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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995 COMMISSION FILE NUMBER 0-16094
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EASTEX ENERGY INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2172796
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
1100 FIRST INTERSTATE BANK PLAZA
1000 LOUISIANA
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (713) 650-6255
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
As of May 13, 1995 there were 6,313,950 shares of the Registrant's Common
Stock outstanding (net of 456,700 Treasury Shares), par value $.01 per share.
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TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1994
and March 31, 1995........................................ 1
Consolidated Statements of Operations for the Three Months
Ended March 31, 1994 and 1995............................. 2
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1994 and 1995...................... 3
Notes to Consolidated and Pro Forma Consolidated Financial
Statements................................................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 4
PART II
Item 6. Exhibits and Reports on Form 8-K............................... 6
</TABLE>
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EASTEX ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $11,857 $ 9,456
Accounts receivable, net of allowance
for doubtful accounts................ 48,245 45,831
Notes receivable from related parties. 246 360
Stored gas............................ 2,849 2,246
Prepaid gas purchase cost............. 1,315 1,018
Prepaid expenses and other current
assets............................... 2,364 1,936
------- -------
Total Current Assets................ 66,876 60,847
PROPERTY AND EQUIPMENT, net of
accumulated depreciation,
depletion and amortization............ 13,756 13,628
INTANGIBLE ASSETS, net of accumulated
amortization........................... 1,159 956
GOODWILL, net of accumulated
amortization........................... 5,432 5,394
OTHER ASSETS............................ 1,010 980
------- -------
Total Assets........................ $88,233 $81,805
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt..... $ 1,021 $ 1,272
Accounts payable...................... 49,801 43,407
Accrued gas purchase cost............. 1,803 1,678
Other accrued expenses................ 1,530 1,445
------- -------
Total Current Liabilities........... 54,155 47,802
LONG-TERM DEBT, net of current portion.. 8,893 8,612
OTHER LONG-TERM PAYABLES................ 1,000 1,000
DEFERRED FEDERAL AND STATE INCOME TAXES. 2,376 2,369
------- -------
Total Liabilities................... 66,424 59,783
------- -------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per
share; 15,000,000 authorized;
6,716,950 issued in 1994 and
6,770,650 in 1995; 6,265,250
outstanding in 1994 and 6,313,950
in 1995.............................. 67 67
Additional paid-in capital............ 22,032 22,073
Retained earnings..................... 950 1,149
Less treasury stock, 451,700 in 1994
and 456,700 in 1995,
at cost.............................. (1,240) (1,267)
------- -------
Total Stockholders' Equity........... 21,809 22,022
------- -------
Total Liabilities and Stockholders'
Equity............................. $88,233 $81,805
</TABLE> ======= =======
The accompanying notes are an integral part of these financial statements.
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EASTEX ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1994 1995
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REVENUES................................ $100,029 $118,164
COST OF SALES, EXCLUDING
DEPRECIATION, DEPLETION AND
AMORTIZATION (shown below):
Gas purchases......................... 94,338 113,387
Transportation........................ 4,003 2,061
Gas storage and operating expenses.... 166 116
-------- --------
98,507 115,564
-------- --------
GROSS PROFIT............................ 1,522 2,600
-------- --------
OTHER OPERATING EXPENSES:
General and administrative............. 1,704 1,653
Depreciation, depletion and
amortization.......................... 319 318
Amortization of intangible assets...... 107 65
Amortization of goodwill............... 37 37
-------- --------
2,167 2,073
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INCOME (LOSS) FROM OPERATIONS........... (645) 527
-------- --------
OTHER INCOME (EXPENSE):
Interest income........................ 96 127
Interest expense....................... (307) (345)
Other, net............................. - 17
-------- --------
(211) (201)
-------- --------
INCOME (LOSS) BEFORE FEDERAL AND
STATE INCOME TAXES..................... (856) 326
PROVISION (BENEFIT) FOR FEDERAL
AND STATE INCOME TAXES:
Current................................ - (134)
Deferred............................... (273) 261
-------- --------
(273) 127
-------- --------
NET INCOME (LOSS)...................... $ (583) $ 199
======== ========
INCOME (LOSS) PER SHARE OF COMMON
STOCK AND COMMON STOCK
EQUIVALENTS:
Primary............................... $(0.09) $0.03
Fully Diluted......................... $(0.09) $0.03
AVERAGE COMMON STOCK AND
COMMON STOCK EQUIVALENTS
OUTSTANDING:
Primary............................... 6,393 6,512
Fully Diluted......................... 6,393 6,637
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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EASTEX ENERGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1994 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ (583) $ 199
Adjustments to reconcile net income
(loss) to net cash provided used in
operating activities:
Depreciation, depletion and
amortization.......................... 319 318
Amortization of goodwill and
intangible assets..................... 144 102
Deferred federal and state income taxes (273) 261
Change in accounts receivable.......... (5,706) 2,414
Change in notes receivable from
related parties....................... (2) (139)
Change in stored gas................... 3,625 603
Change in prepaid gas purchase cost.... 38 297
Change in accounts payable and accrued
gas purchase cost..................... (8,201) (6,381)
Change in other current assets and
liabilities........................... 2,405 209
Other.................................. 127 (105)
------- -------
Net cash flows used in operating
activities............................ (8,107) (2,222)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment.... (117) (190)
------- -------
Net cash flows from (used in)
investing activities.................. (117) (190)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirements of long-term debt.......... (29) (30)
Acquisition of treasury stock.......... (301) -
Stock options exercised................ 82 41
------- -------
Net cash flows provided by (used in)
financing activities.................. (248) 11
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS: (8,472) (2,401)
Cash and cash equivalents:
Beginning of period.................... 17,202 11,857
------- -------
End of period.......................... $ 8,730 $ 9,456
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.......................... $ 324 $ 409
Federal and state income taxes paid,
net of refunds received............... $ - $ (250)
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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EASTEX ENERGY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENTS:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements," and accordingly do not include all information and footnotes
required under generally accepted accounting principles for complete financial
statements. In the opinion of management, these interim financial statements
contain all adjustments, consisting of normal recurring accruals, necessary to
present fairly the consolidated financial position of Eastex Energy Inc. and
subsidiaries ("Eastex" or the "Company") as of December 31, 1994 and March 31,
1995, and the results of their operations and cash flows for the three months
ended March 31, 1994 and 1995. For additional information, reference is made to
the consolidated financial statements and footnotes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, as amended.
The results of operations for the three month period ended March 31, 1995 are
not necessarily indicative of the results to be expected for the full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Eastex, through its various subsidiaries and affiliates, is an independent
natural gas merchant providing gas supplies and gas management services to its
customers through (i) direct end user gas sales, (ii) merchant trading, and
(iii) gas inventory optimization services.
The Company recorded unaudited net income of $199,000, or $0.03 per share of
common stock of the Company ("Common Stock"), on operating revenues of $118
million for the three months ended March 31, 1995, as compared to a net loss of
$583,000, or $0.09 per share, on operating revenues of $100 million for the
corresponding period in the prior year. Earnings before interest, taxes,
depreciation and amortization for the three months ended March 31, 1995 was
approximately $964,000, as compared to a loss before interest, taxes,
depreciation and amortization of $182,000 in the same period last year. The
Company recorded volumes of 80 Bcf (888 Mmcf/d) for the three months ended March
31, 1995, as compared to 49.5 Bcf (550 Mmcf/d) during the three months ended
March 31, 1994. Gross profits were $2.6 million in the first quarter of 1995, as
compared to $1.5 million during the first quarter of 1994. Revenues increased
during the three months ended March 31, 1995, as compared to the same period in
the prior year, largely as a result of the 60% increase in period to period
sales volumes, offset by a 36% decline in the average sales price to $1.48 per
Mcf. Gross profits similarly increased as a result of the increase in volumes.
The Company's average gross profit was $0.034 per Mcf during the first quarter
1995 as compared to $0.031 per Mcf in the same period in the prior year.
Gas storage and operating expenses for the three months ended March 31, 1995
were $116,000, as compared to $166,000 for the three months ended March 31,
1994. General and administrative expenses were $1.7 million for each of the
three months ended March 31, 1995 and 1994.
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Depreciation, depletion and amortization expenses for the three months ended
March 31, 1995 were $420,000, as compared to $463,000 for the corresponding
period of the preceding year. Other expenses were $201,000 for the three months
ended March 31, 1995, as compared to $211,000 in the three months ended March
31, 1994.
Primary and fully diluted earnings per share are based on the weighted
average number of shares of Common Stock outstanding during each period, after
the consideration of the dilutive effect of employee and nonemployee director
stock options and warrants to purchase Common Stock (collectively, the
"Warrants") related to the Senior Secured Notes issued in February 1990 and the
Increasing Rate Note issued in connection with the Heath Petra Resources, Inc.
("Heath Petra") acquisition. Total employee and nonemployee director stock
options outstanding at March 31, 1995 represented the right to purchase up to
664,200 shares of Common Stock, as compared to 415,236 outstanding at March 31,
1994. The Warrants represent the right to purchase up to 647,500 shares of
Common Stock as of March 31, 1995 and 1994. The Company has a contingent
obligation in connection with the Heath Petra acquisition to issue up to 300,000
shares of Common Stock (the "Contingent Stock"), all or part of which is to be
issued based on the resolution of certain contingencies and future performance
of Heath Petra. In consideration for an extension of term of certain employment
contracts, the Company anticipates that it will accelerate the issuance of the
Contingent Stock to occur before the meeting of the stockholders of the Company
to approve the proposed Merger of the Company, as described in Subsequent Events
below. Total primary weighted average Common Stock and Common Stock equivalents
outstanding during the three months ended March 31, 1995 were approximately
6,512,000, as compared to approximately 6,393,000 during the same period in
1994. Total fully diluted weighted average Common Stock and Common Stock
equivalents outstanding for the three months ended March 31, 1995 were
approximately 6,637,000 shares.
CAPITAL RESOURCES AND LIQUIDITY
The Company's working capital at March 31, 1995 was $13.0 million, as
compared to $12.7 million at December 31, 1994. The increase in working capital
during the three month period ended March 31, 1995 principally resulted from
earnings before depreciation, depletion and amortization expenses of
approximately $619,000, offset to some extent by the reclassification of current
maturities of long-term debt and additions to property and equipment during the
first quarter of 1995 of approximately $251,000 and $190,000, respectively.
In March 1995, the Company received a commitment from two of the three banks
(the "Banks") in its existing credit facility for a six month extension and
renewal of the credit facility from May 1, 1995 to October 31, 1995. In April
1995, the Company received a commitment letter from a third bank which is not a
party to the existing credit facility to replace the current facility at terms
more favorable to the Company. As such, the Company and the Banks agreed to a
one month extension of the credit facility to May 31, 1995, to allow the Company
and the new bank to complete the negotiation and documentation of the
replacement facility. The terms of the commitment from the new bank provide, in
part, for the termination of the commitment unless definitive loan documents are
executed on or before May 15, 1995. As a result of the proposed Merger of the
Company, the Company has not executed definitive loan documents with the new
bank and may, alternatively, negotiate an additional extension of term of its
existing credit facility from May 31, 1995 to the expected closing date of, or
such other date subsequent to, the Merger. Due to the credit rating of El Paso
Natural Gas ("El Paso"), a party to the proposed Merger, and the resultant
increases in
5
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unsecured credit the Company anticipates it will receive as a result of the
Merger, the Company does not expect that a credit facility will be necessary
subsequent to the completion of the Merger. Depending on the progression of the
Merger, the Company may, however, negotiate an extension of the term of the
commitment letter from the new bank which expires on May 15, 1995 and enter into
the new credit facility if so determined to be in the best interests of the
Company. While the Company will have no formal commitment from the new bank
after May 15, 1995, or any obligation of the existing banks to extend the
existing facility, management of the Company believes that it will be able to
obtain adequate credit facilities for the operations of the Company from the
existing credit facility, the proposed new facility or elsewhere as necessary to
continue its current level of operations for the foreseeable future.
The Company believes that it will be able to finance its capital expenditures
and other working capital needs, other than any major acquisitions of businesses
or assets, through its existing cash reserves, internally generated funds and
its existing and/or contemplated bank lines of credit.
SUBSEQUENT EVENT
On May 8, 1995, the Company, El Paso and El Paso Acquisition Company, a
wholly owned subsidiary of El Paso ("Acquisition"), entered into a definitive
Agreement and Plan of Merger (the "Agreement") whereby the Company will be
merged with and into Acquisition (the "Merger") pursuant to the terms of the
Agreement. The terms of the Agreement provide for the holders of Common Stock to
receive $4.50 per share in either common stock of El Paso (subject to a maximum
and minimum exchange ratio of 0.1629 and 0.1485 El Paso shares, respectively) or
in cash, at the option of the holder, with a maximum of 49% of the Merger
consideration being paid in cash. Following the Merger, the Company will be a
wholly owned subsidiary of El Paso. The Merger is conditioned upon, among other
things, approval by the holders of a majority of the outstanding shares of
Common Stock, the transaction being tax-free to the Company and its stockholders
(except to the extent they elect to receive cash) and receipt of certain
governmental approvals. The Agreement provides for a termination fee of $1
million plus reimbursement of El Paso out-of-pocket expenses, payable by the
Company to El Paso under certain conditions. The Merger is expected to close in
the third quarter of 1995. A copy of the Agreement is attached hereto as Exhibit
2.1.
In connection with the execution of the Agreement, El Paso entered into a
Stockholder Agreement with Robert G. Phillips, Chairman and Executive Officer of
the Company, pursuant to which he has agreed to vote all of his approximately
2.4 million Eastex shares in favor of the Merger. El Paso has also entered into
a similar Stockholder Agreement with the holders of the Warrants which represent
the right to purchase up to 647,500 shares of Common Stock. Additionally, the
holders of the 300,000 shares of the Contingent Stock have agreed to vote such
shares in favor of the Merger.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
Exhibit 2.1 - Agreement and Plan of Merger dated May 8, 1995, by and among
El Paso Natural Gas Company, El Paso Acquisition Company and
Eastex Energy Inc.
6
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Exhibit 20.1 - Press release of Eastex Energy Inc., dated May 9, 1995,
regarding the Agreement and Plan of Merger by and among El
Paso Natural Gas Company, El Paso Acquisition Company and
Eastex Energy Inc.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
Rest of page intentionally left blank
7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EASTEX ENERGY INC.
(Registrant)
Date: May 15, 1995 /s/ Robert G. Phillips
------------------------------------------
Robert G. Phillips
Chairman and Chief Executive Officer
Date: May 15, 1995 /s/ R. Cris Sherman
------------------------------------------
R. Cris Sherman
Vice President and Chief Financial Officer
(Chief Accounting Officer)
8
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EXHIBIT 2.1
- - --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
between
EL PASO NATURAL GAS COMPANY,
EL PASO ACQUISITION COMPANY
and
EASTEX ENERGY INC.
Dated as of May 8, 1995
- - --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 8, 1995,
between El Paso Natural Gas Company, a Delaware corporation ("Parent"), El Paso
Acquisition Company, a Delaware corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and Eastex Energy Inc., a Delaware corporation (the
"Company").
RECITALS
A. The Boards of Directors of Parent, Merger Sub and the Company, and
Parent as the sole stockholder of Merger Sub, each have approved the merger of
the Company with and into Merger Sub (the "Merger"), upon the terms and subject
to the conditions set forth herein.
B. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
C. The Company has received a fairness opinion relating to the
transactions contemplated hereby as more fully described herein.
D. Parent, Merger Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
1. The Merger.
1.1. The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3), the Company shall be merged with
and into Merger Sub in accordance with this Agreement and the separate corporate
existence of the Company shall thereupon cease. Merger Sub shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"). The Merger shall have the effects specified in the
Delaware General Corporation Law (the "DGCL").
1.2. The Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New
York, at 9:00 a.m., local time, on the first business day immediately following
the day on which the last to be fulfilled or waived of the conditions set forth
in Article 8 shall be fulfilled or waived in accordance herewith, or at such
other time, date or place as Parent and the Company may agree. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date."
<PAGE>
1.3. Effective Time. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL to be properly executed and filed in accordance with such
Section on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have agreed upon and designated in such filing as the effective
time of the Merger (the "Effective Time").
ARTICLE 2
2. Certificate of Incorporation and By-laws of the Surviving Corporation.
2.1. Certificate of Incorporation. The Certificate of Incorporation of
Merger Sub in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law, except that the name of Merger Sub shall be
changed to Eastex Energy Inc.
2.2. By-laws. The By-laws of Merger Sub in effect immediately prior to the
Effective Time shall be the By-laws of the Surviving Corporation, until duly
amended in accordance with applicable law.
ARTICLE 3
3. Directors and Officers of the Surviving Corporation.
3.1. Directors. The directors of the Surviving Corporation as of the
Effective Time shall be the directors of Merger Sub immediately prior to the
Effective Time and Robert G. Phillips.
3.2. Officers. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
ARTICLE 4
4. Conversion of Company Stock.
4.1. Conversion of Company Stock.
(a) At the Effective Time, each share of the common stock, $1.00 par
value, of Merger Sub outstanding immediately prior to the Effective Time
shall remain outstanding and shall represent one share of common stock,
$1.00 par value, of the Surviving Corporation.
(b)(i) At the Effective Time, each share of the common stock, $.01 par
value (the "Company Common Stock"), of the Company issued and outstanding
immediately prior
2
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to the Effective Time which, under the terms of this Article 4, is to be
converted into the right to receive common stock, $3.00 par value (the
"Parent Common Stock"), of Parent, shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive (as the same may be adjusted as hereinafter provided) a
number of shares of Parent Common Stock, rounded to four decimal places,
determined by dividing $4.50 by the "Average Price" of a share of Parent
Common Stock, but in any event not less than .1485 and not more than .1629
(the "Exchange Ratio"). The "Average Price" of a share of Parent Common
Stock shall be the average, rounded to four decimal places, of the closing
sales prices thereof on The New York Stock Exchange (the "NYSE") (as
reported by The Wall Street Journal or, if not reported thereby, by another
authoritative source) over the ten business days immediately preceding the
Closing Date. Holders of shares of Company Common Stock converted into
Parent Common Stock shall also have the right to receive, together with
each share of Parent Common Stock issued in the Merger, one associated
preferred stock purchase right (a "Right") in accordance with the
Shareholder Rights Agreement dated as of July 7, 1992, between Parent and
The First National Bank of Boston (the "Parent Rights Agreement").
References herein to the shares of Parent Common Stock issuable in the
Merger shall be deemed to include the associated Rights.
(ii) At the Effective Time, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time which, under
the terms of this Article 4, is to be converted into the right to receive
cash shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to receive $4.50 in cash,
without interest (the "Cash Amount").
(iii) The consideration payable in respect of each share of
Company Common Stock pursuant to Section 4.1(b)(i) or 4.1(b)(ii) hereof
(including cash for fractional shares of Parent Common Stock in accordance
with Section 4.4(e)) is hereinafter referred to as the "Merger
Consideration."
(c) As a result of the Merger and without any action on the part of
the holder thereof, all shares of Company Common Stock shall cease to be
outstanding and shall be cancelled and retired and shall cease to exist,
and each holder of a certificate (a "Certificate") representing any shares
of Company Common Stock shall thereafter cease to have any rights with
respect to such shares of Company Common Stock, except the right to
receive, without interest, the Merger Consideration payable with respect
thereto in accordance with Sections 4.1(b) and 4.4(e) upon the surrender of
such Certificate.
(d) Each share of Company Common Stock issued and held in the
Company's treasury at the Effective Time or owned by Parent or any of its
Subsidiaries (as defined in Section 10.9) shall, by virtue of the Merger,
cease to be outstanding and shall be cancelled and retired without payment
of any consideration therefor.
(e) Immediately prior to the Effective Time, except as provided in
Section 4.1(f) and (g), all options (individually, an "Option" and
collectively, the "Options") then outstanding under the Company's 1987
Nonemployee Director Stock
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Option Plan, Second Amended and Restated 1987 Stock Option Plan, 1994
Executive Long-Term Stock Option Plan or any other incentive compensation
or stock option plan of the Company (the "Option Plans"), whether or not
then exercisable, shall be canceled and each holder of an Option will be
entitled to receive from the Company, for each share of Company Common
Stock subject to an Option, an amount in cash equal to the excess, if any,
of the Cash Amount over the per share exercise price of such Option. The
Company will use its reasonable best efforts to obtain any necessary
consents from holders of Options to the cancellation and payment provided
for in this Section 4.1(e). From and after the date of this Agreement, no
additional options shall be granted by the Company or its Subsidiaries (as
defined in Section 10.9 hereof) under the Option Plans or otherwise.
(f) Notwithstanding anything to the contrary contained herein or
otherwise, each of the Options listed on Schedule 4.1(f) shall not be
canceled pursuant to Section 4.1(e) above, but shall instead remain
outstanding at the Effective Time and, shall by virtue of the Merger and
without any action on the part of the holder thereof, be assumed by Parent
and converted into an option to purchase Parent Common Stock (each a
"Converted Option") as set forth below. Each Converted Option (i) shall be
subject to the same terms and conditions that applied to the corresponding
Option prior to conversion (including the terms and conditions relating to
exercisability, but without regard to any acceleration of exercisability
that may occur in connection with the Merger, so that the vesting and
exercisability of all Converted Options will be determined as if the Merger
had not occurred), (ii) shall be exercisable for that whole number of
shares of Parent Common Stock (rounded downward to the nearest whole share)
equal to the number of shares of Company Common Stock subject to such
Option immediately prior to the Effective Time, multiplied by the Exchange
Ratio, and (iii) shall have an exercise price per share of Parent Common
Stock equal to the exercise price per share of Company Common Stock under
the corresponding Option immediately prior to the Effective Time, divided
by the Exchange Ratio (the exercise price per share of Parent Common
Stock, as so determined, being rounded upward to the nearest full cent).
The Company will use its reasonable best efforts to obtain any necessary
consents from the holders of the Options listed on Schedule 4.1(f) to the
conversion of such Options as set forth above.
(g) Notwithstanding anything to the contrary contained herein or
otherwise, each of the stock-related performance shares and performance
units outstanding as of the Effective Time under (i) the Company's
Incentive Compensation Plan, (ii) the Heath Petra Resources, Inc. Incentive
Compensation Plan and (iii) the proposed amendment to certain employment
agreements and related agreements set forth in the term sheet relating
thereto described in item 3 of Exhibit B hereto (each a "Terminated
Performance Unit") shall by virtue of the Merger and without any action on
the part of the holder thereof, be assumed by Parent and converted into a
performance share unit relating to Parent Common Stock (each a "Converted
Performance Unit") as set forth below. Each Converted Performance Unit (i)
shall be subject to terms and conditions which, as nearly as practicable,
duplicate the terms and conditions that applied to the corresponding
Terminated Performance Unit prior to conversion (including the terms and
conditions relating to vesting and payment, but without regard to any
acceleration of vesting or payment that may occur in connection
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with the Merger, so that the vesting and payment of all Converted
Performance Units will be determined as if the Merger had not occurred) and
(ii) shall be denominated in that whole number of performance share units
of Company Common Stock subject to such Terminated Performance Unit
immediately prior to the Effective Time, multiplied by the Exchange Ratio.
The Company will use its reasonable best efforts to obtain any necessary
consent from the holders of the Terminated Performance Units to the
conversion of such Units as set forth above.
4.2. Election Procedures. Each holder of Company Common Stock (other than
holders of Company Common Stock to be cancelled as set forth in Section 4.1(d))
shall have the right to submit a request, in accordance with the following
procedures, specifying the number of shares of his Company Common Stock which he
desires to have converted into the right to receive Parent Common Stock in the
Merger and the number of shares of his Company Common Stock which he desires to
have converted into the right to receive the Cash Amount in the Merger in
accordance with the following procedure.
(a) Each holder of Company Common Stock may specify in a request made
in accordance with the provisions of this Section (herein called an
"Election"):
(i) the number of shares of Company Common Stock owned by such
holder which such holder shall desire to have converted into the right
to receive the Cash Amount in the Merger (a "Cash Election"); and
(ii) the number of shares of Company Common Stock owned by such
holder which such holder shall desire to have converted into the right
to receive Parent Common Stock in the Merger (a "Stock Election").
Any Cash Election may be conditioned on all of the shares of Company Common
Stock covered thereby being converted into the right to receive the Cash
Amount (a "Conditional Cash Election"). If the proration provisions of
Section 4.3(d) are applicable to the Merger (or would be applicable but for
this sentence), all shares of Company Common Stock covered by a Conditional
Cash Election shall be converted into the right to receive Parent Common
Stock in the Merger.
(b) Parent shall authorize a person (which shall be Parent's transfer
agent or another person reasonably satisfactory to the Company) to receive
Elections and to act as Exchange Agent hereunder (the "Exchange Agent").
(c) Parent shall prepare a form (the "Form of Election") pursuant to
which each holder of Company Common Stock at the close of business on the
day on which the Effective Time occurs may make an Election, which Form of
Election shall be mailed to holders of Company Common Stock at such time as
to permit holders of Company Common Stock to exercise their right to make
an Election. As used herein, "Election Date" means the date announced by
Parent, in a news release delivered to the Dow Jones News Service, as the
last day on which Forms of Election will be accepted; provided, that such
day shall be a business day no earlier than five business days prior to the
Effective
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Time and no later than the date on which the Effective Time occurs and
shall be at least five business days following the date of such news
release.
(d) Any Election shall have been properly made only if the Exchange
Agent at its office designated in the Form of Election shall have received,
by 5:00 p.m. local time in the city in which such Exchange Agent is
located, on the Election Date, a Form of Election properly completed and
signed (with the signature or signatures thereon guaranteed if required by
the Form of Election), accompanied either by the Certificate or
Certificates representing all of the shares of Company Common Stock owned
by such holder, duly endorsed or otherwise acceptable for transfer, or by
an appropriate guaranty of delivery in the form customarily used in
transactions of this nature from a member of a national securities exchange
or a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company in the United States. Failure to deliver
shares covered by such a guaranty of delivery within the time set forth on
such guaranty shall be deemed to invalidate any otherwise properly made
Election.
(e) Any holder of Company Common Stock may at any time prior to the
Election Date change his Election by written notice received by the
Exchange Agent at or prior to the Election Date accompanied by a properly
completed, revised Form of Election (with such other documents as are
required as contemplated by subsection (d) above).
(f) Any holder of Company Common Stock may at any time prior to the
Election Date revoke his Election by written notice received by the
Exchange Agent at or prior to the Election Date or by withdrawal prior to
the Election Date of his Certificates for Company Common Stock or of the
guaranty of delivery of such Certificates, previously deposited with the
Exchange Agent.
(g) As used in this Agreement, "holders" of Company Common Stock shall
mean record holders of Company Common Stock. Record holders who are
nominees only may submit a separate Form of Election for each beneficial
owner for whom any such record holder is a nominee; provided, however,
that at the request of Parent, such record holder shall certify to the
satisfaction of Parent that such record holder holds such shares as nominee
for the beneficial owner thereof. For purposes of this Agreement, each
beneficial owner for which a Form of Election is submitted will be treated
as a separate holder of shares.
(h) Parent shall have the right to make rules not inconsistent with
the terms of this Agreement governing the validity of the Forms of
Election, the manner and extent to which Elections are to be taken into
account in making the determinations prescribed by Section 4.3, the
issuance and delivery of certificates for Parent Common Stock into which
Company Common Stock is converted in the Merger and the payment for shares
of Company Common Stock converted into the right to receive the Cash Amount
in the Merger. All such rules and determinations thereunder shall be final
and binding on all holders of Company Common Stock.
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(i) If this Agreement is terminated, Parent will cause the Exchange
Agent to return to the holders of Company Common Stock any Certificates
delivered by such holders to the Exchange Agent.
4.3. Selection of Company Common Stock. The manner in which each share of
Company Common Stock (other than shares of Company Common Stock to be cancelled
as set forth in Section 4.1(d)) shall be converted at the Effective Time into
either the Cash Amount or Parent Common Stock shall be as set forth below in
this Section 4.3.
(a) The portion of the aggregate consideration paid or deemed paid
pursuant to the Merger (the "Aggregate Merger Consideration") which shall
be paid other than in the form of Parent Common Stock (which shall be
deemed to include, without limitation, cash paid upon the acquisition by
Parent or any of its Subsidiaries of Company Common Stock or warrants to
purchase Company Common Stock, whether pursuant to the Merger, the
Stockholder Agreement, Section 7.15 or otherwise, cash paid in lieu of
fractional shares and cash paid upon the cancellation of Options) (the
"Cash Consideration") shall not exceed 49% of the Aggregate Merger
Consideration (the "Maximum Cash Consideration"). For the purpose of
determining the Maximum Cash Consideration, a share of Parent Common Stock
shall be valued at the lowest of (x) the closing trading price of a share
of Parent Common Stock on the NYSE Composite Tape on the date of the
Effective Time, (y) the median, rounded to four decimal places, of the high
and low trading price of a share of Parent Common Stock on the NYSE
Composite Tape on the date of the Effective Time and (z) the Average Price.
(b) The maximum number of shares of Company Common Stock to be
converted into the right to receive cash pursuant to the Merger shall be
determined by (x) subtracting from the Maximum Cash Consideration all
consideration paid or deemed paid pursuant to the Merger other than in the
form of Parent Common Stock (other than payments of the Cash Amount for
shares of Company Common Stock covered by Cash Elections) and (y) dividing
the result by the Cash Amount (the "Cash Conversion Number").
(c) If Cash Elections are received for a number of shares of Company
Common Stock which is equal to or less than the Cash Conversion Number,
each share of Company Common Stock covered by a Cash Election shall be
converted into the right to receive the Cash Amount in the Merger.
(d) If Cash Elections are received for a number of shares of Company
Common Stock which is more than the Cash Conversion Number, (i) all shares
of Company Common Stock covered by a Conditional Cash Election shall be
converted into the right to receive Parent Common Stock in the Merger and
(ii) if, after subtracting all shares of Company Common Stock covered by
Conditional Cash Elections, (x) the number of shares of Company Common
Stock covered by Cash Elections is equal to or less than the Cash
Conversion Number, the provisions of paragraph (c) above shall apply, or
(y) the number of shares of Company Common Stock covered by Cash Elections
is more than the Cash Conversion Number, the shares of Company Common Stock
for
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which Cash Elections have been received (excluding shares covered by
Conditional Cash Elections) shall be converted into the right to receive
the Cash Amount and Parent Common Stock in the following manner:
(i) A cash proration factor (the "Cash Proration Factor") shall
be determined by dividing the Cash Conversion Number by the total
number of shares of Company Common Stock with respect to which
effective Cash Elections were made.
(ii) The number of shares of Company Common Stock covered by each
Cash Election to be converted into the right to receive the Cash
Amount shall be determined by multiplying the Cash Proration Factor by
the total number of Shares of Company Common Stock covered by such
Cash Election, rounded to the next lowest integer.
(iii) Each share of Company Common Stock covered by a Cash
Election and not converted into the right to receive the Cash Amount
as set forth above shall be converted into the right to receive Parent
Common Stock in the Merger.
(e) Each share of Company Common Stock for which Stock Elections have
been made shall be converted into the right to receive Parent Common Stock
in the Merger.
(f) For the purposes of this Section 4.3, outstanding shares of
Company Common Stock (other than shares of Company Common Stock to be
cancelled as set forth in Section 4.1(d)) as to which an Election is not in
effect and effective on the Election Date shall be called "Non-Electing
Shares." If Parent shall determine for any reason that any Election was
not properly made with respect to shares of Company Common Stock, such
Election shall be deemed to be not in effect and shares of Company Common
Stock covered by such Election shall, for the purpose hereof, be deemed to
be Non-Electing Shares. Each Non-Electing Share shall be converted into
the right to receive Parent Common Stock in the Merger.
4.4. Parent To Make Cash and Certificates Available; Transfer Taxes.
(a) Parent shall make available to the Exchange Agent promptly after
the Election Date (the "Allocation Date"), an amount in cash equal to the
cash to be paid in exchange for shares of Company Common Stock in the
Merger, including amounts to be paid in lieu of fractional shares, and
sufficient shares of Parent Common Stock to permit the Exchange Agent to
make the distributions of cash and Parent Common Stock provided for
hereunder (such cash and Parent Common Stock, collectively, the "Exchange
Fund"). The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to such shares held by it from time to
time hereunder, except that it shall receive and hold all dividends or
other distributions paid or distributed with respect to such shares for the
account of the persons entitled thereto.
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(b) As soon as practicable after the Allocation Date, the Exchange
Agent shall distribute to holders of shares of Company Common Stock whose
shares are to be converted into the right to receive the Cash Amount in
accordance with Section 4.1(b)(ii), upon surrender to the Exchange Agent
(to the extent not previously surrendered with a Form of Election) of one
or more Certificates for such shares of Company Common Stock for
cancellation, a bank check for an amount equal to the Cash Amount for each
share of Company Common Stock so converted. In no event shall the holder
of any such surrendered Certificates be entitled to receive interest on any
of the funds to be received in the Merger. If such check is to be sent to
a person other than the person in whose name the certificates for shares of
Company Common Stock surrendered for exchange are registered, it shall be a
condition of the exchange that the person requesting such exchange shall
pay to the Exchange Agent any transfer or other taxes required by reason of
the delivery of such check to a person other than the registered holder of
the certificate surrendered, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
(c) As soon as practicable after the Allocation Date, each holder of
shares of Company Common Stock converted into the right to receive shares
of Parent Common Stock pursuant to Section 4.1(b)(i) upon surrender to the
Exchange Agent (to the extent not previously surrendered with a Form of
Election) of one or more Certificates for such shares of Company Common
Stock for cancellation, will be entitled to receive certificates
representing the number of shares of Parent Common Stock to be issued in
respect of the aggregate number of such shares of Company Common Stock
previously represented by the Certificates surrendered based upon the
Exchange Ratio.
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for certificates for
shares of Parent Common Stock and cash in lieu of fractional shares, if
any, deliverable in respect thereof pursuant to this Agreement in
accordance with the procedures set forth in this Article 4. Certificates
surrendered for exchange for shares of Parent Common Stock by any person
constituting an "affiliate" of the Company for purposes of Rule 145(c)
under the Securities Act of 1933, as amended (the "Securities Act"), shall
not be exchanged until Parent has received a written agreement from such
person as provided in Section 7.9.
(e) No fractional shares of Parent Common Stock shall be issued in the
Merger. In lieu of the issuance of any fractional share of Parent Common
Stock pursuant to Section 4.1(b)(i), cash adjustments will be paid to
holders in respect of any fractional share of Parent Common Stock that
would otherwise be issuable, and the amount of such cash adjustment shall
be equal to such fractional proportion of the Average Price of a share of
Parent Common Stock.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any certificates representing shares of Parent
Common Stock) that
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remains unclaimed by the former stockholders of the Company one (1) year
after the Effective Time shall be delivered to the Surviving Corporation.
Any former stockholders of the Company who have not theretofore complied
with this Article 4 shall thereafter look only to the Surviving Corporation
for payment of the Cash Amount or the shares of Parent Common Stock, cash
in lieu of fractional shares and unpaid dividends and distributions on the
Parent Common Stock, as the case may be, deliverable in respect of each
share of Company Common Stock such stockholder holds as determined pursuant
to this Agreement, in each case, without any interest thereon.
(g) None of Parent, the Surviving Corporation, the Exchange Agent or
any other person shall be liable to any former holder of shares of Company
Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the Cash Amount or the shares of Parent
Common Stock and cash in lieu of fractional shares, and unpaid dividends
and distributions on shares of Parent Common Stock, as the case may be,
deliverable in respect thereof pursuant to this Agreement.
4.5. Adjustment of Exchange Ratio. In the event that, subsequent to the
date of this Agreement but prior to the Effective Time, Parent or the Company
changes the number of shares of Parent Common Stock or Company Common Stock,
respectively, issued and outstanding as a result of a stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction, the
Exchange Ratio shall be appropriately adjusted.
ARTICLE 5
5. Representations and Warranties of the Company.
Except as set forth in the disclosure letter delivered by or on behalf of
the Company to Parent and Merger Sub at or prior to the execution hereof (the
"Company Disclosure Letter"), the Company represents and warrants to Parent and
Merger Sub as follows:
5.1. Existence; Good Standing; Corporate Authority; Compliance With Law.
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware. The Company is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of any other state of the United States in which the character of the properties
owned or leased by it therein or in which the transaction of its business makes
such qualification necessary, except where the failure to be so qualified would
not be material to the Company and its Subsidiaries taken as a whole. The
Company has all requisite corporate power and authority to own, operate and
lease its properties and carry on its
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business as now conducted. Each of the Company's Subsidiaries is a corporation
or partnership duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation or organization, has the
corporate or partnership power and authority to own its properties and to carry
on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership of
its property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing would not be material to the Company and its Subsidiaries taken as a
whole. Neither the Company nor any of its Subsidiaries is in violation of any
order of any court, governmental authority or arbitration board or tribunal, or
any law, ordinance, governmental rule or regulation to which the Company or any
of its Subsidiaries or any of their respective properties or assets is subject,
except where such violation, individually or in the aggregate, is not and would
not reasonably be expected to be material to the Company and its Subsidiaries
taken as a whole. The Company and its Subsidiaries have obtained all licenses,
permits and other authorizations and have taken all actions required by
applicable law or governmental regulations in connection with their business as
now conducted, where the failure to obtain any such item or to take any such
action, individually or in the aggregate, is or would reasonably be expected to
be material to the Company and its Subsidiaries taken as a whole. Neither the
Company nor any of its Subsidiaries is an "electric utility company" or "gas
utility company" within the meaning of the Public Utility Holding Company Act of
1935, as amended. The copies of the Company's Restated Certificate of
Incorporation and By-laws previously delivered to Parent are true and correct.
5.2. Authorization, Validity and Effect of Agreements. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. Subject only to the
approval of this Agreement and the transactions contemplated hereby by the
holders of a majority of the outstanding shares of Company Common Stock, the
consummation by the Company of the transactions contemplated hereby has been
duly authorized by all requisite corporate action. The Board of Directors has
approved each of this Agreement, the Merger and the Stockholder Agreement, dated
the date hereof (the "Stockholder Agreement"), between Parent, Merger Sub and
certain stockholders of the Company for the purposes of Section 203 of the DGCL.
This Agreement constitutes, and all agreements and documents contemplated hereby
(when executed and delivered pursuant hereto for value received) will
constitute, the valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
5.3. Capitalization. The authorized capital stock of the Company consists
of 15,000,000 shares of Company Common Stock, and 1,000,000 shares of preferred
stock, par value $.01 per share (the "Company Preferred Stock"). As of May 8,
1995, there were 6,313,950 shares of Company Common Stock issued and outstanding
and no shares of Company Preferred Stock issued and outstanding. Since such
date, no additional shares of capital stock of the Company have been issued,
except pursuant to the Option Plans set forth on Schedule 5.3 of the Company
Disclosure Letter. Except for the warrants (the "Warrants") issued pursuant to
the warrant agreements listed in the Company Disclosure Letter, the Company has
no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or
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which are convertible into or exercisable for securities having the right to
vote) with the stockholders of the Company on any matter. All such issued and
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. Other than as
contemplated by this Agreement or the Option Plans set forth on Schedule 5.3 of
the Company Disclosure Letter and except for the Warrants, there are no options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Company or any of its Subsidiaries
to issue, transfer or sell any shares of capital stock of the Company or any of
its Subsidiaries or any securities exercisable for, exchangeable for or
convertible into such capital stock. After the Effective Time, the Surviving
Corporation will have no obligation to issue, transfer or sell any shares of
capital stock of the Company or the Surviving Corporation pursuant to any
Company Benefit Plan (as defined in Section 5.11).
5.4. Subsidiaries. The Company owns directly or indirectly each of the
outstanding shares of capital stock of each of its Subsidiaries. Each of the
outstanding shares of capital stock of each of the Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by the Company free and clear of all liens, pledges,
security interests, claims or other encumbrances other than liens imposed by
local law which are not material to the Company and its Subsidiaries taken as a
whole. The following information for each Subsidiary of the Company has been
previously provided to Parent, if applicable: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock or equity
capital; and (iii) the number of issued and outstanding shares of capital stock
or equity capital.
5.5. Other Interests. Except for interests in its Subsidiaries, neither
the Company nor any of its Subsidiaries owns directly or indirectly any interest
or investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or entity.
5.6. No Violation. Neither the execution and delivery by the Company of
this Agreement nor the consummation by the Company of the transactions
contemplated hereby in accordance with the terms hereof will: (i) conflict with
or result in a breach of any provisions of the Restated Certificate of
Incorporation or By-laws of the Company; (ii) except as disclosed in the Company
Reports (as defined in Section 5.7), result in a breach or violation of, a
default under, or the triggering of any payment or other material obligations
pursuant to, or accelerate vesting under, any of the Option Plans, or any grant
or award made under any of the foregoing; (iii) violate, or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the triggering of any
payments or obligations under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the material properties of the
Company or its Subsidiaries under, or result in being declared void, voidable,
or without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any material license,
franchise, permit, lease, contract, agreement or other instrument, commitment or
obligation to which the Company or any of its Subsidiaries is a party, or by
which the Company or any of its Subsidiaries or any of their properties is bound
or affected, except for any of the foregoing matters which, individually or in
the aggregate, are
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not and would not reasonably be expected to be material to the Company and its
Subsidiaries taken as a whole; or (iv) other than the filings provided for in
Article 1, certain federal, state and local regulatory filings, filings required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Regulatory Filings"), require any consent,
approval or authorization of, or declaration, filing or registration with, any
domestic governmental or regulatory authority, the failure to obtain or make
which would be material to the Company and its Subsidiaries taken as a whole.
The Company has waived any and all rights of the Company which may arise under
the Buy-Sell Agreement, dated April 8, 1991, by and among the Company and Robert
G. Phillips by virtue of the transactions contemplated by this Agreement or the
Stockholder Agreement.
5.7. SEC Documents. The Company has delivered to Parent each registration
statement, report, proxy statement or information statement prepared by it since
December 31, 1992, each in the form (including exhibits and any amendments
thereto) filed with the Securities and Exchange Commission (the "SEC")
(collectively, the "Company Reports"). As of their respective dates, the
Company Reports (i) were prepared in all material respects in accordance with
the applicable requirements of the Securities Act, the Exchange Act, and the
respective rules and regulations thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of the Company included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
fairly presents the consolidated financial position of Company and the Company
Subsidiaries as of its date and each of the consolidated statements of income,
retained earnings and cash flows of the Company included in or incorporated by
reference into the Company Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of the Company and its Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Except as and to
the extent set forth on the consolidated balance sheet of the Company and its
Subsidiaries at December 31, 1994, including all notes thereto, or as set forth
in the Company Reports, neither the Company nor any of its Subsidiaries has any
material liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise), except liabilities arising in the ordinary course of
business since such date.
5.8. Litigation. Except as disclosed in the Company Reports filed with the
SEC prior to the date of this Agreement, there are no actions, suits or
proceedings pending against the Company or any of its Subsidiaries or, to the
actual knowledge of the executive officers of the Company, threatened against
the Company or any of its Subsidiaries, at law or in equity, or before or by any
federal or state commission, board, bureau, agency or instrumentality, that,
individually or in the aggregate, are or would reasonably be expected to be
material to the Company and its Subsidiaries taken as a whole.
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5.9. Absence of Certain Changes. Except as disclosed in the Company
Reports filed with the SEC prior to the date of this Agreement, since December
31, 1994, the Company has conducted its business only in the ordinary course of
such business consistent with past practice and there has not been (i) any event
or events which, individually or in the aggregate, have or would reasonably be
expected to have a material adverse effect on the business, financial condition,
results of operations, assets, liabilities or prospects of the Company and its
Subsidiaries taken as a whole, (ii) any declaration, setting aside or payment of
any dividend or other distribution with respect to its capital stock or any
redemption or repurchase of any shares of its capital stock, (iii) any material
change in its accounting principles, practices or methods, (iv) any increase in
the salaries or other compensation payable to any officer, director or employee
of the Company or any of its Subsidiaries (except for normal increases in the
ordinary course of business consistent with past practice) or any increase in,
or addition to, other benefits to which any officer, director or employee may be
entitled (except as required by the terms of plans as in effect on the date of
this Agreement or as required by law), (v) any incurrence of indebtedness for
borrowed money (except in the ordinary course of business consistent with past
practice), (vi) any material adverse change or threat of a material adverse
change in the Company's or any of its Subsidiaries' relations with, or any loss
or threat of loss of, any of the Company's important suppliers or customers,
(vii) any termination, cancellation or waiver of any contract or other right
material to the operation of the business of the Company and its Subsidiaries
taken as a whole or (viii) any material damage, destruction or loss, whether or
not covered by insurance, adversely affecting the properties, business or
prospects of the Company and its Subsidiaries taken as a whole, or any
deterioration in the operating condition of the assets of the Company and its
Subsidiaries which would be material to the Company and its Subsidiaries taken
as a whole.
5.10. Taxes. The Company and each of its Subsidiaries (i) have timely
filed all material federal, state and foreign tax returns required to be filed
by any of them for tax years ended prior to the date of this Agreement or
requests for extensions have been timely filed and any such request shall have
been granted and not expired and all such returns are complete in all material
respects, (ii) have paid or accrued all taxes that may be due and payable with
respect to such returns, (iii) have properly accrued in all material respects
all such taxes for such periods subsequent to the periods covered by such
returns, and (iv) have "open" years for federal income tax returns only as set
forth in the Company Reports.
5.11 Certain Employee Plans.
(a) Each employee benefit or compensation plan or arrangement,
including each "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
maintained by the Company or any of its Subsidiaries (the "Company Benefit
Plans") complies, and has been administered, in all material respects in
accordance with all applicable requirements of law, and no "reportable
event" or "prohibited transaction" (as such terms are defined in ERISA) or
termination has occurred with respect to any Company Benefit Plan under
circumstances which present a risk of liability by the Company or any of
its Subsidiaries to any governmental entity or other person, including a
Company Benefit Plan, which liability would be material to the Company and
its Subsidiaries taken as a whole. The Company
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Benefit Plans are listed on Schedule 5.11(a) and copies or descriptions of
all material Company Benefit Plans have previously been provided to Parent.
(b) Each Company Benefit Plan intended to qualify under Section 401(a)
of the Code is so qualified and a determination letter has been issued by
the Internal Revenue Service ("IRS") with respect to the qualification of
each Company Benefit Plan and no circumstances exist which would adversely
affect such qualification. Each Company Benefit Plan which is subject to
Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code has
been maintained in compliance with the minimum funding standards of ERISA
and the Code and no such Company Benefit Plan has incurred any "accumulated
funding deficiency" (as defined in Section 412 of the Code and Section 302
of ERISA), whether or not waived. Neither the Company nor any of its
Subsidiaries has sought or received a waiver of its minimum funding
requirements with respect to any Company Benefit Plan. Neither Company nor
any of its Subsidiaries has incurred, nor reasonably expects to incur, any
liability in respect of any Company Benefit Plan under Title IV of ERISA
(other than with respect to the payment of premiums), which liability would
be material to the Company and its Subsidiaries taken as a whole. Neither
the Company nor any of its Subsidiaries has incurred any material
withdrawal liability under any "multiemployer plan" within the meaning of
Section 3(37) of ERISA which has not been satisfied in full nor do any of
them reasonably expect to incur such liability.
(c) Except as required by applicable law or as set forth on Schedule
5.11(c), neither the Company nor any of its Subsidiaries provides any
health, welfare or life insurance benefits to any of their former or
retired employees.
(d) Except as disclosed on Schedule 5.11(d), no payment or benefit
which will or may be made by the Company or any of its Subsidiaries will be
characterized as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code.
5.12. Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. There is
no unfair labor practice or labor arbitration proceeding pending or, to the
actual knowledge of the executive officers of the Company, threatened against
the Company or its Subsidiaries relating to their business, except for any such
proceeding which, individually or in the aggregate, is not and would not
reasonably be expected to be material to the Company and its Subsidiaries taken
as a whole. To the actual knowledge of the executive officers of the Company,
there are no organizational efforts with respect to the formation of a
collective bargaining unit presently being made or threatened involving
employees of the Company or any of its Subsidiaries.
5.13. No Brokers. The Company has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of the Company or Parent to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby, except that the Company has retained Rauscher Pierce Refsnes, Inc., the
arrangements with which have been disclosed in writing to Parent prior to the
date
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hereof. Other than the foregoing arrangements, the Company is not aware of any
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
5.14. Fairness Opinion. The Company has received the opinion of Rauscher
Pierce Refsnes, Inc., to the effect that, as of the date of this Agreement, the
Merger Consideration is fair to the holders of Company Common Stock.
5.15. Environmental Matters.
(a) For the purposes of this Agreement:
"Environmental Matters" means any matter arising out of, relating
to or resulting from pollution, protection of the environment and
human health or safety, health or safety of employees, sanitation, and
any matters relating to emissions, discharges, releases or threatened
releases of Hazardous Materials or otherwise arising out of, resulting
from or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials.
"Environmental Costs" means, without limitation, any actual or
potential cleanup costs, remediation, removal, or other response
costs, investigation costs, losses, liabilities or obligations,
payments, damages, civil or criminal fines or penalties, judgments,
and amounts paid in settlement arising out of or relating to or
resulting from any Environmental Matter.
"Environmental Laws" means, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
(S)(S) 9601 et seq., the Emergency Planning and Community Right-to-
Know Act of 1986, 42 U.S.C. (S)(S) 11001 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq., the
Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et seq., the
Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S)
136 et seq., the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq., the
Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C.
(S)(S) 1251 et seq., the Safe Drinking Water Act, 42 U.S.C. (S)(S)
300f et seq., the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 641 et seq., the Hazardous Materials Transportation Act, 49
U.S.C. (S)(S) 1801 et seq., as any of the above statutes have been or
may be amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other
foreign, federal, state or local law, statute, ordinance, rule or
regulation governing Environmental Matters, as the same have been or
may be amended from time to time, including any common law cause of
action providing any right or remedy with respect to Environmental
Matters, and all applicable judicial and
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administrative decisions, orders, and decrees relating to
Environmental Matters.
"Hazardous Materials" means any pollutants, contaminants, or
hazardous or toxic substances, materials, wastes, constituents or
chemicals that are regulated by, or form the basis for liability
under, any Environmental Laws.
(b) (i) The Company and each of its Subsidiaries is in compliance in
all material respects with all applicable Environmental Laws.
(ii) The Company and each of its Subsidiaries has obtained, and
is in compliance in all material respects with, all permits, licenses,
authorizations, registrations and other governmental consents
("Environmental Permits") required to be obtained by it by applicable
Environmental Laws for the use, storage, treatment, transportation,
release, emission and disposal of raw materials, by-products, wastes
and other substances used or produced by or otherwise relating to its
business.
(iii) All such Environmental Permits are in all material
respects in full force and effect, and the Company and each of its
Subsidiaries has made all appropriate filings for issuance or renewal
of such Environmental Permits.
(iv) There are no Hazardous Materials in amounts required to be
remediated under applicable Environmental Laws at, on, under or within
any real property owned, leased or occupied by the Company or any of
its Subsidiaries.
(v) There are no material claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings pending or threatened that are based on or related to any
Environmental Matters or the failure to have any required
Environmental Permits.
(vi) Neither the Company nor any of its Subsidiaries has used any
waste disposal site, or otherwise disposed of, transported, or
arranged for the transportation of, any Hazardous Materials to any
place or location, in violation of any Environmental Laws.
(vii) There are no underground storage tanks or surface
impoundments at, on, under or within any of real property owned,
leased or occupied by the Company or any of its Subsidiaries, or any
portion thereof.
(viii) None of the Company or its Subsidiaries has received any
notice asserting that it may be a potentially responsible party at any
waste disposal site or other location used for the disposal of any
Hazardous Materials.
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5.16. Related Party Transactions. There are no contracts, arrangements or
transactions in effect between the Company or any of its Subsidiaries, on the
one hand, and any officer, director or 5% stockholder of the Company, or any
affiliate or immediate family member of any of the foregoing persons, on the
other hand, except as set forth in the Company Disclosure Letter.
ARTICLE 6
6. Representations and Warranties of Parent and Merger Sub.
Except as set forth in the disclosure letter delivered by or on behalf of
Parent or Merger Sub to the Company at or prior to the execution hereof (the
"Parent Disclosure Letter"), Parent and Merger Sub represent and warrant to the
Company as follows:
6.1. Existence; Good Standing; Corporate Authority; Compliance with Law.
Each of Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Parent is duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of any other state of the
United States in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified would not be material to
Parent and its Subsidiaries taken as a whole. Parent has all requisite
corporate power and authority to own, operate and lease its properties and carry
on its business as now conducted. Neither Parent nor any of its Subsidiaries is
in violation of any order of any court, governmental authority or arbitration
board or tribunal, or any law, ordinance, governmental rule or regulation to
which Parent or any of its Subsidiaries or any of their respective properties or
assets is subject, except where such violation, individually or in the
aggregate, is not and would not reasonably be expected to be material to Parent
and its Subsidiaries taken as a whole. Parent and its Subsidiaries have
obtained all licenses, permits and other authorizations and have taken all
actions required by applicable law or governmental regulations in connection
with their business as now conducted, where the failure to obtain any such item
or to take any such action, individually or in the aggregate, is or would
reasonably be expected to be material to Parent and its Subsidiaries taken as a
whole.
6.2. Authorization, Validity and Effect of Agreements. Each of Parent and
Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
The consummation by Parent and Merger Sub of the transactions contemplated
hereby has been duly authorized by all requisite corporate action. This
Agreement constitutes, and all agreements and documents contemplated hereby
(when executed and delivered pursuant hereto for value received) will
constitute, the valid and legally binding obligations of Parent and Merger Sub,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
6.3. No Violation. Neither the execution and delivery by Parent and Merger
Sub of this Agreement, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the Certificate of
Incorporation or By-laws of Parent or Merger Sub;
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(ii) violate, or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of Parent or its Subsidiaries under, or
result in being declared void, voidable, or without further binding effect, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust or any material license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which Parent or any
of its Subsidiaries is a party, or by which Parent or any of its Subsidiaries or
any of their properties is bound or affected, except for any of the foregoing
matters which would not reasonably be expected to be material to Parent and its
Subsidiaries taken as a whole; or (iii) other than the Regulatory Filings,
require any material consent, approval or authorization of, or declaration,
filing or registration with, any domestic governmental or regulatory authority,
the failure to obtain or make which would be material to Parent and its
Subsidiaries taken as a whole.
6.4. No Brokers. Neither Parent nor any of its Subsidiaries has entered
into any contract, arrangement or understanding with any person or firm which
may result in the obligation of the Company or Parent to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that Parent has retained Rodman & Renshaw, Inc.
Other than the foregoing arrangements, Parent is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
6.5. Capitalization. The authorized capital stock of Parent consists of
100,000,000 shares of Parent Common Stock and 25,000,000 shares of preferred
stock, $.01 par value (the "Parent Preferred Stock"). As of April 30, 1995,
there were 35,004,939 shares of Parent Common Stock issued and outstanding (not
including 430,000 shares of Parent Common Stock deposited in Parent's Benefits
Protection Trust) and no shares of Parent Preferred Stock issued and
outstanding. Other than as contemplated by this Agreement or as set forth in
the Parent Reports (as defined in Section 6.6) or on Schedule 6.5 of the Parent
Disclosure Letter, as of the date of this Agreement, there are no options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate Parent or any of its Subsidiaries to
issue any shares of capital stock of Parent or any securities exercisable for,
exchangeable for or convertible into such capital stock.
6.6. SEC Documents. Parent has delivered to the Company each registration
statement, report, proxy statement or information statement prepared by it since
December 31, 1992, each in the form (including exhibits and any amendments
thereto) filed with the SEC (collectively, the "Parent Reports"). As of their
respective dates, the Parent Reports (i) were prepared in all material respects
in accordance with the applicable requirements of the Securities Act, the
Exchange Act, and the respective rules and regulations thereunder and (ii) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets included in or
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incorporated by reference into the Parent Reports (including the related notes
and schedules) fairly presents the consolidated financial position of Parent and
the Parent Subsidiaries as of its date and each of the consolidated statements
of income, retained earnings and cash flows included in or incorporated by
reference into the Parent Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings or cash flows, as
the case may be, of Parent and the Parent Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. As of the date of
this Agreement, except as and to the extent set forth on the consolidated
balance sheet of Parent and its Subsidiaries at December 31, 1994, including all
notes thereto, or as set forth in the Parent Reports, neither Parent nor any of
its Subsidiaries has any material liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise), except liabilities arising
in the ordinary course of business since such date.
6.7. Litigation. Except as disclosed in the Parent Reports filed with the
SEC prior to the date of this Agreement, there are no actions, suits or
proceedings pending against Parent or any of its Subsidiaries or, to the actual
knowledge of the executive officers of Parent, threatened against Parent or any
of its Subsidiaries, at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality, that, individually or in
the aggregate, are or would reasonably be expected to be material to Parent and
its Subsidiaries taken as a whole.
6.8. Absence of Certain Changes. Since December 31, 1994, there has not
been any event or events which, individually or in the aggregate, have a
material adverse effect on the business, financial condition, results of
operations, assets or liabilities of Parent and its Subsidiaries taken as a
whole (other than changes resulting from general economic, industry or market
conditions or business combinations proposed, announced or consummated after the
date of this Agreement).
6.9. Parent Common Stock. The issuance and delivery by Parent of shares of
Parent Common Stock in connection with the Merger and this Agreement have been
duly and validly authorized by all necessary corporate action on the part of
Parent. The shares of Parent Common Stock to be issued in connection with the
Merger and this Agreement, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable.
ARTICLE 7
7. Covenants.
7.1. Acquisition Proposals. Prior to the Effective Time, the Company
agrees (a) that neither the Company nor any of its Subsidiaries shall, and the
Company shall direct and use its best efforts to cause its officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders) with
respect to a merger, acquisition, consolidation or similar
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transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company or any of its Subsidiaries (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; (b) that it will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing and will take
the necessary steps to inform the individuals or entities referred to above of
the obligations undertaken in this Section 7.1; and (c) that it will notify
Parent immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with it; provided, however, that nothing
contained in this Section 7.1 shall prohibit the Board of Directors of the
Company from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
written proposal to acquire the Company pursuant to a merger, consolidation,
share exchange, business combination or other similar transaction, if, and only
to the extent that, (A) the Board of Directors of the Company determines in good
faith, based as to legal matters on the written opinion of outside legal
counsel, that such action is required for the Board of Directors to comply with
its fiduciary duties to stockholders imposed by law, (B) prior to furnishing
such information to, or entering into discussions or negotiations with, such
person or entity, the Company provides written notice to Parent to the effect
that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity and provides Parent with a copy of any
such written proposal, and (C) the Company keeps Parent informed of the status
and the terms of any such discussions or negotiations; and (ii) to the extent
applicable, complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Acquisition Proposal. Nothing in this Section 7.1 shall (x) permit
the Company to terminate this Agreement, (y) permit the Company to enter into
any agreement with respect to an Acquisition Proposal during the term of this
Agreement or any other agreement with any person that provides for, or in any
way facilitates, an Acquisition Proposal, or (z) affect any other obligation of
any party under this Agreement.
7.2. Conduct of Businesses. Prior to the Effective Time, except as
specifically set forth in the Company Disclosure Letter or as contemplated by
any other provision of this Agreement, unless Parent has consented in writing
thereto, the Company:
(a) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) shall use its reasonable efforts, and shall cause each of its
respective Subsidiaries to use its reasonable efforts, to preserve intact
its business organization and goodwill, keep available the services of its
officers and employees and maintain satisfactory relationships with those
persons having business relationships with it;
(c) shall confer on a regular basis with one or more representatives
of Parent to report operational matters of materiality and any proposals to
engage in material transactions;
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(d) shall not amend its organizational documents;
(e) shall promptly notify Parent of (i) any material emergency or
other material change in the condition (financial or otherwise) of the
Company's or any Subsidiary's business, properties, assets, liabilities,
prospects or the normal course of its businesses or in the operation of its
properties, (ii) any material litigation or material governmental
complaints, investigations or hearings (or communications indicating that
the same may be contemplated), or (iii) the breach in any material respect
of any representation or warranty or covenant contained herein;
(f) shall promptly deliver to Parent true and correct copies of any
report, statement or schedule filed by the Company with the SEC subsequent
to the date of this Agreement;
(g) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date of this Agreement and disclosed in the Company Disclosure Letter,
issue any shares of its capital stock, effect any stock split or otherwise
change its capitalization as it exists on the date of this Agreement, (ii)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital stock
from the Company, (iii) increase any compensation or enter into or amend
any employment, severance, termination or similar agreement with any of its
present or future officers or directors, except for normal increases in
compensation to employees consistent with past practice and the payment of
cash bonuses to employees pursuant to and consistent with existing plans or
programs, or (iv) adopt any new employee benefit plan (including any stock
option, stock benefit or stock purchase plan) or amend any existing
employee benefit plan in any material respect, except for changes which are
less favorable to participants in such plans or as may be required by
applicable law;
(h) shall not (i) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock; (ii) directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital stock of any of its
Subsidiaries, or make any commitment for any such action or (iii) split,
combine or reclassify any of its capital stock;
(i) shall not, and shall not permit any of its Subsidiaries to sell,
lease or otherwise dispose of any of its assets (including capital stock of
Subsidiaries) which are material, individually or in the aggregate, except
in the ordinary course of business;
(j) shall not (i) incur or assume any long-term or short-term debt or
issue any debt securities except for borrowings under existing lines of
credit in the ordinary course of business; (ii) except for obligations of
wholly owned Subsidiaries of the Company, assume, guaranty, endorse or
otherwise become liable or responsible (whether directly, indirectly,
contingently or otherwise) for the obligations of any other person except
in the ordinary course of business consistent with past practices in an
amount not material to the Company and its Subsidiaries, taken as a whole;
(iii) other than wholly owned
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Subsidiaries of the Company, make any loans, advances or capital
contributions to, or investments in, any other person; (iv) modify in any
manner adverse to the Company or any of its Subsidiaries any outstanding
indebtedness or obligation of the Company or any of its Subsidiaries; (v)
pledge or otherwise encumber shares of capital stock of the Company or its
Subsidiaries; or (vi) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to create any material
mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect to such asset;
(k) shall not acquire, sell, lease or dispose of any assets outside
the ordinary course of business or any assets which in the aggregate are
material to the Company and its Subsidiaries taken as a whole, or enter
into any commitment or transaction outside the ordinary course of business
consistent with past practices which would be material to the Company and
its Subsidiaries taken as a whole;
(l) shall not change any of the accounting principles or practices
used by the Company;
(m) shall not (i) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein; (ii) enter
into any contract or agreement other than in the ordinary course of
business consistent with past practice which would be material to the
Company and its Subsidiaries taken as a whole; (iii) authorize any new
capital expenditure or expenditures which, individually, is in excess of
$50,000 or, in the aggregate, are in excess of $150,000; provided, that
none of the foregoing shall limit any capital expenditure within the
aggregate amount previously authorized by the Company's Board of Directors
for capital expenditures, written evidence of which has been previously
provided to Parent; or (iv) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action which
would be prohibited hereunder;
(n) shall not make any tax election or settle or compromise any income
tax liability material to the Company and its Subsidiaries taken as a
whole;
(o) shall not pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected, reserved against or
disclosed in the consolidated financial statements (or the notes thereto)
of the Company and its Subsidiaries or incurred in the ordinary course of
business consistent with past practice;
(p) shall not settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby; or
(q) shall not take, or agree in writing or otherwise to take, any of
the actions described in Section 7.2(a) through 7.2(p) or any action that
would make any of the representations and warranties of the Company
contained in this Agreement untrue or incorrect as of the date when made.
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7.3. Meeting of Stockholders. The Company will take all action necessary
in accordance with applicable law and its Restated Certificate of Incorporation
and By-laws to convene a meeting of its stockholders as promptly as practicable
to consider and vote upon the approval of this Agreement and the transactions
contemplated hereby. The Board of Directors of the Company shall recommend such
approval and the Company shall take all lawful action to solicit such approval,
including, without limitation, timely mailing the Proxy Statement/Prospectus (as
defined in Section 7.7); provided, however, that such recommendation or
solicitation is subject to any action taken by, or upon authority of, the Board
of Directors of the Company in the exercise of its good faith judgment as to its
fiduciary duties to its stockholders imposed by law.
7.4. Filings; Other Action. Subject to the terms and conditions herein
provided, the Company and Parent shall: (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
with respect to the Merger; (b) use all reasonable efforts to cooperate with one
another in (i) promptly determining which filings are required to be made prior
to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits or authorizations; and (c) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to promptly consummate and make effective the
transactions contemplated by this Agreement. Each of Parent and the Company
will use all reasonable efforts to resolve such objections, if any, as may be
asserted with respect to the Merger under the HSR Act or other antitrust laws.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
directors of Parent and the Company shall take all such necessary action.
7.5. Inspection of Records; Access. From the date of this Agreement to the
Effective Time, the Company shall allow all designated officers, attorneys,
accountants and other representatives of Parent ("Parent's Representatives")
access at all reasonable times to all employees, plants, offices, warehouses,
transmission facilities and other facilities and to the records and files,
correspondence, audits and properties, as well as to all information relating to
commitments, contracts, titles and financial position, or otherwise pertaining
to the business and affairs, of the Company and its Subsidiaries; provided,
however, that Parent's Representatives shall use their reasonable best efforts
to avoid unreasonably interfering with, hindering or otherwise disrupting the
employees of the Company in the execution of their employment duties during any
visit to, or inspection of, the Company's facilities. From the date of this
Agreement to the Effective Time, but not more frequently than once in any 30-day
period, Parent shall allow all designated officers, attorneys, accountants, and
other representatives of the Company access during regular business hours upon
reasonable notice to Parent's officers and, to the extent relevant thereto, to
the records and files of Parent and its Subsidiaries, for the purpose of
confirming the accuracy of the representations and warranties of Parent and
Merger Sub set forth in this Agreement.
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7.6. Publicity. The initial press release relating to this Agreement shall
be a joint press release and thereafter the Company and Parent shall, subject to
their respective legal obligations (including requirements of stock exchanges
and other similar regulatory bodies), consult with each other, and use
reasonable efforts to agree upon the text of any press release, before issuing
any such press release or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any federal or
state governmental or regulatory agency or with any national securities exchange
with respect thereto.
7.7. Registration Statement. Parent and the Company shall cooperate and
promptly prepare and Parent shall file with the SEC as soon as practicable a
Registration Statement on Form S-4 (the "Form S-4") under the Securities Act,
with respect to the Parent Common Stock issuable in connection with the
transactions contemplated by this Agreement, a portion of which Registration
Statement shall also serve as the proxy statement with respect to the meeting of
the stockholders of the Company in connection with the Merger (the "Proxy
Statement/Prospectus"). The respective parties will cause the Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations thereunder. Parent shall use all reasonable
efforts, and the Company will cooperate with Parent, to have the Form S-4
declared effective by the SEC as promptly as practicable. Parent shall use its
best efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law or "Blue Sky" permits or approvals required to
carry out the transactions contemplated by this Agreement and will pay all
expenses incident thereto. Parent agrees that the Proxy Statement/Prospectus
and each amendment or supplement thereto, at the time of the mailing thereof and
at the time of the meeting of stockholders of the Company, or, in the case of
the Form S-4 and each amendment or supplement thereto, at the time it is filed
or becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing shall not apply to
the extent that any such untrue statement of a material fact or omission to
state a material fact was made by Parent in reliance upon and in conformity with
written information concerning the Company furnished to Parent by the Company
specifically for use in the Proxy Statement/Prospectus or the Form S-4. The
Company agrees that the information provided by it for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the meeting of stockholders of the Company,
or, in the case of information provided by the Company for inclusion in the Form
S-4 or any amendment or supplement thereto, at the time it is filed or becomes
effective, will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No amendment or supplement to the Proxy Statement/Prospectus
will be made by Parent or the Company without the approval of the other party.
Parent will advise the Company, promptly after it receives notice thereof, of
the time when the Form S-4 has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the Parent Common Stock issuable in connection with the
transactions contemplated by this Agreement for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Proxy
Statement/Prospectus or the Form S-4 or comments thereon and responses thereto
or requests by the SEC for additional information.
25
<PAGE>
7.8. Listing Application. Parent shall promptly prepare and submit to the
NYSE a listing application covering the shares of Parent Common Stock (and
associated Rights) issuable in connection with the transactions contemplated by
this Agreement, and shall use its best efforts to obtain, prior to the Effective
Time, approval for the listing of such Parent Common Stock (and associated
Rights), subject to official notice of issuance.
7.9. Agreements by Affiliated Stockholders of the Company. At least 30
days prior to the Closing Date, the Company shall deliver to Parent a list of
names and addresses of those persons who were, in the Company's reasonable
judgment, at the record date for its stockholders' meeting to approve the
Merger, "affiliates" (each such person, an "Affiliate") of the Company within
the meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act ("Rule 145"). The Company shall provide Parent such information
and documents as Parent shall reasonably request for purposes of reviewing such
list. The Company shall deliver or cause to be delivered to Parent, prior to
the Closing Date, from each of the Affiliates of the Company identified in the
foregoing list, an Affiliate Letter in the form attached hereto as Exhibit A.
Parent shall be entitled to place legends as specified in such Affiliate Letters
on the certificates evidencing any Parent Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of such Affiliate Letters.
7.10. Further Action. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
7.11. Expenses. Whether or not the Merger is consummated, except as
provided in Section 9.5(b), all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses.
7.12. Indemnification and Insurance.
(a) Parent shall cause the Surviving Corporation to keep in effect
provisions in its Certificate of Incorporation and By-laws providing for
exculpation of director and officer liability and indemnification of the
indemnified parties under the Company's Restated Certificate of
Incorporation and By-laws (the "Indemnified Parties") to the fullest extent
permitted under the DGCL, which provisions shall not be amended except as
required by applicable law or except to make changes permitted by law that
would enlarge the Indemnified Parties' right of indemnification.
(b) The provisions of this Section shall survive the consummation of
the Merger and expressly are intended to benefit each of the Indemnified
Parties.
(c) For a period of three years after the Effective Time, Parent shall
cause to be maintained officers' and directors' liability insurance
covering the parties who are currently covered, in their capacities as
officers and directors, by the Company's existing officers' and directors'
liability insurance policies on terms substantially no less
26
<PAGE>
advantageous to such parties than such existing insurance; provided,
however, that Parent shall not be required, in order to maintain or procure
such coverage, to pay premiums in excess of $250,000 in the aggregate over
such three year period (the "Cap"); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying
an amount in excess of the Cap, Parent shall only be required to obtain
such coverage for such three-year period as can be obtained by paying
aggregate premiums equal to the Cap.
7.13. Certain Benefits.
(a) From and after the Effective Time, subject to applicable law,
Parent and its Subsidiaries will honor in accordance with their terms, all
Company Benefit Plans; provided, however, that nothing herein shall
preclude any change effected on a prospective basis in any Company Benefit
Plan.
(b) The Surviving Corporation shall employ at the Effective Time all
employees of the Company and its Subsidiaries who are employed on the
Closing Date on terms consistent with the Company's current employment
practices and at comparable levels of compensation and positions. Subject
to the obligations of the Surviving Corporation under the employment
agreements and amendments to employment agreements described in Section
8.3(d), such employment shall be at will and Parent and the Surviving
Corporation shall be under no obligation to continue to employ any
individuals.
7.14. Reorganization. From and after the date hereof and until the
Effective Time, neither Parent nor the Company nor any of their respective
subsidiaries or other affiliates shall knowingly take any action, or knowingly
fail to take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code or enter into
any contract, agreement, commitment or arrangement with respect to the
foregoing. Following the Effective Time, Parent shall use its best efforts to
conduct its business in a manner that would not jeopardize the characterization
of the Merger as a reorganization within the meaning of Section 368(a) of the
Code.
7.15. Purchase of Company Common Stock. The Company acknowledges and
agrees that, subject to Section 7.14, nothing in this Agreement shall restrict
Parent or Merger Sub from acquiring shares of Company Common Stock in open
market or private transactions between the date of this Agreement and the
Closing Date.
7.16. Headquarters of the Surviving Corporation; Operations. Parent
intends that, following the Effective Time, the headquarters of the Surviving
Corporation will be located in Houston, Texas. In addition, Parent intends
that, following the Effective Time, the gas marketing operations of Parent and
its Subsidiaries, on the one hand, and the Company and its Subsidiaries, on the
other hand, will be operated as a single business unit.
7.17. Merger of Subsidiaries of the Company. Prior to the Effective Time,
the Company will take all necessary action to cause Eastex Gas Storage and
Exchange, Inc. to be merged with
27
<PAGE>
Eastex Hydrocarbons, Inc. in a manner which will not result in the incurrence of
any liability, cost or expense by Parent, the Company or any of their respective
Subsidiaries (other than expenses of preparation and filing of the merger
documents relating to such merger and legal expenses of preparation of any
documents evidencing third-party consents required to effect such merger).
ARTICLE 8
8. Conditions.
8.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(b) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement.
(c) This Agreement and the Merger shall have been approved by the
stockholders of the Company in accordance with the DGCL and the Company's
Restated Certificate of Incorporation and By-laws.
(d) The Form S-4 shall have become effective and no stop order with
respect thereto shall be in effect.
(e) Each of the Parent and the Company shall have received the opinion
of Fried, Frank, Harris, Shriver & Jacobson, special counsel to Parent,
dated the Closing Date, to the effect that the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, and that the Company and Parent will each be a
party to that reorganization within the meaning of Section 368(b) of the
Code; except that the delivery of such opinion shall not be a condition to
the Company's obligation to effect the Merger if at the Closing Date the
Company shall not have fulfilled any of the conditions set forth in Section
8.3(c) or 8.3(f).
8.2. 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 Closing Date of the condition that Parent shall
have performed its agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and correct
in all material respects as of the date when made and (unless made as of a
specified date) as of the Closing Date, and the Company shall have received a
certificate of the President or a Vice President of Parent, dated the Closing
Date, certifying to such effect.
28
<PAGE>
8.3. Conditions to Obligation of Parent and Merger Sub to Effect the
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) The Company shall have performed its agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects as of the date when made
and (unless made as of a specified date) as of the Closing Date, and Parent
shall have received a certificate of the Company, dated the Closing Date,
certifying to such effect.
(b) All necessary governmental and third party consents required in
connection with the transactions contemplated by this Agreement shall have
been obtained and there shall be no action, suit or proceeding pending or
threatened against the Company, Parent or any of their Subsidiaries which
would or would reasonably be expected to prevent or delay the transactions
contemplated by this Agreement or result in material damages in connection
herewith or therewith.
(c) Parent shall have received from each Affiliate of the Company an
Affiliate Letter in the form attached hereto as Exhibit A.
(d) The employment agreements and the amendments to employment
agreements listed in Exhibit B hereto shall have been executed and
delivered by the employee specified in each such amendment, shall be in
full force and effect, and shall constitute valid and binding obligations
of each such employee.
(e) Working capital of the Company and its Subsidiaries as of the
close of business on the business day preceding the Closing Date shall be
at least $12,000,000 computed on a consolidated basis in accordance with
generally accepted accounting principles applied on a consistent basis;
provided however that any obligations of or payments by the Company
pursuant to Section 4.1 (e) of this Agreement shall not be treated as a
reduction of working capital for the purpose of this Section 8.3(e).
(f) Parent shall have received from an officer of the Company an
Officer's Certificate containing standard representations on which Fried,
Frank, Harris, Shriver & Jacobson will rely in rendering its tax opinion.
ARTICLE 9
9. Termination.
9.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by the
mutual consent of Parent and the Company.
29
<PAGE>
9.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned by Parent or the Company if (a) the
Merger shall not have been consummated by December 31, 1995, or (b) a United
States federal or state court of competent jurisdiction or United States federal
or state governmental, regulatory or administrative agency or commission shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause (b) shall have used all efforts required by
this Agreement to remove such injunction, order or decree.
9.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by the Company,
if there has been a breach by Parent or Merger Sub of any representation or
warranty contained in this Agreement which would cause Parent or Merger Sub to
fail to satisfy any condition to Closing and such condition shall not have been
waived by the Company.
9.4. Termination by Parent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by Parent, if
there has been a breach by the Company of any representation or warranty
contained in this Agreement which would cause the Company to fail to satisfy any
condition to Closing and such condition shall not have been waived by Parent.
9.5. Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article 9, all obligations of the parties
hereto shall terminate, except the obligations of the parties pursuant to
this Section 9.5 and Sections 7.11, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8,
10.9, 10.10 and 10.11 and the Confidentiality Agreement referred to in
Section 10.4. Moreover, in the event of termination of this Agreement,
nothing herein shall prejudice the ability of the non-breaching to seek
damages from any other party for any breach of this Agreement, including
without limitation, attorneys' fees and the right to pursue any remedy at
law or in equity.
(b) In the event of a termination of this Agreement for any reason
other than a material breach by Parent or Merger Sub and (i) the Board of
Directors of the Company shall have withdrawn its recommendation of (or
encouraged stockholders not to approve) the Merger or shall have
recommended (or encouraged stockholders to support) any Acquisition
Proposal, or shall have resolved to do any of the foregoing (and such
withdrawal, recommendation or encouragement is not the result of a material
breach by Parent or Merger Sub of any representation, warranty or
obligation under this Agreement), (ii) prior to such termination, the
Company shall have received any Acquisition Proposal which the Board of
Directors has determined is more favorable to the Company's stockholders
than the transactions contemplated by this Agreement, or (iii)(A) at any
time prior to the termination of this Agreement either (I) the stockholders
of the Company shall have failed to approve this Agreement at the
stockholders meeting provided for in Section
30
<PAGE>
7.3 or (II) any person (other than Parent or any of its Subsidiaries) shall
have publicly announced any Acquisition Proposal and (B), at any time on
or prior to one year after the date of this Agreement, any person (other
than Parent or any of its Subsidiaries) shall either (I) become the
beneficial owner of 40% or more of the outstanding shares of Company Common
Stock or (II) consummate an Acquisition Proposal, then the Company shall
promptly, but in no event later than two business days after the first of
such events to occur, (x) pay Parent the sum of $1,000,000 in cash and (y)
reimburse Parent for all documented out of pocket costs and expenses
(including, without limitation, all documented legal, investment banking,
printing and related fees and expenses) incurred by Parent or Merger Sub or
on their behalf in connection with this Agreement or the transactions
contemplated hereby, up to a maximum of $750,000.
9.6. Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by or on behalf of the party granting such extension or waiver.
ARTICLE 10
10. General Provisions.
10.1. Survival of Representations and Warranties. Unless this Agreement
is terminated pursuant to Article 9, the representations and warranties and
covenants made in this Agreement shall terminate at the Closing, except that any
covenant herein which by its terms contemplates performance after the Closing
Date shall survive the Closing Date for the period contemplated thereby.
10.2. Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to the Company: If to Parent or Merger Sub:
Eastex Energy Inc. El Paso Natural Gas Company
1000 Louisiana One Paul Kayser Center
Suite 1100 100 North Stanton Street
Houston, Texas 77002 El Paso, Texas 79901
Attention: Robert G. Phillips, Attention: H. Brent Austin
Chairman of the Board and Executive Vice President
Chief Executive Officer and Chief Financial Officer
Facsimile: (713) 650-1107 Facsimile: (915) 541-5008
31
<PAGE>
With a copy to: With a copy to:
Dallas Parker, Esq. Gary P. Cooperstein, Esq.
Brown, Parker & Leahy, L.L.P. Fried, Frank, Harris,
3600 Citicorp Center Shriver & Jacobson
1200 Smith Street One New York Plaza
Houston, TX 77002 New York, NY 10004
Facsimile: (713) 654-1871 Facsimile: (212) 747-1526
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
10.3. Assignment; Binding Effect; Benefit. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties; provided, however, that Parent may assign
this Agreement to any of its Subsidiaries whether or not such Subsidiaries exist
at the date hereof; provided, further, that no such assignment shall relieve
Parent of any of its obligations hereunder. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Section 7.12, which are expressly intended to be enforceable by the
beneficiaries thereof, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective heirs, successors, executors, administrators and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
10.4. Entire Agreement. This Agreement, the Company Disclosure Letter,
the Parent Disclosure Letter and the Confidentiality Agreement dated April 10,
1995 between the Company and Parent constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings (oral and written) among the parties with respect
thereto. No addition to or modification of any provision of this Agreement
shall be binding upon any party hereto unless made in writing and signed by all
parties hereto.
10.5. Amendment. This Agreement may be amended by the parties hereto by
an instrument in writing signed by or on behalf of each of the parties hereto.
10.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its rules of
conflict of laws.
10.7. Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies of this
Agreement, each of which may be signed by less than all of the parties hereto,
but together all such copies are signed by all of the parties hereto.
32
<PAGE>
10.8. Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
10.9. Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. As used in this Agreement, the word "Subsidiary" when used with respect
to any party means any corporation or other organization, whether incorporated
or unincorporated, of which such party directly or indirectly owns or controls
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization, or any organization of which such party is a general partner.
10.10. Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
10.12. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they may be entitled at law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf as of the day and year first written
above.
EL PASO NATURAL GAS COMPANY
By: /s/ WILLIAM A. WISE
Name: WILLIAM A. WISE
Title: Chairman of the Board, President,
and Chief Executive Officer
33
<PAGE>
EL PASO ACQUISITION COMPANY
By: /s/ H. BRENT AUSTIN
Name: H. BRENT AUSTIN
Title:
EASTEX ENERGY INC.
By: /s/ ROBERT G. PHILLIPS
Name: ROBERT G. PHILLIPS
Title: Chairman of the Board and
Chief Executive Officer
34
<PAGE>
EXHIBIT 20.1
RELEASE DATE: MAY 9, 1995 CONTACT: Robert G. Phillips
Chairman and CEO
EL PASO NATURAL GAS COMPANY
TO ACQUIRE EASTEX ENERGY INC.
EL PASO AND HOUSTON, TEXAS, MAY 9, 1995 - El Paso Natural Gas Company
(NYSE:EPG) and Eastex Energy Inc. (NASDAQ:ETEX) jointly announced today the
execution of a definitive merger agreement which provides for the merger of
Eastex Energy Inc. with a subsidiary of El Paso Natural Gas Company. Eastex
Energy Inc. is a full-service natural gas marketing company based in Houston
that markets over 900 million cubic feet of gas per day, primarily to
commercial, industrial and utility users in the Gulf Coast, Southeast, Northeast
and Midwest regions of the United States. The net value of the transaction is
approximately $31 million.
In the merger, holders of Eastex Energy common stock will receive $4.50 per
share in either common stock of El Paso Natural Gas (subject to a maximum and
minimum exchange ratio of 0.1629 and 0.1485 El Paso shares, respectively) or in
cash, at their option, with a maximum of 49% of the merger consideration being
paid in cash. Following the merger, Eastex Energy will be a wholly owned
subsidiary of El Paso Natural Gas Company. The merger is conditioned upon,
among other things, approval by the holders of a majority of the outstanding
shares of Eastex Energy common stock, the transaction being tax-free to Eastex
Energy and its shareholders (except to the extent they receive cash) and receipt
of certain governmental approvals.
In connection with the execution of the merger agreement, El Paso Natural
Gas has entered into an option and voting agreement with Mr. Robert G. Phillips,
Chairman and Chief Executive Officer of Eastex Energy, pursuant to which he has
agreed to vote all of his 2.4 million Eastex shares in favor of the merger. El
Paso Natural Gas has also received voting or option agreements with respect to
approximately 950,000 additional Eastex shares and warrants. The merger
agreement also provides for the payment of a $1 million termination fee and
reimbursement of El Paso Natural Gas Companys expenses under certain
circumstances.
The merger is expected to close in the third quarter of 1995. Following the
close, El Paso Natural Gas Company intends to combine the operations of its
existing wholly owned gas marketing subsidiary, El Paso Gas Marketing Company,
with those of Eastex Energy. El Paso Gas Marketing Company currently markets
approximately 300 million cubic feet of gas per day, primarily to markets in the
Southwestern United States.
<PAGE>
"Combining El Paso Gas Marketing's existing operations with Eastex will
result in a four-fold increase in El Paso's average gas marketing volume to over
1.2 billion cubic feet of natural gas per day", said William A. Wise, Chairman,
President and Chief Executive Officer of El Paso Natural Gas Company. "The
complementary fit between El Paso Gas Marketing Company's activities in the
Southwest and Eastex's activities in the Southeast, Northeast and Midwest
creates a truly national gas marketer and represents an important step in the
continued growth of El Paso's non-regulated operations."
"We are pleased to announce that Eastex is joining forces with El Paso
Natural Gas and El Paso Gas Marketing Company to expand our gas marketing
operations and provide our customers with greater merchant services in the years
ahead," said Robert G. Phillips, Chairman and Chief Executive Officer of Eastex
Energy. "We view El Paso as one of the industry's premier natural gas companies
and believe this combination will not only benefit our shareholders, employees
and customers but also accelerate our growth strategy to become one of the
nation's leading natural gas service providers."
El Paso Natural Gas Company owns and operates one of the nation's largest
field and mainline natural gas transmission systems, connecting natural gas
supply regions in New Mexico, Texas, Oklahoma and Colorado to markets in
California, Nevada, Arizona, New Mexico, Texas and Mexico.
Eastex Energy Inc., through its various subsidiaries, is a natural gas
merchant specializing in the purchase, gathering, transportation, storage and
sale of natural gas on a nationwide basis.
Contacts: El Paso Natural Gas Company
Ms. Norma F. Dunn (915) 541-5443
Eastex Energy Inc.
Mr. Robert G. Phillips (713) 650-6255
2
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