any Plan which is sponsored, maintained
or contributed to, or has been sponsored, maintained or contributed to within
six years prior to the Closing Date, by any corporation, trade, business or
entity under common control with the Company, within the meaning of Section 4104
(b), (c) or (m) of the Code or Section 4001 of ERISA ("Commonly Controlled
Entity"), (A) no withdrawal liability, within the meaning of Section 4201 of
ERISA, has been incurred, which withdrawal liability has not been satisfied, (B)
no liability to the Pension Benefit Guaranty Corporation ("PBGC") has been
incurred by any Commonly Controlled Entity, which liability has not been
satisfied, (C) no accumulated funding deficiency, whether or not waived, within
the meaning of Section 302 of ERISA or Section 412 of the Code has been
incurred, and (D) all contributions (including installments) to such Plan
required by section 302 of ERISA and Section 412 of the Code have been timely
made.
(c) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining or other labor union contracts. There is no pending or
threatened labor dispute, strike or work stoppage against the Company or any of
its Subsidiaries which may materially interfere with the respective business
activities of the Company or any of its Subsidiaries.
(d) Except as set forth in Schedule 7.9(d) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to or is
bound by any severance agreements, programs or policies. Schedule 7.9(d) of the
Company Disclosure Schedule sets forth, and the Company has provided to Sub,
true and correct copies of (i) all agreements with employees or consultants of
the Company or its Subsidiaries, obligating the Company or any Subsidiary to
make annual cash payments in an amount exceeding an aggregate of $50,000, (ii)
all non-competition agreements with the Company or a Subsidiary executed by
officers of the Company or a Subsidiary, and (iii) all plans, programs,
agreements and other arrangements of the Company or its Subsidiaries with or
relating to the employment and to the remuneration and compensation of its
employees.
(e) Except as provided in Schedule 7.9(e) of the Company Disclosure
Schedule, (i) no Plan provides retiree medical or retiree life insurance
benefits to any person and (ii) neither the Company nor any of its Subsidiaries
is contractually or otherwise obligated (whether or not in writing) to provide
any person with life insurance or medical benefits upon retirement or
termination of employment, other than as required by the provisions of Section
601 through 608 of ERISA and Section 4980B of the Code.
(f) Except as provided in Schedule 7.9(f) of the Company Disclosure
Schedule, the Company has not amended, terminated or taken any other actions
with respect to any of the Plans or any of the plans, programs, agreements,
policies or other arrangements described in this Section 7.9 since December 31,
1994 which, individually or in the aggregate, have or could reasonably be
expected to have a Company Material Adverse Effect.
Section 7.10 Environmental Matters. Except for matters disclosed in
---------------------
Schedule 7.10 of the Company Disclosure Schedule, the Company and its
Subsidiaries and the properties and operations of the Company and its
Subsidiaries are not subject to any existing, pending or, to the knowledge of
the Company, overtly threatened action, suit, investigation, inquiry or
proceeding by or before any Governmental Entity under any Environmental Law.
Except for matters disclosed in Schedule 7.10 of the Company Disclosure Schedule
and except for matters that would not result, individually or
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<PAGE>
in the aggregate, in a Company Material Adverse Effect, (i) the properties,
operations and activities of the Company and its Subsidiaries are in compliance
with all applicable Environmental Laws; (ii) all notices, permits, licenses, or
similar authorizations, if any, required to be obtained or filed by the Company
or any of its Subsidiaries under any Environmental Law in connection with any
aspect of the business of the Company or its Subsidiaries, including without
limitation those relating to the treatment, storage, disposal or release of a
hazardous substance, have been duly obtained or filed and will remain valid and
in effect after the Merger, and the Company and its Subsidiaries are in
compliance with the terms and conditions of all such notices, permits, licenses
and similar authorizations; (iii) there are no physical or environmental
conditions existing on any property of the Company or its Subsidiaries or
resulting from the Company's or such Subsidiaries' operations or activities,
past or present, at any location, that would give rise to any on-site or off-
site remedial obligations imposed on the Company or any of its Subsidiaries
under any Environmental Laws; (iv) to the Company's knowledge, since the
effective date of the relevant requirements of applicable Environmental Laws and
to the extent required by such applicable Environmental Laws, all hazardous
substances generated by the Company and its Subsidiaries have been transported
only by carriers authorized under Environmental Laws to transport such
substances and wastes, and disposed of only at treatment, storage, and disposal
facilities authorized under Environmental Laws to treat, store or dispose of
such substances and wastes; (v) there has neither been any exposure of any
person or property to hazardous substances or any pollutant or contaminant
released by the Company or its Subsidiaries, nor has there been any release of
hazardous substances, or any pollutant or contaminant into the environment by
the Company or its Subsidiaries or in connection with their properties or
operations that could reasonably be expected to give rise to any claim against
the Company or any of its Subsidiaries for damages or compensation; and (vi) the
Company and its Subsidiaries have made available to Sub all internal and
external environmental audits and studies and all correspondence on substantial
environmental matters in the possession of the Company or its Subsidiaries
relating to any of the current or former properties or operations of the Company
and its Subsidiaries. For purposes of this Agreement, the terms "hazardous
substance" and "release" have the meanings specified in CERCLA, and the term
"disposal" has the meaning specified in RCRA; provided, however, that to the
extent the laws of the state in which the property is located establish a
meaning for "hazardous substance," "release," or "disposal" that is broader than
that specified in either CERCLA or RCRA, such broader meaning shall apply.
Section 7.11 Public Utility Holding Company Act. None of the Company
----------------------------------
or any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, and the rules and regulations
thereunder.
Section 7.12 Futures Trading and Fixed Price Exposure. Schedule
----------------------------------------
7.12 to the Company Disclosure Schedule sets forth a true and correct statement
of the position, as of the date hereof, of the Company and its Subsidiaries with
respect to obligations under Fixed Price Contracts (including, with respect to
each Fixed Price Contract, location of delivery and variations in the obligation
to take or deliver) and related Hydrocarbon price swaps, hedges, futures or
similar instruments to which the Company or any of its Subsidiaries is a party.
Section 7.13 Takeover Provisions Inapplicable. As of the date hereof
--------------------------------
and at all times on or prior to the Effective Time, Section 203 of the DGCL is,
and shall be, inapplicable to the Merger and the transactions contemplated
hereby or connected herewith.
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<PAGE>
Section 7.14 Fairness Opinion. The Special Committee has been orally
----------------
advised by Bear, Stearns & Co. Inc., financial advisor to the Company, that it
believes that the Merger is fair to the stockholders of the Company from a
financial point of view (except that such advice is not provided to management
stockholders who will participate in the equity ownership of the Surviving
Corporation).
Section 7.15 Finder's Fees. Except as set forth in Schedule 7.15 of
-------------
the Company Disclosure Schedule, since December 31, 1994, neither the Company
nor any of its Subsidiaries have made any arrangements with any broker, finder
or investment banker that would require the Company or any of its Subsidiaries
to pay any fee or commission in connection with any material transaction by the
Company or any of its Subsidiaries, and no broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company. A complete and correct copy
of all agreements referenced in Schedule 7.15 of the Company Disclosure Schedule
has been provided to Sub.
Section 7.16 Compliance with Applicable Laws. Except as disclosed in
-------------------------------
the Company SEC Reports filed prior to the date of this Agreement or in Schedule
7.16 of the Company Disclosure Schedule, the Company and the Subsidiaries are
not in violation of any law, ordinance, regulation, order or writ of any courts,
administrative agencies or commissions or other governmental authorities or
instrumentalities, domestic or foreign (each a "Governmental Entity") applicable
to the Company or any of the Subsidiaries or by which any of them or their
assets may be bound, except for violations that would not, individually or in
the aggregate, have a Company Material Adverse Effect. Except as disclosed in
Schedule 7.16 of the Company Disclosure Schedule, neither the Company nor any of
the Subsidiaries has received notice of violation of any law, ordinance,
regulation, order or writ, or is in default with respect to any order, writ,
judgment, award injunction or decree of any Governmental Entity, except for such
notices or defaults which would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
Section 7.17 Taxes. Each of the Company and the Subsidiaries has
-----
timely filed when due (taking into account permitted extensions) all material
federal, state and local income and franchise Tax Returns and all other Tax
Returns required to be filed by any of them and has paid (or the Company has
paid on its behalf), or has set up an adequate reserve for the payment of, all
Taxes required to be paid in respect of the periods covered by such Tax Returns.
The information contained in such Tax Returns is true, complete and accurate in
all material respects. Except as disclosed in Schedule 7.17 of the Company
Disclosure Schedule, neither the Company nor any Subsidiary is delinquent in the
payment of any Tax, assessment or governmental charge in an amount exceeding
$100,000. Except as disclosed in Schedule 7.17 of the Company Disclosure
Schedule, no deficiencies for any Taxes have been proposed, asserted or assessed
against the Company or any of the Subsidiaries, by delivery of a written
instrument to the Company or to the knowledge of the officers of the Company,
that have not been finally settled or paid in full, and no requests for waivers
of the time to assess any such Tax are pending. The federal income Tax Returns
of the Company and each of the Subsidiaries consolidated in such returns have
been examined by and settled with the Internal Revenue Service as set forth in
Schedule 7.17 of the Company Disclosure Schedule. Neither the Company nor any
of the Subsidiaries is a party to or obligated under any agreement,
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<PAGE>
commitment or arrangement that could require the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code.
Section 7.18. Certain Agreements.
------------------
Except as listed as an exhibit to the Company SEC Reports filed prior
to the date of this Agreement or as disclosed in Schedule 7.18 of the Company
Disclosure Schedule, neither the Company nor any of the Subsidiaries is a party
to any oral or written (i) agreements, contracts, indentures or other
instruments relating to Indebtedness which, when aggregated with all such other
agreements, contracts, indentures or instruments, exceeds an amount of $500,000,
(ii) confidentiality or standstill agreements or other material contract or
agreement which, after giving effect to the transactions contemplated by this
Agreement, purports to restrict or bind Sub or any of its affiliates (other than
the Surviving Corporation and its subsidiaries), (iii) collective bargaining
agreement, (iv) contract, agreement or commitment not entered into in the
ordinary course of business consistent with past practice and for which the
Company could become liable for payments in excess of $500,000 (in respect of
all such contracts, agreements or commitments, collectively), (v) any contract
or agreement granting a preferential right of purchase or similar right to any
person or entity with respect to any Material Company Asset (as hereinafter
defined), or (vi) material contract or agreement that is not expected to be
fully performed within 30 days following the Effective Time excluding oil and
gas leases, farmout agreements, gas sales or purchase contracts, joint operating
agreements, unit operating agreements and unit agreements entered into in the
ordinary course of business.
Section 7.19. Engineering Reports.
-------------------
(a) The estimates of proved reserves of oil and natural gas (the
"Company Estimated Proved Reserves") prepared by the Company and set forth in
the report of Company Estimated Proved Reserves as of December 31, 1994 (the
"Company Reserve Report") were reviewed by independent petroleum engineers Lee
Keeling and Associates, Inc. as indicated in, and with the conclusion set forth
in, their reports dated February 1, 1995, effective as of January 1, 1995; and
(b) All information and production data provided to Lee Keeling and
Associates, Inc. for the preparation of the Company Reserve Report were true and
correct in all material respects as of the date provided.
Section 7.20 Oil and Gas Reserve Information. Except as otherwise
-------------------------------
set forth in Schedule 7.20 of the Company Disclosure Schedule and except for
exceptions that would not, and could not reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect:
(a) To the knowledge of the Company's officers, none of the wells
included in the Oil and Gas Interests of the Company and its Subsidiaries has
been overproduced such that it is subject or liable to being shut-in or to any
other overproduction penalty (including cash payments);
(b) There are no wells included in the Oil and Gas Interests of the
Company and its Subsidiaries that: (i) the Company or any of its Subsidiaries
are currently obligated by law or
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contract to plug and abandon; (ii) are subject to exceptions to a requirement to
plug and abandon issued by a regulatory authority having jurisdiction over such
Oil and Gas Interests; or (iii) to the knowledge of the Company, have been
plugged and abandoned but have not been plugged or reclaimed in accordance with
all applicable requirements of each regulatory authority having jurisdiction
over such Oil and Gas Interests;
(c) No person has any call on, option to purchase, or similar rights
with respect to the Oil and Gas Interests of the Company and its Subsidiaries
(including without limitation the production attributable thereto) and upon
consummation of the transactions contemplated by this Agreement, the Company and
its Subsidiaries will have the right to market production from the Oil and Gas
Interests of the Company and its Subsidiaries on terms no less favorable than
the terms upon which such company is currently marketing such production;
(d) To the knowledge of the Company's officers, all royalties,
overriding royalties, compensatory royalties and other payments due with respect
to the Oil and Gas Interests of the Company and its Subsidiaries (excluding
those held in suspense in accordance with past operating practices or in
connection with post-closing adjustments in respect of acquired properties) have
been properly and timely paid; and
(e) To the knowledge of the Company's officers, with respect to those
assets of the Company and its Subsidiaries that are oil and gas leases
("Leases"), there has not occurred any event, fact or circumstance which with
the lapse of time or the giving of notice, or both, would constitute a breach or
default on behalf of the Company and its Subsidiaries or, to the knowledge of
the Company and its Subsidiaries, with respect to any other parties under the
Leases.
Section 7.21 Title to Property. The Company or its Subsidiaries has
-----------------
Defensible Title to all of the material assets reflected on the consolidated
financial statements of the Company included in the Company SEC Reports as being
owned by it or its Subsidiaries (including Oil and Gas Interests of the Company
and its Subsidiaries) and all of the material assets thereafter acquired by it
or its Subsidiaries (except to the extent that such assets have thereafter been
disposed of in the ordinary course of business consistent with past practice)
(collectively, the "Material Company Assets"). All material payments of any
kind required to be made by the Company and its Subsidiaries to third parties
under any contract or agreement relating to the Material Company Assets have
been or will be properly and timely paid or provided for.
Section 7.22 Insurance. Schedule 7.22 to the Company Disclosure
---------
Schedule contains a summary of all material policies of insurance (including all
directors' and officers' liability insurance coverage) maintained by the Company
and its Subsidiaries during the past five years.
Section 7.23 Affiliate Transactions. Except for the transactions
----------------------
described in Schedule 7.23 of the Company Disclosure Schedule, all transactions
involving the Company or any of its Subsidiaries that are required to be
disclosed in the Company SEC Reports in accordance with Item 404 of Regulation
S-K have been so disclosed, and since December 31, 1994, neither the Company nor
any of its Subsidiaries has entered into any transactions that would be required
to be disclosed in future public filings under the Exchange Act pursuant to such
Item which have not already been disclosed in the Company SEC Reports filed
prior to the date hereof.
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Section 7.24 Taurus Energy. Except as set forth in Schedule 7.24 of
-------------
the Company Disclosure Schedule, since December 31, 1994 neither the Company nor
any of its Subsidiaries (other than Taurus Energy Corp. ("Taurus")) have made
any capital contribution to Taurus, engaged in a transaction with Taurus not in
conformance with past practice or which added material value to Taurus or
otherwise transferred value to Taurus (including by way of assumption of
liabilities).
ARTICLE VIII
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME
Section 8.1 Conduct of Business by the Company. Following the date
----------------------------------
hereof and prior to the Effective Time, except as otherwise contemplated by this
Agreement or unless Sub shall otherwise consent in writing:
(a) subject to the limitations contained in or transactions
contemplated by (including, but not limited to, the Taurus Disposition) this
Agreement, the Company shall, and shall cause its Subsidiaries to, carry on
their respective operations in the usual and ordinary course consistent with
past practice, and shall use its reasonable best efforts, and shall cause each
of its Subsidiaries to use its reasonable best efforts, to preserve
substantially intact its present business organization, keep available the
services of its present officers and employees, maintain and keep its material
assets in as good repair and condition as of the date hereof, ordinary wear and
tear and damage due to casualty excepted, and preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
its goodwill and on-going businesses shall be materially unimpaired at the
Effective Time;
(b) the Company shall not, nor shall it propose to, except as
required by this Agreement, (i) sell or pledge or agree to sell or pledge any
capital stock owned by it in any of its Subsidiaries, (ii) amend its Certificate
of Incorporation or By-laws, (iii) split, combine or reclassify its outstanding
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
capital stock, or declare, set aside or pay any dividend or other distribution
payable in cash, stock or property, or (iv) directly or indirectly redeem,
purchase or otherwise acquire or agree to redeem, purchase or otherwise acquire
any shares of its capital stock;
(c) the Company shall not, nor shall it permit any of its
Subsidiaries to, (i) except as required or contemplated by this Agreement,
issue, deliver or sell or agree to issue, deliver or sell any additional shares
of, or stock appreciation rights or rights of any kind to acquire any shares of,
its capital stock of any class, any Company Voting Debt, or any option, rights
or warrants to acquire, or securities convertible into, shares of capital stock,
other than issuances of Company Common Stock pursuant to the exercise of options
granted pursuant to the Stock Option Plans or Outstanding Warrants, (ii) amend
in any respect existing agreements evidencing the options granted pursuant to
the Stock Option Plans or Outstanding Warrants (including, without limitation,
the exercise or strike prices thereof) or the Stock Option Plan pursuant to
which such options were granted, except to permit the acceleration of the
vesting or exercisability of the options granted pursuant to the Stock Option
Plans and Outstanding Warrants in connection with the settlement thereof in
accordance with Section 3.6, (iii) acquire or lease or agree to acquire or lease
any material capital asset or assets, or make any other capital expenditures,
which exceed the Company's capital expenditure budgets for
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the fourth quarter of 1995 and the first quarter of 1996 set forth in Schedule
8.1(c) of the Company Disclosure Schedule, in the aggregate for all such assets
or other capital expenditures in both quarters, by $2.0 million or more
(including in such calculation the proceeds of any sale/leaseback transactions),
(iv) dispose or agree to dispose of capital assets or any other assets other
than in the ordinary course, with a value in the aggregate in excess of $2.0
million, (v) (A) create, incur, assume or permit additional material
indebtedness (including obligations in respect of capital leases), other than
periodic drawdowns under the Company's credit facilities existing as of the date
hereof, provided that such drawdowns are in the ordinary course of business
consistent with past practice, and provided further that the amount available
under such facilities as of the date hereof is not increased, (B) assume,
guarantee, endorse or otherwise become liable or responsible for the obligations
of any other person (other than a Subsidiary of the Company, or as to a
Subsidiary, another Subsidiary of the Company) in an amount in excess of
$10,000, (excluding suspense account obligations assumed in connection with
acquisitions by the Company whereby the Company also receives the funds held in
suspense or an adjustment to the purchase price is made in an equal amount), (C)
encumber or grant a security interest in any Material Company Asset other than
for the Company's credit facilities existing as of the date hereof, or (D) make
any loans or advances to any other person (excluding intercompany transactions),
enter into any agreement or instrument relating to the borrowing of money or the
extension of credit or enter into any other material transaction, other than in
each case in the ordinary course of business consistent with past practice, (vi)
acquire or agree to acquire oil or gas properties or other assets of a type not
covered by Schedule 8.1(c) of the Company Disclosure Schedule, or acquire or
agree to acquire by merging or consolidating with, or by purchasing the assets
of or a substantial equity interest in, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof, for an aggregate purchase price in excess of $5.0 million,
(vii) enter into or renew any material agreements, contracts or other
commitments that are not expected to be fully performed within thirty days after
the Effective Time excluding oil and gas leases, farmout agreements, gas sales
or purchase contracts, joint operating agreements, unit operating agreements and
unit agreements entered into in the ordinary course of business, or (viii)
adopt, enter into, amend or terminate any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(d) the Company shall not, nor shall it permit any of its
Subsidiaries to, except as required to comply with applicable law and except as
provided in Section 9.3 hereof and other than acceleration of vesting permitted
by this Agreement, (i) adopt, enter into, terminate or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other Plan, agreement, trust,
fund or other arrangement for the benefit or welfare of any current or former
director, officer or employee (other than the adoption of any special
compensation for the members of the Special Committee), (ii) increase in any
manner the compensation or fringe benefits of any director (other than the
adoption of any special compensation for the members of the Special Committee),
executive officer or employee (provided, however, that the Company shall be
permitted to award normal salary increases to employees (other than executive
officers) of the Company in the ordinary course of business that are consistent
with past practice (including, without limitation, in connection with any
promotion of such employee) and that, in the aggregate, do not result in a
material increase in compensation expense to the Company and its Subsidiaries
relative to the level in effect prior to such increase), unless consented to by
Sub, which consent shall not be unreasonably withheld, (iii) pay any benefit not
provided under any existing plan or arrangement, except for payments set forth
in Schedule 8.1(d) of the Company
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<PAGE>
Disclosure Schedule, (iv) grant any awards under the Stock Option Plan or any
other bonus, incentive, performance or other compensation plan or arrangement or
Plan (including, without limitation, the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any Plans or
agreements or awards made thereunder), (v) take any action to fund or in any
other way secure the payment of compensation or benefits under any employee
plan, agreement, contract or arrangement or Plan, other than in the ordinary
course of business consistent with past practice, or (vi) adopt, enter into,
amend or terminate any contract, agreement, commitment or arrangement to do any
of the foregoing;
(e) the Company shall not, nor shall it permit its Subsidiaries to,
make any change in its accounting policies or procedures, except as required
under GAAP;
(f) the Company shall use its reasonable best efforts to refrain from
taking, and shall use its reasonable best efforts to cause its Subsidiaries to
refrain from taking, any action that would, or reasonably might be expected to,
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect as of the Effective Time, or in
any of the conditions to the Merger set forth in Article X not being satisfied,
or (unless such action is required by applicable law) that would adversely
affect the ability of the Company to obtain any of the regulatory approvals
required to consummate the Merger, as contemplated hereby;
(g) the Company shall not settle or compromise any claim for
dissenters' rights in respect of the Merger;
(h) the Company shall maintain in full force and effect all of its
policies of insurance in existence as of the date hereof or insurance comparable
to the coverage afforded by such policies; and
(i) the Company shall not enter into any natural gas or other future
or options trading or be a party to any price swaps, hedges, futures or similar
instruments without first obtaining the consent of Sub, which consent shall not
be unreasonably withheld.
Section 8.2 Obligations of JEDI and Sub. Each of JEDI and Sub shall
----------------------------
use its reasonable best efforts to refrain from taking any action that would, or
reasonably might be expected to, result in any of its representations and
warranties set forth in this Agreement being or becoming untrue in any material
respect as of the Effective Time, or in any of the conditions to the Merger set
forth in Article X not being satisfied, or (unless such action is required by
applicable law) that would adversely affect the ability of JEDI or Sub to obtain
any of the regulatory approvals required to consummate the Merger, as
contemplated hereby.
Section 8.3 Notice of Breach. Each party shall promptly give written
----------------
notice to the other party upon becoming aware of the occurrence or, to its
knowledge, impending or threatened occurrence, of any event that would cause any
of the representations and warranties to be untrue on the Effective Time or
cause a breach of any covenant contained or referenced in this Agreement and
will use its reasonable best efforts to prevent or promptly remedy the same.
Any such notification shall not be deemed an amendment of the Company Disclosure
Schedule.
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<PAGE>
ARTICLE IX
ADDITIONAL AGREEMENTS
Section 9.1 Access and Information. Upon reasonable notice, the
----------------------
Company and its Subsidiaries shall afford to Sub and to Sub's affiliates,
accountants, lenders, counsel and other representatives full access, during
normal business hours (and at such other times as the parties may mutually
agree) and in a manner so as not to materially interfere with the normal
business operations of the Company and its Subsidiaries throughout the period
prior to the Effective Time, to all of their properties (which shall include the
right to conduct an environmental assessment thereof), books, contracts,
commitments, records and personnel. During such period, the Company shall
furnish promptly to Sub (i) a copy of each report, schedule and other document
filed or received by it pursuant to the requirements of federal or state
securities laws, and (ii) all other information concerning its business,
properties and personnel as Sub may reasonably request. JEDI and Sub shall hold
all such information in confidence and hereby assume all of the obligations of
Enron Capital & Trade Resources Corp. ("ECT") set forth in that certain
Confidentiality Agreement, dated June 12, 1995, as amended, between ECT and the
Company (the "Confidentiality Agreement") the terms of which are incorporated
herein by reference and made a part of this Agreement, and, in the event of
termination of this Agreement for any reason, shall comply with the terms of the
Confidentiality Agreement regarding the return of information. During the
period prior to the Effective Time, the Company shall make its accountants,
counsel, lenders and other representatives available to Sub and to Sub's
affiliates, accountants, lenders, counsel and other representatives at
reasonable times.
Section 9.2 Proxy Statement. (a) As promptly as reasonably
---------------
practicable after the execution of this Agreement, the Company shall prepare and
file with the Commission preliminary proxy materials with respect to the actions
to be taken at the Company Meeting, which shall be in form and substance
reasonably satisfactory to Sub. As promptly as reasonably practicable after
comments are received from the Commission with respect to such preliminary proxy
materials, the Company shall use its reasonable best efforts to respond to the
comments of the Commission. Sub and JEDI shall provide the Company with such
information as may be required to be included in the proxy statement or as may
be reasonably required to respond to any comment of the Commission. After all
the comments received from the Commission have been cleared by the Commission
staff and all information required to be contained in the proxy statement has
been included therein by the Company, the Company shall file with the Commission
the Proxy Statement and the Company shall use its reasonable best efforts to
have the Proxy Statement cleared by the Commission as soon thereafter as
practicable. The Company shall cause the Proxy Statement to be mailed to its
stockholders of record as promptly as reasonably practicable after clearance by
the Commission. Unless the Company is advised by outside counsel that such a
recommendation is no longer consistent with the discharge of applicable
fiduciary duties of directors of the Company, the Proxy Statement shall include
the recommendation of the Board of Directors of the Company in favor of the
Merger. If requested by Sub, the Company shall use its reasonable best efforts
to obtain an "SAS No. 71 letter" from the Company's independent public
accountants addressed to the Company, in form and substance reasonably
satisfactory to Sub, with respect to interim financial statements included in
the Proxy Statement.
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(b) The Company shall retain the services of a proxy soliciting firm
reasonably acceptable to Sub for the purpose of communicating to the Company's
stockholders the recommendation of the Company's Board of Directors and of
seeking to ensure that sufficient votes are cast to satisfy the requirements of
applicable law for the completion of the Merger.
(c) Each of Sub and the Company shall make all necessary filings
applicable to it with respect to the Merger under the Exchange Act and the rules
and regulations thereunder and shall use its reasonable best efforts to obtain
required clearances with respect thereto.
Section 9.3 Indemnification. (a) The Certificate of Incorporation of
---------------
the Surviving Corporation and each of its Subsidiaries shall contain provisions
that acknowledge and agree that, to the fullest extent permitted by law, the
provisions relating to limitation on liability that are set forth in Article 10
of the Certificate of Incorporation of the Company as of the date of this
Agreement, shall remain effective for a period of six years from the Effective
Time with respect to individuals who at any time from and after the date of this
Agreement and to and including the Effective Time were directors, officers,
employees, fiduciaries or agents of the Company or any of its Subsidiaries in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the matters contemplated by this Agreement), and
the Surviving Corporation shall not amend (in any manner that would diminish the
effect of such provisions) or repeal such provisions for a period of six years
from the Effective Time. If, at any time during such period of six years and
prior to an underwritten public offering of capital stock of the Surviving
Corporation, the Surviving Corporation is unable to make any indemnification
payments required by this Section 9.3, then JEDI shall be liable for such
payments, but only to the extent of all dividends or other distributions paid in
respect of capital stock of the Surviving Corporation prior to or upon the
dissolution of the Surviving Corporation that have been made to JEDI or any of
its Affiliates (as defined in Rule 405 of Regulation C promulgated under the
Securities Act) by the Surviving Corporation during such period.
(b) The Surviving Corporation shall, for six years from the Effective
Time, maintain in effect the current directors' and officers' liability
insurance coverage listed, and identified as such, on Schedule 7.22 of the
Company's Disclosure Schedule maintained by the Company (provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such officers and directors so long as substitution does not
result in gaps or lapses in coverage) with respect to matters occurring through
the Effective Time, provided that in no event shall the Surviving Corporation be
required to expend to maintain or procure insurance coverage pursuant to this
Section 9.3 any amount per annum in excess of 50% of the aggregate premiums paid
in 1995 on an annualized basis for such purpose.
(c) In the event the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision shall be made so
that the successors and assigns of the Surviving Corporation, or at JEDI's
option, JEDI, shall assume the obligations set forth in this Section 9.3.
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<PAGE>
(d) The By-laws of the Surviving Corporation and each of its
Subsidiaries shall contain provisions that acknowledge and agree that, to the
fullest extent permitted by law, the provisions relating to indemnification and
advancement of expenses that are set forth in the By-laws of the Company as of
the date of this Agreement shall remain effective for a period of six years from
the Effective Time with respect to individuals who at any time from and after
the date of this Agreement and to and including the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company or any of
its Subsidiaries in respect of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the matters contemplated by this
Agreement), and the Surviving Corporation shall not amend or repeal such
provisions for a period of six years from the Effective Time.
(e) The obligations of the Surviving Corporation under this Section
9.3 shall not be terminated or modified in such a manner as to adversely affect
any director, officer, employee, fiduciary and agent to whom this Section 9.3
applies without the consent of each affected director, officer, employee,
fiduciary and agent (it being expressly agreed that the directors, officers,
employees, fiduciaries and agents to whom this Section 9.3 applies shall be
third-party beneficiaries of this Section 9.3).
(f) Sub understands that the Company has entered into contractual
indemnification arrangements with each of its current directors, true and
correct copies of which have previously been delivered to Sub.
Section 9.4 HSR Act. The Company shall use its reasonable best
-------
efforts to file, and Sub shall use its reasonable best efforts to cause its
ultimate parent entity to file, as soon as practicable following the execution
of this Agreement, notifications under the HSR Act in connection with the Merger
and the transactions contemplated hereby, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") for additional information or documentation and to respond as
promptly as practicable to all inquiries and requests received from any State
Attorney General or other governmental authority in connection with antitrust
matters relating to the transactions contemplated by this Agreement. Each of
the parties shall provide a copy of its filing materials under the HSR Act to
the other party prior to making such filing and the parties shall confer on the
matters set forth therein.
Section 9.5 Reasonable Best Efforts. (a) Subject to the terms and
-----------------------
conditions of this Agreement, each of the parties hereto agrees to cooperate
with each other and to use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, in each case consistent with
the fiduciary duties of their respective Boards of Directors, all things
necessary, proper or advisable (i) under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement as
soon as reasonably practicable, including to obtain all necessary waivers,
consents and approvals and to effect all necessary registrations and filings and
(ii) to lift any injunction or other legal bar to the Merger as soon as
reasonably practicable (and, in such case, to proceed with the Merger as
expeditiously as possible); provided, however, that nothing in this Section or
elsewhere in this Agreement shall require any party hereto to incur expenses in
connection with the transactions contemplated hereby which are not reasonable
under the circumstances in relation to the size of the transaction contemplated
hereby or to require any party
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or any affiliate of any party to hold separate or make any divestiture of a
significant asset or otherwise agree to any material restriction on the
operations of any party in order to obtain any waiver, consent or approval
required by this Agreement.
(b) In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
Surviving Corporation shall take all such necessary action.
(c) If at any time prior to the Effective Time any information, event
or circumstance shall be discovered that should be set forth in a supplement to
the Proxy Statement, the discovering party shall promptly inform the other party
of such information, event or circumstance, and the Company shall as soon as
practicable prepare a supplement to the Proxy Statement, which shall be in form
and substance reasonably satisfactory to Sub, and mail such supplement to its
stockholders.
Section 9.6 No Solicitation. Prior to the Effective Time, the
---------------
Company shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly, initiate, solicit, negotiate or encourage (including by way of
furnishing information), or take any other action to facilitate or entertain,
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any proposal or offer to acquire all or substantially
all of the business of the Company and its Subsidiaries, or all or substantially
all of the capital stock of the Company, whether by merger, purchase of assets,
tender offer, exchange offer or otherwise, whether for cash, securities or any
other consideration or combination thereof (any such transaction being referred
to herein as an "Other Acquisition Transaction") or agree to endorse or
recommend any such Other Acquisition Transaction or enter into an agreement
relating to an Other Acquisition Transaction; provided, however, that the
Company and its Subsidiaries may negotiate with a corporation, partnership,
person or other entity or group (a "Potential Acquirer") if (i) the Potential
Acquirer has, in circumstances not involving any prior breach by the Company of
the foregoing provisions, made a tender or exchange offer for, or a proposal to
the Board of Directors of the Company to acquire, a majority of the capital
stock of the Company or made a proposal for a merger, purchase of all or
substantially all of the assets of the Company, or other business combination
transaction involving a change of control of the Company, (ii) the Company's
Board of Directors believes, based in part upon advice of its financial advisor,
and after having an opportunity to discuss any such proposal with the Potential
Acquirer, which contacts shall not be deemed a violation of this Section 9.6,
that such Potential Acquirer has the financial wherewithal to consummate such
offer or transaction and such offer or transaction would yield a better value to
the Company's stockholders than would the Merger (a "Superior Proposal"), and
(iii) based upon the advice of counsel to the Company to such effect given to
the Board of Directors of the Company (notice of which advice has been
communicated to Sub), the Company's Board of Directors determines in good faith
that there is a significant risk that the failure to negotiate with the
Potential Acquirer could constitute a breach of the Board's fiduciary duty to
the stockholders of the Company. The Company shall promptly advise Sub in
writing of any request for non-public written information or of any Other
Acquisition Transaction, or any inquiry that could reasonably be expected to
lead to any Other Acquisition Transaction, the terms and conditions of such
request, Other Acquisition Transaction or inquiry, the identity of the person
making any such request, Other Acquisition Transaction or inquiry, and whether
the Company has elected to negotiate
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with a Potential Acquirer in accordance with the preceding sentence. The Company
shall use its reasonable best efforts to keep Sub fully informed of the status
and details of any such request, Other Acquisition Transaction, inquiry, or
negotiation. The Company may not enter into a definitive agreement for an Other
Acquisition Transaction with a Potential Acquirer with which the Company is
permitted to negotiate pursuant to this Section 9.6 unless (i) at least 10
business days prior to the Company's execution thereof the Company shall have
furnished Sub with a description of all of the material terms thereof and (ii)
the Company shall terminate this Agreement in accordance with Section 11.1(e)
hereof. Notwithstanding the foregoing, the Taurus Disposition shall be excluded
from the provisions of this Section 9.6 for all purposes. Each of Sub and JEDI
agrees and acknowledges that any information furnished to it by the Company
pursuant to this Section 9.6 shall be subject to the terms and conditions set
forth in the Confidentiality Agreement.
Section 9.7 Taurus Disposition. The Company shall use its reasonable
------------------
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable to promptly negotiate a
definitive agreement (the "Taurus Disposition Agreement") providing for the sale
of Taurus, whether by merger, sale of all or substantially all of the assets of
Taurus, sale of all of the capital stock of Taurus or otherwise (the "Taurus
Disposition") as soon as reasonably practicable. Prior to the execution of the
final version of the Taurus Disposition Agreement, Taurus shall deliver such
version to JEDI for review at least five business days prior to its execution.
JEDI may, by delivering notice to the Company within such five business days,
object to the terms or conditions of such agreement as it determines in its sole
discretion, and if such objection is not made then such agreement shall be an
"Approved Taurus Disposition Agreement." The Company shall use its reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable to consummate the Taurus
Disposition if an Approved Taurus Disposition Agreement is executed and the
Company shall cause Taurus to repay all indebtedness owed to the Company or its
other Subsidiaries prior to the consummation of the Taurus Disposition. Except
as otherwise provided in the Taurus Disposition Agreement, neither the Company
nor any of its Subsidiaries (other than Taurus) shall make any capital
contribution to Taurus, engage in any transaction with Taurus not in conformance
with past practice or which would add material value to Taurus or otherwise
transfer value to Taurus (including the assumption of liabilities), unless Sub
shall otherwise consent in writing. The Company shall keep Sub informed of the
status of the transactions relating to the Taurus Disposition. Notwithstanding
the foregoing, if JEDI delivers its written objection to the Company of the
Taurus Disposition Agreement within the time period delineated above, the
Company may, in its sole discretion, proceed with the execution of the Taurus
Disposition Agreement and the consummation of such Taurus Disposition, but shall
deliver written notice to such effect to JEDI (the "Taurus Disposition Notice")
within five business days following the receipt by the Company of JEDI's written
objection notice. In such event, Sub shall have the right to terminate this
Agreement as set forth in Section 11.1(h).
Section 9.8 JEDI.
----
JEDI agrees to take all action necessary to cause Sub to perform all
of Sub's, and the Surviving Corporation to perform all of the Surviving
Corporation's, agreements, covenants and obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this Agreement.
Sub and JEDI shall be liable for any breach of any representation, warranty,
covenant or agreement of Sub or Surviving Corporation and for any breach of this
covenant;
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provided, however, that JEDI shall not have any responsibility for, or provide
any guaranties of, any actions of Sub or any obligation or liability otherwise
hereunder after the Effective Time, except as expressly provided in Sections 3.2
and 9.3.
Section 9.9 Certain Employee Benefit Matters. The Company and Sub
--------------------------------
acknowledge and agree that it is currently anticipated that the Surviving
Corporation will not become a participating employer in any employee benefit or
compensation plans sponsored or maintained by Enron Corp. for the benefit of its
subsidiaries or affiliated companies. For a period of 24 months following the
Effective Time, the Surviving Corporation will maintain in place the Company's
current health and 401(k) plans or substantially equivalent plans.
ARTICLE X
CONDITIONS PRECEDENT
Section 10.1 Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Merger. The respective obligations of each party to effect the Merger shall be
- ------
subject to the fulfillment at or prior to the Effective Time of the following
conditions, any one or more of which may be waived in a writing executed by Sub
and the Company subject to and in accordance with Section 11.4 hereof:
(a) This Agreement and the Merger shall have been approved and
adopted by the requisite vote of the holders of the Company Common Stock.
(b) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(c) No United States or state governmental authority or other agency
or commission or United States or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the Merger illegal or otherwise preventing or prohibiting consummation
of the Merger.
(d) The Company shall have received the written opinion of Bear,
Stearns & Co. Inc., financial advisor to the Company, dated the date of the
Proxy Statement, to the effect that the Merger is fair to the stockholders of
the Company from a financial point of view (except that such advice need not be
provided to management stockholders who will participate in the equity ownership
of the Surviving Corporation).
(e) At the time of the Company Meeting, the Company shall have
confirmed that the written opinion of Bear, Stearns & Co. Inc., referred to in
Section 10.1(d) hereof has not been withdrawn.
(f) There shall not be pending any action, proceeding or
investigation brought by any person or entity before any Governmental Entity
challenging, affecting, or seeking material damages in connection with, the
transactions contemplated by this Agreement.
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Section 10.2 Conditions to Obligation of the Company to Effect the
-----------------------------------------------------
Merger. The obligation of the Company to effect the Merger shall be subject to
- ------
the fulfillment at or prior to the Effective Time of the following additional
conditions, unless waived in writing by the Company in accordance with Section
11.4 hereof:
(a) JEDI and Sub shall have performed in all material respects their
respective agreements contained in this Agreement required to be performed on or
prior to the Effective Time and the representations and warranties of JEDI and
Sub contained in this Agreement shall be true and correct in all material
respects when made and on and at the Effective Time as if made at such time
(except to the extent they expressly relate to the date of this Agreement or any
other particular date), and the Company shall have received a certificate of the
President or Chief Executive Officer (or comparable officer) of JEDI and Sub,
dated the Closing Date, to that effect.
(b) The Company shall have received the opinion of Vinson & Elkins
L.L.P., dated the Closing Date, substantially in the form of Exhibit A hereto.
Section 10.3 Conditions to Obligations of Sub to Effect the Merger.
-----------------------------------------------------
The obligations of Sub to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following additional conditions, unless
waived in writing by Sub in accordance with Section 11.4 hereof:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Effective Time and the representations and warranties of the Company
contained in this Agreement which are qualified with respect to materiality
shall be true and correct in all respects, and such representations and
warranties that are not so qualified shall be true and correct in all material
respects, in each case when made and on and at the Effective Time as if made at
such time (except to the extent they expressly relate to the date of this
Agreement or any other particular date), and Sub shall have received a
certificate signed on behalf of the Company by its President or Chief Executive
Officer, dated the Closing Date, to that effect. Notwithstanding anything to
the contrary herein, with respect to any representation or warranty in this
Agreement which refers to a Company Material Adverse Effect, a Company Material
Adverse Effect shall mean adverse effects resulting in an aggregate Loss in
excess of $5.0 million. "Loss" shall mean the amount that would be required to
be contributed to the Surviving Corporation at the Effective Time so that the
owners of the Surviving Corporation would be in the same economic position as
they would have been if such adverse effects had not occurred and would not
occur.
(b) All permits, consents, authorizations, approvals, registrations,
qualifications, designations and declarations set forth on Schedule 7.4 of the
Company Disclosure Schedule as a result of the last sentence of Section 7.4
hereof shall have been obtained, on terms and conditions reasonably satisfactory
to Sub, and, to the extent required to be submitted prior to the Effective Time,
all filings and notices set forth on Schedule 7.4 of the Company Disclosure
Schedule as a result of the last sentence of Section 7.4 hereof shall have been
submitted by the Company.
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<PAGE>
(c) Sub shall have received the opinion of Haynes and Boone, L.L.P.
and Joe Callaway, General Counsel to the Company, dated the Closing Date,
substantially in the form of Exhibit B-1 and Exhibit B-2, respectively, hereto.
(d) The Company shall have consummated the Taurus Disposition in
accordance with the Approved Taurus Disposition Agreement.
(e) The number of Dissenting Shares shall not exceed 10% of the
number of outstanding shares of Company Common Stock.
(f) None of the Specified Parties to the Employment Agreements,
Subscription Agreements, Stockholders Agreement and Business Opportunity
Agreement as set forth in Schedule 10.3(f) of the Company Disclosure Schedule
shall have breached or anticipatorily breached any such agreements and none of
Douglas H. Miller, Grant W. Henderson or J. William Freeman shall have died or
become disabled.
(g) Sub shall have received the written resignations, effective as of
the Effective Time, of each director of each of the Company and its
Subsidiaries.
(h) Each holder of all Outstanding Warrants shall have executed a
Warrant Relinquishment and Release Agreement, as contemplated by Section 3.6.
(i) All members of management of the Company
shall have repaid all indebtedness owed by them to the Company.
(j) Assuming the representations and warranties of the Company were
made without regard to any "materiality qualifications," the amount that would
be required to be contributed to the Surviving Corporation at the Effective Time
so that the owners of the Surviving Corporation would be in the same economic
position as they would have been if the representations and warranties, without
regard to any such materiality qualifications, had been true and correct in all
respects, would in the aggregate not exceed $7.5 million. Without regard to any
"materiality qualifications" shall mean that references to "material" and words
of similar import shall, for such purpose, be considered to have been deleted
from the text herein and that references to exclusions or other qualifications
for items that would not, individually or in the aggregate, have or cause a
Company Material Adverse Effect or phrases of similar import shall, for such
purposes, be considered to have been deleted from the text herein.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
Section 11.1 Termination. This Agreement may be terminated at any
-----------
time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the stockholders of the
Company:
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<PAGE>
(a) by mutual consent of the Board of Directors of Sub and the Board
of Directors of the Company;
(b) by either Sub or the Company if the Merger shall not have been
consummated on or before March 15, 1996 (unless, such circumstance is the result
of a breach of the terms hereof by the party exercising the termination right);
(c) by Sub if there has been a material breach on the part of the
Company, or by the Company if there has been a material breach on the part of
Sub or JEDI, of any representation, warranty, covenant or agreement set forth in
this Agreement, which breach has not been cured within fifteen business days
following receipt by the breaching party of written notice of such breach;
(d) by either Sub or the Company upon written notice to the other
party if any Governmental Entity of competent jurisdiction shall have issued (i)
a final permanent order enjoining or otherwise prohibiting the consummation of
any of the transactions contemplated by this Agreement, and in any such case the
time for appeal or petition for reconsideration of such order shall have expired
without such appeal or petition being granted, or (ii) any order or directive
that does not directly enjoin or otherwise prohibit the consummation of the
transactions contemplated by this Agreement, but that would, if JEDI, Sub or the
Company were to comply with such order or directive as a condition to
consummating the transactions contemplated hereby, have a material adverse
effect on the business, operations or financial condition of either JEDI or the
Surviving Corporation and its Subsidiaries taken as a whole;
(e) by the Company if (i) the Board of Directors of the Company
reasonably believes that an Other Acquisition Transaction is a Superior
Proposal, (ii) the ten business day period referred to in Section 9.6 shall have
expired, and (iii) simultaneously with such termination the Company enters into
a definitive agreement to effect such Other Acquisition Transaction (a
"Terminating Other Acquisition Transaction");
(f) by either Sub or the Company if the required approval of the
Company's stockholders is not received in a vote duly taken at the Company
Meeting contemplated by Section 3.7 hereof;
(g) by Sub if the Board of Directors of the Company or any committee
thereof (i) shall have amended, modified, rescinded or repealed the
recommendation of the Company's Board of Directors to the stockholders of the
Company to approve the Merger and the adoption of this Agreement, or (ii) shall
have adopted any other resolution in connection with this Agreement and the
transactions contemplated hereby inconsistent with such recommendation of the
consummation of the transactions contemplated hereby;
(h) by Sub (i) upon written notice to the Company if the Company does
not present to JEDI within 60 days after the signing of this Agreement a Taurus
Disposition Agreement that is satisfactory to JEDI in its sole discretion,
provided however, that the Company may extend such 60 day period (A) for an
additional 30 days by notifying Sub prior to the 60th day in writing of its
decision to do so accompanied with a payment of $175,000 and (B) for an
additional 30 days by written notification to Sub prior to the 90th day
accompanied with an additional $75,000; or (ii) upon
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<PAGE>
written notice to the Company within five business days after JEDI receives a
Taurus Disposition Notice as contemplated by Section 9.7;
(i) by Sub, if any representation or warranty of the Company shall
have become untrue such that the condition set forth in Section 10.3(a) would be
incapable of being satisfied by March 15, 1996 or by the Company if any
representation or warranty of Sub or JEDI shall have become untrue such that the
condition set forth in Section 10.2(a) would be incapable of being satisfied by
March 15, 1996.
Section 11.2 Effect of Termination. In the event of termination of
---------------------
this Agreement pursuant to Section 11.1, no party hereto shall have any
obligation or liability to any other party hereto except (i) that the
penultimate sentence of Section 9.1, this Section 11.2 and Sections 12.3 and
12.6 shall survive any such termination and (ii) that, except as set forth
herein, nothing herein and no termination pursuant hereto will relieve any party
from liability for any breach of this Agreement.
Section 11.3 Amendment. This Agreement may be amended by the parties
---------
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval hereof by the stockholders of the Company,
but, after such approval, no amendment shall be made that under applicable law
requires further approval of such stockholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 11.4 Waiver. At any time prior to the Effective Time, the
------
parties hereto 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 of any other party contained
herein or in any documents delivered pursuant hereto by any other party and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Non-Survival of Representations and Warranties. All
----------------------------------------------
representations, warranties, agreements and covenants set forth in this
Agreement shall terminate at the Effective Time or upon termination of this
Agreement pursuant to Section 11.1, as the case may be, except that (i) the
agreements set forth in Sections 9.3, 9.5(b), 9.8 and 9.9 and Articles III and
XII (excluding Section 12.3) shall survive the Effective Time indefinitely and
(ii) the agreements set forth in the penultimate sentence of Section 9.1 and in
Article XII (including Section 12.3) shall survive termination indefinitely.
Section 12.2 Notices. All notices or other communications under this
-------
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by facsimile transmission
(with a hard copy delivered by overnight delivery service) or by overnight
delivery service, or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
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<PAGE>
If to the Company:
Coda Energy, Inc.
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
Attention: General Counsel
Telecopy No.: (214) 265-4777
With a copy to:
Haynes and Boone, L.L.P.
901 Main Street, Suite 3100
Dallas, Texas 75202
Attention: William L. Boeing
Telecopy No.: (214) 651-5940
And with a copy to:
Locke Purnell Rain Harrell
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
Attention: Dan Busbee
Telecopy No.: (214) 740-8800
If to Sub or JEDI:
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Keith Power/Brenda McGee, Specialist - 28th Floor
Telecopy No.: (713) 646-3602
Telephone No.: (713) 853-5259
With a copy to:
Tim Detmering
1400 Smith Street
Houston, Texas 77002
Telecopy No.: (713) 646-3750
and
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002
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<PAGE>
Attention: Scott N. Wulfe
Telecopy No.: (713) 758-2346
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 12.2.
Section 12.3 Expenses; Termination Fees.
--------------------------
(a) Subject to Sections 12.3(b), (c) and (e), whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated herein shall be paid by the party
incurring such expenses.
(b) If this Agreement is terminated by Sub pursuant to Sections
11.1(c), (e), (f) or (g), then the Company shall, by wire transfer of
immediately available funds to an account designated by Sub, reimburse Sub and
its affiliates, not later than two business days after Sub submits to the
Company statements therefor, for all reasonable and necessary out-of-pocket fees
and expenses (including, without limitation, all reasonable fees and expenses of
counsel, accountants, financial institutions, experts and consultants) incurred
in connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, the arranging of financing for the
Merger and all other matters related to the consummation of the transactions
contemplated hereby up to a maximum amount of $750,000 (exclusive of any
expenses and fees specifically agreed to by the Company and incurred in
connection with any proposed placement of subordinated debt to finance or
refinance the transactions contemplated hereby) in the case of a termination
pursuant to Sections 11.1(c), (e) or (g) and up to a maximum amount of $500,000
(exclusive of any expenses and fees specifically agreed to by the Company and
incurred in connection with any proposed placement of subordinated debt to
finance or refinance the transactions contemplated hereby) in the case of a
termination pursuant to Section 11.1(f). A payment under this Section 12.3(b)
shall not limit Sub's or JEDI's right to pursue all other available remedies if
the Company has breached this Agreement, although neither JEDI nor Sub shall be
permitted to recover such fees and expenses more than once.
(c) If this Agreement is terminated by the Company pursuant to
Section 11.1(c), then JEDI shall, by wire transfer of immediately available
funds to an account designated by the Company, reimburse the Company, not later
than two business days after the Company submits to JEDI statements therefor,
for all reasonable and necessary out-of-pocket fees and expenses (including,
without limitation, all reasonable fees and expenses of counsel, accountants,
financial institutions, experts and consultants) incurred in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement, and all other matters related to the consummation
of the transactions contemplated hereby up to a maximum amount of $750,000
(exclusive of any expenses and fees specifically agreed to by the Company and
JEDI and incurred in connection with any proposed placement of subordinated debt
to finance or refinance the transactions contemplated hereby). A payment under
this Section 12.3(c) shall not limit the Company's right to pursue all other
available remedies if Sub or JEDI has breached this Agreement, although the
Company shall not be permitted to recover such fees and expenses more than once.
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<PAGE>
(d) In addition to any amounts payable pursuant to Section 12.3(b),
if this Agreement is terminated for any reason other than a termination by Sub
pursuant to Section 11.1(b), (h) or (i) or by the Company pursuant to Section
11.1(c), then if (i) a Terminating Other Acquisition Transaction is consummated
or (ii) an Other Acquisition Transaction that provides a better value to the
holders of Company Common Stock than the Merger would have provided is
consummated prior to the first anniversary of the date of this Agreement, then
the Company shall pay to Sub, by wire transfer of immediately available funds to
an account designated by Sub, $3.5 million not later than the second business
day following such consummation. A payment under this Section 12.3(d) shall not
limit Sub's right to pursue all other available remedies if the Company has
breached this Agreement.
(e) If (i) prior to the termination of this Agreement, any person
(other than Sub or any affiliate thereof) or group (as such term is defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) becomes the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of more than 20% or more of the outstanding Company Common
Stock; (ii) either this Agreement is terminated pursuant to Section 11.1(f) or
such beneficial owner takes any action to oppose or prevent the consummation of
the Merger and this Agreement is terminated for any reason; and (iii) an Other
Acquisition Transaction is consummated within one calendar year of the date of
the Company Meeting, then the Company shall pay to Sub, by wire transfer of
immediately available funds to an account designated by Sub $3.5 million plus
all out-of-pocket fees and expenses (of the type referred to in Section 12.3(b)
and subject to the limitations set forth in Section 12.3(b)) not later than two
business days after Sub submits to the Company a request therefore.
Notwithstanding the foregoing, no payment shall be required under Sections
12.3(b) or 12.3(d), if the payment specified by this Section 12.3(e) has been
made to Sub, and no payment shall be required under this Section 12.3(e) if the
payments specified by Sections 12.3(b) and (d) have been made to Sub. A payment
under this Section 12.3(e) shall not limit Sub's right to pursue all other
available remedies if the Company has breached this Agreement.
Section 12.4 Publicity. So long as this Agreement is in effect, none
---------
of JEDI, Sub nor the Company shall issue any press release or otherwise make any
public statement with respect to the transactions contemplated by this Agreement
without the consent of the other, which consent shall not be unreasonably
withheld, unless such press release or public statement is required by law,
regulation or rules of any applicable market or exchange, in which case such
press release or public statement may be made after providing the other parties
hereto a reasonable opportunity to comment thereon.
Section 12.5 Interpretation. The headings contained in this
--------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 12.6 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner
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<PAGE>
in order that the transactions contemplated hereby may be consummated to the
fullest extent possible.
Section 12.7 Miscellaneous. This Agreement (together with the
-------------
exhibits and the Company Disclosure Schedule referred to herein) and the
Confidentiality Agreement (i) constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof, (ii) except
as provided in Section 9.3, is not intended to confer upon any other person any
rights or remedies hereunder and shall be binding upon and inure to the benefit
solely of each party hereto, and their respective successors and assigns, (iii)
shall not be assigned by operation of law or otherwise, except that Sub shall
have the right to assign to any direct wholly owned subsidiary of JEDI
incorporated under the laws of Delaware any and all rights and obligations of
Sub under this Agreement, and (iv) shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Delaware with
respect to the procedures applicable to the Merger and the internal affairs of
the parties and the laws of the State of Texas, with respect to all other
matters (without giving effect to the provisions thereof relating to conflicts
of law). This Agreement may be executed in any number of counterparts which
together shall constitute a single agreement.
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<PAGE>
IN WITNESS WHEREOF, Sub, JEDI and the Company have caused this
Agreement to be signed by their respective officers thereunder duly authorized
all as of the date first written above.
CODA ACQUISITION, INC.
By: /s/ C. John Thompson
--------------------------------------------
Name: C. John Thompson
Title: Vice President
CODA ENERGY, INC.
By: /s/ Douglas H. Miller
--------------------------------------------
Name: Douglas H. Miller
Title: Chairman of the Board and Chief
Executive Officer
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management
Limited Partnership, its general partner
By: Enron Capital Corp., its general partner
By: /s/ C. John Thompson
--------------------------------------------
Name: C. John Thompson
Title: Agent and Attorney-in-Fact
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<PAGE>
AMENDMENT TO
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
CODA ACQUISITION, INC.,
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
AND
CODA ENERGY, INC.
DATED AS OF DECEMBER 22, 1995
<PAGE>
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT (this "Amendment") TO AGREEMENT AND PLAN OF MERGER, dated as
of December 22, 1995, by and among Coda Acquisition, Inc., a Delaware
corporation ("Sub"), Coda Energy, Inc., a Delaware corporation (the "Company")
and Joint Energy Development Investments Limited Partnership, a Delaware limited
partnership ("JEDI"):
WITNESSETH:
WHEREAS, Sub, the Company and JEDI have entered into that certain Agreement
and Plan of Merger dated as of October 30, 1995 (the "Agreement") providing for
the merger of Sub with and into the Company (the "Merger");
WHEREAS, Sub, the Company and JEDI now desire to amend the Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Capitalized terms used in this Amendment, to the
extent not otherwise defined herein, shall have the same meanings as in the
Agreement as amended hereby.
ARTICLE II
AMENDMENTS
Section 2.1 Amendment to Section 3.1. Effective as of the date hereof,
the reference in Section 3.1 of the Agreement to $8.00 is hereby amended to
$7.75.
Section 2.2 Amendment to Section 3.6 (a) and (b). Effective as of the
date hereof, the references in Section 3.6 (a) and (b) of the Agreement to $8.00
are hereby amended to $7.75.
Section 2.3 Amendment to Article IV. Effective as of the date hereof
Article IV of the Agreement is hereby amended to delete the definitions of
"Approved Taurus Disposition Agreement", "Taurus Disposition", "Taurus
Disposition Agreement" and "Taurus Disposition Notice."
Section 2.4 Amendment to Section 8.1(a). Effective as of the date hereof,
Section 8.1(a) of the Agreement is hereby amended by deleting the parenthetical
phrase therein.
Section 2.5 Amendment to Section 9.6. Effective as of the date hereof,
Section 9.6 of the Agreement is hereby amended by deleting the penultimate
sentence thereof.
Section 2.6 Amendment to Section 9.7. Effective as of the date hereof,
Section 9.7 of the Agreement is hereby amended and restated in its entirety to
read as follows:
<PAGE>
Section 9.7 No Taurus Disposition. The Company shall not
negotiate and shall not enter into any agreement providing
for the sale of Taurus, whether by merger, sale of all or
substantially all of the assets of Taurus, sale of all of
the capital stock of Taurus or otherwise, without, in each
such case, obtaining the prior written consent of JEDI.
Section 2.7 Amendment to Section 10.3. Effective as of the date hereof,
Section 10.3 of the Agreement is hereby amended by deleting subsection (d) in
its entirety.
Section 2.8 Amendment to Section 11.1. Effective as of the date hereof,
Section 11.1 of the Agreement is hereby amended by deleting subsection (h) in
its entirety.
Section 2.9 Amendment to Option Relinquishment and Release Agreement and
Warrant Relinquishment and Release Agreement. Effective as of the date hereof,
the references in the recitals of both the Option Relinquishment and Release
Agreement and the Warrant Relinquishment and Release Agreement to $8.00 are
amended to $7.75.
ARTICLE III
MISCELLANEOUS
Section 3.1 Ratifications; Waiver of Claims. The terms and
provisions set forth in this Amendment shall modify and supersede all
inconsistent terms and provisions set forth in the Agreement and except as
expressly modified and superseded by this Amendment, the terms and provisions of
the Agreement are ratified and confirmed and shall continue in full force and
effect. Sub, the Company and JEDI agree that the Amendment is, and the
Agreement as amended hereby shall continue to be, legal, valid, binding and
enforceable in accordance with its respective terms, subject, however, to (i)
the execution, on or prior to January 15, 1996, of amendments to the
Subscription Agreement and the Stockholders Agreement (the "Management
Agreements") satisfactory to JEDI, in its sole discretion, and (ii) the receipt,
on or prior to January 15, 1996, by the Company of oral or written confirmation,
in form and substance acceptable to the Special Committee and to the Board of
Directors of the Company, from Bear, Stearns & Co. Inc. ("Bear Stearns"),
financial advisor to the Company, that the Merger, based on the revised Merger
Consideration, is fair to the stockholders of the Company from a financial point
of view (except that such advice need not be provided to management stockholders
who will participate in the equity ownership of the Surviving Corporation). If
either (x) amendments to the Management Agreements satisfactory to JEDI, in its
sole discretion, are not executed on or prior to January 15, 1996 or (y) the
Company has not received such confirmation from Bear Stearns on or prior to
January 15, 1996, then this Amendment shall become void and the Agreement shall
continue in full force and effect without giving effect to this Amendment.
Section 3.2 Representations and Warranties. Each of Sub, the Company
and JEDI hereby represents and warrants to the other of such parties that the
execution, delivery and performance of this Amendment has been authorized by all
requisite corporate action on the part of each of Sub, the Company and JEDI and
will not violate the articles or certificate of incorporation, bylaws or
partnership agreement, as applicable, of any of Sub, the Company and JEDI.
Section 3.3 Reference to Agreement. The Agreement is hereby amended
so that any reference therein to the Agreement shall mean a reference to the
Agreement as amended hereby.
2
<PAGE>
IN WITNESS WHEREOF, Sub, JEDI and the Company have caused this
Amendment to be signed by their respective officers thereunder duly authorized
all as of the date first written above.
CODA ACQUISITION, INC.
By: /s/ C. John Thompson
--------------------------------------------
Name: C. John Thompson
Title: Vice President
CODA ENERGY, INC.
By: /s/ Douglas H. Miller
--------------------------------------------
Name: Douglas H. Miller
Title: Chairman of the Board
and Chief Executive Officer
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general partner
By: /s/ C. John Thompson
-----------------------------------------
Name: C. John Thompson
Title: Agent and Attorney-in-Fact
3
<PAGE>
SECOND AMENDMENT TO
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
CODA ACQUISITION, INC.,
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
AND
CODA ENERGY, INC.
DATED AS OF JANUARY 10, 1996
<PAGE>
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS SECOND AMENDMENT (this "Second Amendment") TO AGREEMENT AND PLAN OF
MERGER, dated as of January 10, 1996, by and among Coda Acquisition, Inc., a
Delaware corporation ("Sub"), Coda Energy, Inc., a Delaware corporation (the
"Company") and Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI"):
W I T N E S S E T H:
WHEREAS, Sub, the Company and JEDI have entered into that certain Agreement
and Plan of Merger dated as of October 30, 1995 (the "Agreement") providing for
the merger of Sub with and into the Company (the "Merger");
WHEREAS, Sub, the Company and JEDI have entered into that certain Amendment to
Agreement and Plan of Merger dated as of December 22, 1995 (the "First
Amendment");
WHEREAS, Sub, the Company and JEDI now desire to amend the Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS ARTICLE IDEFINITIONS
Section 1.1 Definitions. Capitalized terms used in this Second Amendment,
to the extent not otherwise defined herein, shall have the same meanings as in
the Agreement as amended by the First Amendment and hereby.
ARTICLE II
AMENDMENTS
Section 2.1 Amendment to Exhibit 2.1. Effective as of the date hereof,
Exhibit 2.1 of the Agreement is hereby amended and restated in its entirety as
set forth in the attached Exhibit 2.1.
Section 2.2 Amendment to Schedule 3.6(a)(1). Effective as of the date
hereof, Schedule 3.6(a)(1) of the Agreement is hereby amended and restated in
its entirety as set forth in the attached Schedule 3.6(a)(1).
<PAGE>
Section 2.3 Amendment to Section 9.3(a). Effective as of the date hereof,
Section 9.3(a) of the Agreement is hereby amended by adding to the end of the
section the following parenthetical phrase:
"(other than dividends or other distributions paid in respect of the 15%
Cumulative Preferred Stock of the Surviving Corporation)."
ARTICLE III
MISCELLANEOUS
Section 3.1 Ratifications. The terms and provisions set forth in this
Second Amendment shall modify and supersede all inconsistent terms and
provisions set forth in the Agreement, as amended, and except as expressly
modified and superseded by this Second Amendment, the terms and provisions of
the Agreement, as amended, are ratified and confirmed and shall continue in full
force and effect. Sub, the Company and JEDI agree that this Second Amendment
is, and the Agreement as amended by the First Amendment and hereby shall
continue to be, legal, valid, binding and enforceable in accordance with its
respective terms.
Section 3.2 Representations and Warranties. Each of Sub, the Company and
JEDI hereby represents and warrants to the other of such parties that the
execution, delivery and performance of this Second Amendment has been authorized
by all requisite corporate action on the part of each of Sub, the Company and
JEDI and will not violate its articles or certificate of incorporation, bylaws
or partnership agreement, as applicable, and the Company hereby represents and
warrants to Sub and JEDI that the Company has received oral or written
confirmation, in form and substance acceptable to the Special Committee and to
the Board of Directors of the Company, from Bear, Stearns & Co., Inc., financial
advisor to the Company, that the Merger, based on the revised Merger
Consideration, is fair to the stockholders of the Company from a financial point
of view (except that such advice was not provided to management stockholders who
will participate in the equity ownership of the Surviving Corporation).
Section 3.3 Reference to Agreement. The Agreement is hereby amended so that
any reference therein to the Agreement shall mean a reference to the Agreement
as amended by the First Amendment and hereby.
2
<PAGE>
IN WITNESS WHEREOF, Sub, JEDI and the Company have caused this Second
Amendment to be signed by their respective officers thereunder duly authorized
all as of the date first written above.
CODA ACQUISITION, INC.
By: /s/ C. John Thompson
------------------------------------
Name: C. John Thompson
Title: Vice President
CODA ENERGY, INC.
By: /s/ Douglas H. Miller
------------------------------------
Name: Douglas H. Miller
Title: Chairman of the Board and Chief
Executive Officer
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management
Limited Partnership, its general partner
By: Enron Capital Corp., its general partner
By: /s/ C. John Thompson
------------------------------------
Name: C. John Thompson
Title: Agent and Attorney-in-Fact
3
<PAGE>
EXHIBIT 2.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CODA ENERGY, INC.
* * * * *
ARTICLE I.
The name of the corporation is CODA ENERGY, INC.
ARTICLE II.
The registered office of this corporation in the State of Delaware is located
at 1209 Orange Street in the City of Wilmington, County of New Castle. The name
and address of its registered agent is The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware.
ARTICLE III.
The nature of the business or purpose of this corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Laws of Delaware.
ARTICLE IV.
1. The total number of shares of stock which this corporation shall have
authority to issue is 1,040,000 shares, consisting of:
(a) 40,000 shares of preferred stock, all of which are to be of the
par value of $0.01 each and all to be designated the Preferred Stock of the
corporation; and
(b) 1,000,000 shares of common stock, all of which are to be of the
par value of $0.01 each and all to be designated the Common Stock of the
corporation.
2. The voting powers, designations, preferences and relative,
participating, optional or other special rights and qualifications or
restrictions of the Preferred Stock and the Common Stock are as follows:
(A) Preferred Stock
(1) Designation. The Preferred Stock is hereby designated "15% Cumulative
Preferred Stock" (hereinafter sometimes referred to in this Article IV as "15%
Cumulative Preferred Stock"), and the number of shares which shall constitute
such class of stock is 40,000 shares.
(2) Dividends. (a) The holders of each share of 15% Cumulative Preferred
Stock shall be entitled to receive, when and as declared by the Board of
Directors, out of any funds legally available therefor, cumulative preferential
dividends, at the rate of $150.00 per share per annum. Dividends on shares of
the 15% Cumulative Preferred Stock shall accrue, whether or not
<PAGE>
earned, from the date of issuance of such shares of the 15% Cumulative Preferred
Stock and, other than dividends on account of arrears for past dividend periods,
shall be payable in equal installments semi-annually on the last day of June and
December in each year (or, if any such day shall be a Saturday, Sunday, or bank
holiday in the State of Texas, then on the next succeeding business day). The
six- month periods from January 1 to June 30 and July 1 to December 31,
inclusive, are herein called "semi-annual periods".
Any dividend payments on shares of the 15% Cumulative Preferred Stock with
respect to a semi-annual period shall be made in cash, except that if the
corporation shall fail to pay the entire dividend for any semi-annual period in
cash, the corporation may pay the amount of the dividend not made in cash by the
issuance of additional shares of 15% Cumulative Preferred Stock. Any accrued or
unpaid dividends payable upon the redemption of a share of 15% Cumulative
Preferred Stock or upon the liquidation, dissolution or winding up of the
corporation shall be payable in cash only. The calculation of the number of
shares of 15% Cumulative Preferred Stock to be issued by the corporation as a
dividend pursuant to this paragraph (2) shall be based on a value per share of
the 15% Cumulative Preferred Stock equal to $1,000.00 per share. All shares of
15% Cumulative Preferred Stock issued as a dividend shall bear a date of
original issuance which is the same as the date on which such dividend was
payable. No fractional interest in shares of 15% Cumulative Preferred Stock
shall be issued as a dividend payment. Each holder of 15% Cumulative Preferred
Stock who would otherwise have been entitled to a fractional share of 15%
Cumulative Preferred Stock as a dividend payment on the aggregate number of
shares of 15% Cumulative Preferred Stock for which such holder is entitled to
receive dividends will receive, in lieu of such fractional share, a cash amount,
rounded to the nearest full cent, determined by multiplying such fraction of a
share by $1,000.00. All shares of 15% Cumulative Preferred Stock issued as a
dividend will be duly authorized, fully paid and nonassessable.
If the corporation shall fail to pay a semi-annual dividend either in cash
or by the issuance of additional shares of 15% Cumulative Preferred Stock, then
additional dividends shall be deemed to accrue on the amount of dividend so
unpaid, compounding semi-annually, at the rate of 15% per annum, which
additional dividends shall be payable by the corporation, at its option, either
in cash or by the issuance of additional shares of 15% Cumulative Preferred
Stock.
(b) Dividends on shares of 15% Cumulative Preferred Stock shall be
cumulative and shall accrue on a daily basis from the date of issuance of such
shares of 15% Cumulative Preferred Stock regardless of whether or not the
corporation shall have funds legally available for the payment of such
dividends. Dividends on the 15% Cumulative Preferred Stock payable for any
period less than or greater than a full semi-annual period shall be paid on the
basis of a year of 365 or 366 days, as applicable. Dividends will be payable to
holders of record as they appear on the stock books of the corporation on such
record dates as may be declared by the Board of Directors of the corporation,
not more than 60 days nor less than 10 days preceding the payment dates thereof,
as may be fixed by the Board of Directors of the corporation or a duly
authorized committee thereof. Dividends on account of arrears for any past
dividend periods may be declared and paid at any time, without reference to any
regular dividend payment date, to holders of record on a date not more than 60
days nor less than 10 days preceding the payment date thereof as may be fixed by
the Board of Directors of the corporation or a duly authorized committee
thereof. Holders of 15% Cumulative Preferred Stock will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends. Except as provided in the last paragraph of the preceding
paragraph (2)(a), no interest or sum of money in lieu of interest shall be
payable in respect of any accumulated unpaid dividends.
2
<PAGE>
(c) As long as any shares of 15% Cumulative Preferred Stock are
outstanding, no dividends whatsoever, whether paid in cash, stock, or otherwise
(except for dividends paid in shares of Common Stock, either in the form of a
stock split or stock dividend), shall be paid or declared, or any distribution
(except as aforesaid and except for distributions payable upon the complete
liquidation, dissolution or winding up of the corporation after payment or
provision for payment of the debts and other liabilities of the corporation and
payment or setting aside for payment of the preferential amount due to the
holders of 15% Cumulative Preferred Stock) shall be made, on any Common Stock to
the holders of such stock (any such dividend or distribution being herein called
a "Restricted Payment") unless (i) the remaining net assets of the corporation,
after giving effect to such Restricted Payment, shall at least equal the
aggregate preferential amount to which the 15% Cumulative Preferred Stock is
entitled pursuant to the provisions of this Article IV, in the event of the
voluntary liquidation, dissolution, or winding up of the corporation, and (ii)
all dividends on the 15% Cumulative Preferred Stock for all past semi-annual
periods shall have been paid or declared and a sum sufficient for the payment
thereof set apart.
(d) Shares of 15% Cumulative Preferred Stock in excess of 20,000 shares
shall be issuable only for the purpose of paying dividends on the 15% Cumulative
Preferred Stock as permitted by paragraphs (2)(a) and (2)(b) hereof.
(3) Redemption. (a) The 15% Cumulative Preferred Stock shall be redeemed
as a whole by the corporation at a redemption price of $1,000 per share, plus
all accrued and unpaid dividends (including undeclared dividends) to the date
of redemption, if the corporation shall have sufficient funds legally available
for such redemption and if such redemption would not violate or conflict with
any loan agreement, credit agreement, note agreement, indenture, or other
agreement relating to indebtedness (an "Approved Loan Agreement") to which the
corporation is a party on or before the fifth business day (the "Redemption
Date") after the earliest to occur of the following:
(i) the closing of the sale by the corporation of Taurus Energy Corp.
("Taurus") whether by merger, sale of all or substantially all of the
assets of Taurus, sale of all or substantially all of the capital stock of
Taurus, or otherwise; and
(ii) a Trigger Event (as such term is defined in that certain
Stockholders Agreement dated October 30, 1995, as amended, among Coda
Acquisition, Inc. and the other parties thereto).
provided that if the corporation either does not have sufficient funds legally
available for such redemption or such redemption would violate or conflict with
the provisions of an Approved Loan Agreement, the corporation shall have no
obligation to redeem the 15% Cumulative Preferred Stock on the Redemption Date.
Instead, the corporation shall redeem on the Redemption Date the number of
shares of 15% Cumulative Preferred Stock, if any, which the corporation can
redeem out of the funds legally available for such purpose and without violating
or conflicting with the provisions of any Approved Loan Agreement, and it shall
redeem the remainder of the shares of 15% Cumulative Preferred Stock as soon as
the corporation shall have legally available funds which are sufficient to
effect such redemption without violating or conflicting with the provisions of
any Approved Loan Agreement.
(b) The 15% Cumulative Preferred Stock may be redeemed by the corporation
at its option, as a whole or in part, to the extent the corporation shall have
funds legally available for such redemption, at any time or from time to time at
a redemption price of $1,000.00 per share, plus all accrued and unpaid dividends
(including undeclared dividends) to the date of redemption.
3
<PAGE>
(c) In case of the redemption of only part of the 15% Cumulative Preferred
Stock, the shares to be redeemed may be selected ratably or in such other
equitable manner as may be prescribed by resolution of the Board of Directors of
the corporation.
(4) Liquidation Preference. (a) Upon the complete liquidation,
dissolution, or winding up of the corporation, whether voluntarily or
involuntarily, the 15% Cumulative Preferred Stock shall be entitled, after
payment or provision for payment of the debts and other liabilities of the
corporation but before any distribution is made to the holders of any Common
Stock, to be paid $1,000.00 per share plus all accrued and unpaid dividends
(including undeclared dividends), and shall not be entitled to any further
payment.
(b) In case the net assets of the corporation are insufficient to pay all
outstanding shares of 15% Cumulative Preferred Stock the liquidation preferences
to which they are respectively entitled, then the entire net assets of the
corporation shall be distributed ratably to all outstanding shares of 15%
Cumulative Preferred Stock according to the amount due each such share.
(5) Voting. (a) Except as otherwise provided herein or required by law,
the holders of shares of 15% Cumulative Preferred Stock shall not be entitled to
vote on any matters to be voted on by the stockholders of the corporation.
(b) Notwithstanding the preceding paragraph, so long as any shares of the
15% Cumulative Preferred Stock are outstanding, the corporation shall not,
without the written consent or the affirmative vote of holders of at least a
majority of the total number of shares of 15% Cumulative Preferred Stock then
outstanding and voting as a class, (i) amend its Certificate of Incorporation or
By-laws or (ii) authorize the merger (whether or not the corporation is a
surviving corporation in such merger) of the corporation, in each case, if such
amendment or merger would alter, change or abolish the powers, preferences or
rights of the 15% Cumulative Preferred Stock so as to affect the holders of the
15% Cumulative Preferred Stock adversely.
(B) Common Stock
(1) Dividends. Subject to the provisions of Section 2(A) of this Article
IV, the Board of Directors of the corporation may, in its discretion, out of
funds legally available for the payment of dividends and at such times and in
such manner as determined by the Board of Directors, declare and pay dividends
on the Common Stock of the corporation.
(2) Liquidation. In the event of any liquidation, dissolution or winding
up of the corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the corporation and
payment or setting aside for payment of the preferential amount due to the
holders of the 15% Cumulative Preferred Stock in accordance with Section 2(A) of
this Article IV, the holders of the Common Stock of the corporation shall be
entitled to receive ratably any or all assets remaining to be paid or
distributed.
(3) Voting Rights. Subject to the special voting rights of the holders of
15% Cumulative Preferred Stock described in Section 2(A) hereof, the holders of
the Common Stock of the corporation shall be entitled at all meetings of
stockholders to one vote for each share of such stock held by them.
4
<PAGE>
(C) Liquidation Notices
Written notice of any voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the corporation, stating a payment date and the
place where the distributable amounts shall be payable, shall be given by mail,
postage prepaid, not less than 30 days prior to the payment date stated therein,
to the holders of record of the 15% Cumulative Preferred Stock and the Common
Stock at their respective addresses as the same shall appear on the books of the
corporation.
For the purposes of Section 2(A)(4) and Section 2(B)(2) of this Article IV,
the merger of the corporation into or with any other corporation, or the merger
of any other corporation into it, or the sale, lease, or conveyance of all or
substantially all the assets, property, or business of the corporation, which
does not in fact result in a liquidation of the corporation, shall not be deemed
to be a liquidation, dissolution, or winding up of the corporation.
(D) Redemption Notices
Notice of any redemption which is to be made pursuant to Section 2(A)(3) of
this Article IV shall be mailed, postage prepaid, (i) in the case of a
redemption under Section 2(A)(3)(a) of this Article IV, on the date of the event
resulting in the redemption or (ii) in the case of a redemption under Section
2(A)(3)(b) of this Article IV, at least 10 days but not more than 60 days prior
to the proposed redemption, in each case to the holders of record of the 15%
Cumulative Preferred Stock to be redeemed at their respective addresses as they
appear on the books of the corporation.
Notice of the redemption shall state:
(1) the redemption date,
(2) the redemption price,
(3) if less than all outstanding shares of 15% Cumulative Preferred
Stock are to be redeemed, the identification of the shares to be redeemed,
(4) that on the redemption date the redemption price will become due
and payable upon each share of 15% Cumulative Preferred Stock to be
redeemed, and
(5) the place or places where such shares to be redeemed are to be
surrendered for payment of the redemption price.
If the notice required by the preceding paragraphs of this Section 2(D) is
given, the number of shares of 15% Cumulative Preferred Stock specified in the
notice shall, subject to the limitations set forth in this Article IV, become
due and payable on the redemption date so designated at the redemption price
upon presentation and surrender of the certificates representing such shares.
(E) Retirement of Shares; Outstanding
All shares of 15% Cumulative Preferred Stock redeemed or acquired shall be
canceled and not subject to reissuance. When used in this Article IV with
reference to the 15% Cumulative
5
<PAGE>
Preferred Stock, the term "outstanding" means shares of such class of stock
which have been issued but have not been so canceled.
ARTICLE V.
The minimum amount of capital with which this corporation shall commence
business is one thousand dollars ($1,000).
ARTICLE VI.
The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
Kate B. Cole 1400 Smith Street, Suite 4839a
Houston, Texas 77002
ARTICLE VII.
The corporation shall have perpetual existence.
ARTICLE VIII.
The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever, and shall be exempt from
corporate liability.
ARTICLE IX.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(a) To make, alter, amend and rescind the Bylaws of this corporation.
(b) To set apart out of any of the available funds of this corporation such
reserves for proper purposes as the Board of Directors may deem expedient, and
to abolish any such reserves.
(c) To determine the use and distribution of any surplus and net profits.
(d) To authorize and cause to be executed and delivered, without limit as
to amount, mortgages and instruments of pledge of, and other instruments
creating liens upon, the real and personal property of this corporation.
(e) By resolution or resolutions, passed by a majority of the whole Board,
to designate one or more committees, each committee to consist of two or more of
the directors of this corporation, which, to the extent provided in said
resolution or resolutions or in the Bylaws of this corporation, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of this corporation, and may have power to authorize the
seal of this corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in the
Bylaws of this corporation or as may be determined from time to time by
resolution adopted by the Board of Directors.
6
<PAGE>
ARTICLE X.
The stockholders and Board of Directors shall have power, if the Bylaws so
provide, to hold their meetings and to keep the books of this corporation
(except such as are required by the laws of Delaware to be kept in Delaware) and
documents and papers of this corporation outside the State of Delaware and have
one or more offices within or without the State of Delaware at such places as
may be designated from time to time by the Board of Directors.
ARTICLE XI.
1. The number of directors of this corporation shall be specified in the
Bylaws and such number may be increased or decreased from time to time in such
manner as may be prescribed in the Bylaws. The directors need not be
stockholders.
2. In case of an increase in the number of directors, the additional
directors may be elected by the Board of Directors to hold office until the next
annual meeting of the stockholders and until their successors are elected and
qualified. In case of vacancies in the Board of Directors, a majority of the
remaining directors may elect directors to fill such vacancies.
3. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of laws, (iii) under Section 174 of the Delaware General Corporation
Law, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law is amended after the date of filing of this Certificate
of Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the Delaware General
Corporation Law as so amended. Any repeal or modification of this paragraph 3
by stockholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
corporation existing at the time of such repeal or modification.
4. Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors
7
<PAGE>
and administrators; provided, however, that, except as provided in paragraph 5
hereof, the corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the corporation. The right to indemnification conferred in this Section shall
be a contract right and shall include the right to be paid by the corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
5. If a claim under paragraph 4 of the Article XI is not paid in full by
the corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
6. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
7. The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
8. In the event that the corporation merges with Coda Energy, Inc.
("Coda"), a Delaware corporation, then for a period of six years from the
effective time of such merger (the "Effective Time"), the surviving corporation
of such merger shall, to the fullest extent permitted
8
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by law, abide by the limitation on liability set forth in Article 10 of the
Certificate of Incorporation of Coda and provide for the indemnification and
advancement of expenses set forth in Article 9.1 of the Bylaws of Coda in effect
immediately prior to the Effective Time with respect to individuals who at any
time from and after the date of the agreement relating to such merger and to and
including the Effective Time were directors, officers, employees, fiduciaries or
agents of Coda or any of its subsidiaries in respect of actions or omissions
occurring at or prior to the Effective Time.
ARTICLE XII.
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
I, THE UNDERSIGNED, do make and file this Restated Certificate of
Incorporation, hereby declaring and certifying that the facts herein stated are
true, and accordingly hereunto have set my hand this day of , 19 .
-----------------------------------------
9
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APPENDIX B
FAIRNESS OPINION OF BEAR, STEARNS & CO. INC.
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[LETTERHEAD OF BEAR STEARNS & CO. APPEARS HERE]
January 18, 1996
Special Committee of the Board of Directors
Coda Energy, Inc.
5735 Pineland Drive, Suite 300
Dallas, Texas 75231
Attention: Mr. Earl E. Ellis
Dear Sirs:
We understand that Coda Energy, Inc. ("Coda") and Joint Energy Development
Investments Limited Partnership ("JEDI") have entered into an Agreement and Plan
of Merger, dated as of October 30, 1995, as amended by that certain Amendment
to Agreement and Plan of Merger, dated as of December 22, 1995, and by that
certain Second Amendment to Agreement and Plan of Merger, dated as of January
10, 1996 (as amended, the "Merger Agreement"), pursuant to which, and upon the
terms and conditions set forth therein, stockholders of Coda will receive $7.75
in cash for each share of outstanding common stock of Coda (the "Transaction").
We also understand that, as part of the Transaction, certain members of Coda's
management, including Coda's Chairman, Mr. Douglas H. Miller (collectively, the
"Management Group"), will participate in the equity ownership of a newly formed
wholly owned subsidiary of JEDI, Coda Acquisition, Inc. We understand that JEDI
is an affiliate of Enron Capital & Trade Resources Corp., a wholly owned
subsidiary of Enron Corp. You have provided us with the proxy statement with
respect to the Transaction in substantially the form to be sent to stockholders
of Coda (the "Proxy Statement"), which includes the Merger Agreement.
You have asked us to render our opinion as to whether the Transaction is
fair, from a financial point of view, to the stockholders of Coda other than the
Management Group.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement;
2. reviewed Coda's Annual Reports to Stockholders and Annual Reports on
Form 10-K for the fiscal years ended December 31, 1992 through 1994,
and its Quarterly Reports on Form 10-Q for the quarters ended March
31, June 30 and September 30, 1995;
3. reviewed certain operating and financial information, including
budgets, provided at our request by Coda's management relating to
Coda's business and prospects;
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Special Committee of the Board of Directors
Coda Energy, Inc.
January 18, 1996
Page 2
4. met with certain members of Coda's senior management to discuss
Coda's operations, historical financial statements and future
prospects;
5. reviewed the estimates of oil and natural gas reserves of Coda as of
January 1, 1995, as prepared by Lee Keeling and Associates, Inc.
("Keeling");
6. reviewed certain estimates of oil and natural gas reserves of Coda as
of July 1, 1995, and January 1, 1996, as prepared by Coda's
management and staff;
7. reviewed the historical trading prices and volumes of the common
stock of Coda;
8. reviewed publicly available financial data and stock market
performance data of companies that we deemed generally comparable to
Coda;
9. reviewed the terms of recent acquisitions of companies or oil and
natural gas assets that we deemed generally comparable to Coda; and
10. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by Coda
and Keeling. With respect to Coda's budgeted financial results, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Coda as to Coda's
expected future performance. We have not assumed any responsibility for the
information provided to us and we have further relied upon the assurances of the
management of Coda that they are unaware of any facts that would make the
information provided to us incomplete or misleading. In arriving at our opinion,
we have not performed any independent appraisal of the assets of Coda. Our
opinion is necessarily based on economic, market and other conditions, and the
information made available to us, as of the date hereof.
Based on the foregoing, it is our opinion that the Transaction is fair, from
a financial point of view, to the stockholders of Coda other than the Management
Group.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Stephen Straty
----------------------------------
Senior Managing Director
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APPENDIX C
SECTION 262 OF DELAWARE GENERAL CORPORATION LAW
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
vvalue of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository representing
an interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, sec. 252, sec. 254, sec. 257, sec. 258, sec. 263
or sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) or (g) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to secs. 251,
252, 254, 257, 258, 263, and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
sec. 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
the subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a
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determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple
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or compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (c) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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CODA ENERGY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas H. Miller and T. W. Eubank, or
either of them, with full power of substitution, as Proxies, with all the powers
that the undersigned would possess if personally present to cast all votes that
the undersigned would be entitled to vote at the Special Meeting of Stockholders
of Coda Energy, Inc. (the "Company") to be held on February 16, 1996, at 10:00
a.m., Dallas time, at the Royal Oaks Country Club, 7915 Greenville Avenue,
Dallas, Texas, and at any and all adjournments or postponements thereof, hereby
revoking any Proxies heretofore given, to vote all shares of Common Stock of the
Company held or owned by the undersigned as directed on the reverse side, and in
their discretion upon such other matters as may come before the Special Meeting.
(TO BE SIGNED ON REVERSE SIDE)
(Side A)
<PAGE>
/X/ Please mark your vote as
in this example
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE PROPOSAL
BELOW. PLEASE REVIEW CAREFULLY THE PROXY STATEMENT DELIVERED WITH THIS PROXY.
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
October 30, 1995, as amended by that certain Amendment to Agreement and Plan of
Merger, dated as of December 22, 1995, and by that certain Second Amendment to
Agreement and Plan of Merger, dated as of January 10, 1996, among Joint Energy
Development Investments Limited Partnership, Coda Acquisition, Inc. and Coda
Energy, Inc., and the merger and other transactions contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL ABOVE.
PLEASE SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<TABLE>
<C> <C> <C> <C>
SIGNATURE __________________ DATE ____________ SIGNATURE __________________ DATE ____________
</TABLE>
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
(Side B)
