SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
HOME-STAKE OIL & GAS COMPANY
-----------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
--------------------------------------
(2) Aggregate number of securities to which transaction applies:
4,725,563 shares of common stock (includes 371,736 shares
---------------------------------------------------------
underlying options to purchase shares of common stock)
------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
$11.00 per share of common stock
--------------------------------
<PAGE>
(4) Proposed maximum aggregate value of transaction:
$51,981,193
-----------
(5) Total fee paid:
$10,397.00
----------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------
<PAGE>
Preliminary Copy
HOME-STAKE OIL & GAS COMPANY
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
__________ , 2000
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
of Home-Stake Oil & Gas Company to be held at our offices at 15 East 5th Street,
Suite 2800, Tulsa, Oklahoma, on ____________, 2000, at 9:00 a.m., local time. At
the special meeting, you will be asked to consider and approve our merger with a
subsidiary of Cortez Oil & Gas, Inc., a privately-owned corporation
headquartered in Plano, Texas, pursuant to an agreement and plan of merger,
dated as of October 3, 2000. You should read carefully the merger agreement, a
copy of which is attached as Appendix A to the accompanying proxy statement.
Upon completion of the merger, each share of our common stock will be converted
automatically into the right to receive $11.00 in cash, without interest. We can
only complete the merger if the holders of a majority of the outstanding shares
approve the merger agreement.
Our board of directors unanimously approved the merger agreement and
declared the merger agreement advisable and in the best interests of our
shareholders and unanimously recommends that our shareholders approve the merger
agreement. Among the factors considered by our board of directors in evaluating
the merger was the opinion, dated September 27, 2000, of Stephens Inc., our
financial advisor, which provides that, as of that date, the cash consideration
to be received by holders of our common stock pursuant to the merger was fair
from a financial point of view to our shareholders. The written opinion of
Stephens Inc. is attached as Appendix B to the accompanying proxy statement and
should be read carefully and in its entirety.
The proxy statement provides you with a summary of the merger and
additional information about the parties involved. If the merger agreement is
approved by the requisite holders of our common stock, the closing of the merger
will occur as soon after the special meeting as all of the other conditions to
the closing of the merger are satisfied or waived.
Please give all of this information your careful attention. Whether or
not you plan to attend the special meeting, you are requested to promptly
complete, sign and date the enclosed proxy card and return it in the envelope
provided. This will not prevent you from voting your shares in person if you
subsequently choose to attend the special meeting. If you have any questions
regarding the proposed transaction, please call Mr. Chris K. Corcoran at (918)
583-0178, extension 14.
Sincerely,
Robert C. Simpson
Chairman of the Board, Chief Executive
Officer and President
The accompanying proxy statement of Home-Stake Oil & Gas Company is
dated __________, 2000, and the accompanying proxy statement and proxy are first
being mailed to shareholders on or about __________, 2000.
<PAGE>
HOME-STAKE OIL & GAS COMPANY
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On ________, 2000
To the Shareholders of
Home-Stake Oil & Gas Company:
A special meeting of shareholders of Home-Stake Oil & Gas Company, an
Oklahoma corporation, will be held at our offices at 15 East 5th Street, Suite
2800, Tulsa, Oklahoma, on __________, 2000, at 9:00 a.m., local time, for the
following purposes:
1. To consider and act upon a proposal to approve and adopt the
agreement and plan of merger, dated as of October 3, 2000, among Home-Stake,
Cortez Oil & Gas, Inc., a Delaware corporation, and Cortez Acquisition Company,
an Oklahoma corporation and a wholly-owned subsidiary of Cortez, relating to the
merger of Cortez Acquisition Company with and into Home-Stake, with Home-Stake
surviving the merger and becoming a wholly-owned subsidiary of Cortez; and
2. To transact any other business as may properly come before the
special meeting and any adjournments or postponements of that meeting.
Our board of directors has fixed the close of business on ________,
2000 as the record date for the special meeting. Accordingly, only shareholders
of record on that date will be entitled to notice of and to vote at the special
meeting and any adjournment or postponement of that meeting. A form of proxy and
a proxy statement containing more detailed information with respect to matters
to be considered at the special meeting accompany and form a part of this
notice.
All shareholders are cordially invited to attend the special meeting.
To ensure your representation at the special meeting, however, you are urged to
complete, date, sign and return the enclosed proxy as promptly as possible. We
have enclosed a postage-prepaid envelope for that purpose. If you attend the
special meeting, you may vote in person even if you have already returned a
proxy. If you do not send in a proxy or vote at the special meeting, it will
have the same effect as if you voted against the merger.
By Order of the Board of Directors,
Chris K. Corcoran
Secretary
Tulsa, Oklahoma
__________ , 2000
<PAGE>
HOME-STAKE OIL & GAS COMPANY
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
PROXY STATEMENT
Special Meeting of Shareholders
To Be Held On , 2000
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET...........................................................1
The Parties to the Merger...............................................1
The Merger..............................................................1
Recommendation of Our Board of Directors and
Reasons for the Merger...............................................1
Opinion of Financial Advisor............................................2
Financing Arrangements..................................................2
Interests of Officers and Directors in the Merger
That Differ From Your Interests......................................2
The Special Meeting.....................................................2
Record Date and Voting Power............................................2
Vote Required...........................................................2
Voting Agreements ......................................................3
Proxies, Voting and Revocation..........................................3
Effective Time of the Merger............................................3
Exchange of Stock Certificates..........................................3
Conditions to the Merger................................................3
Solicitation of Proposals from
Other Parties........................................................4
Termination of the Merger Agreement.....................................4
Termination Fee; Expenses...............................................4
Appraisal Rights........................................................4
Federal Income Tax Consequences.........................................4
QUESTIONS AND ANSWERS ABOUT
THE MERGER...................................................................5
FORWARD LOOKING STATEMENTS...................................................7
THE SPECIAL MEETING..........................................................8
Date, Time and Place of the
Special Meeting......................................................8
Purpose of the Special Meeting..........................................8
Record Date and Voting Power............................................8
Quorum and Vote Required................................................8
Proxies, Voting and Revocation..........................................8
Solicitation of Proxies and Expenses....................................9
2001 Annual Meeting of Shareholders
of Home-Stake........................................................9
THE PARTIES TO THE MERGER...................................................10
Home-Stake Oil & Gas Company...........................................10
Cortez Oil & Gas, Inc..................................................10
Cortez Acquisition Company.............................................10
THE MERGER..................................................................11
General................................................................11
Background of the Merger...............................................11
Recommendation of Our Board of Directors and
Reasons for the Merger..............................................13
Opinion of Financial Advisor...........................................16
Recent Stock Price Performance Analysis.............................17
Premiums Paid Analysis..............................................18
Comparable Company Analysis.........................................18
Comparable Transactions Analysis....................................18
Stephens Inc.'s Engagement Agreement................................19
Financing Arrangements.................................................20
Interests of Officers and Directors in
the Merger..........................................................21
Voting Agreements with Directors and Senior
Management..........................................................23
Some Effects of the Merger.............................................23
Method of Accounting...................................................23
THE MERGER AGREEMENT........................................................24
Effective Time of the Merger...........................................24
Conversion of Shares Pursuant to
the Merger..........................................................24
Exchange of Stock Certificates.........................................24
Conduct of the Business Before
the Merger..........................................................25
Covenants and Agreements...............................................27
Special Meeting.....................................................27
No Solicitation.....................................................27
Indemnification and Insurance of
Home-Stake Officers and Directors...............................27
Additional Mutual Covenants.........................................27
Representations and Warranties of Home-Stake and
Cortez..............................................................28
-i-
<PAGE>
Page
Conditions to the Merger...............................................30
Conditions to the Obligation of
Each Party......................................................30
Conditions to our Obligation........................................30
Conditions to the Obligation of Cortez..............................30
Termination of the Merger Agreement....................................31
Termination Fee........................................................31
Merger Expenses........................................................31
Amendments.............................................................32
Home-Stake Rights Plan.................................................32
Treatment of Stock Options.............................................33
YOU HAVE APPRAISAL RIGHTS IN THE
MERGER......................................................................34
General................................................................34
Exercising Procedures..................................................34
Fair Value Determination...............................................35
Costs..................................................................35
Withdrawal; Loss of Appraisal Rights...................................35
FEDERAL INCOME TAX
CONSEQUENCES................................................................36
REGULATORY AND OTHER
APPROVALS...................................................................36
PRINCIPAL SHAREHOLDERS AND SECURITY
OWNERSHIP OF MANAGEMENT.....................................................37
OTHER MATTERS...............................................................38
WHERE YOU CAN FIND MORE
INFORMATION.................................................................38
APPENDICES
Appendix A--
Agreement and Plan of Merger.......................................A-1
Appendix B--
Opinion of Stephens Inc............................................B-1
Appendix C--
Text of Section 1091 of the Oklahoma
General Corporation Act Concerning
Appraisal Rights of Dissenting Shareholders........................C-1
-ii-
<PAGE>
SUMMARY TERM SHEET
This summary term sheet, together with the subsequent questions and answers
section, highlights selected information from this proxy statement and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should carefully read this entire document, as well as the
additional documents to which we refer you, including the merger agreement
attached as Appendix A. We have included page references in parentheses to
direct you to a more complete description of the topics presented in this
summary.
The Parties to the Merger (page 10)
Home-Stake Oil & Gas Company
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
(918) 583-0178
In this proxy statement, we call this company "Home-Stake." Home-Stake is
an Oklahoma corporation formed in 1917 which is actively engaged in the
acquisition, exploration, development and production of oil and gas properties.
Our common stock is traded on the NASDAQ SmallCap Market under the symbol
"HSOG."
Cortez Oil & Gas, Inc.
Parkway Center II
2805 North Dallas Parkway
Suite 100
Plano, Texas 75093
(972) 781-6595
In this proxy statement, we call this company "Cortez." Cortez is a
privately-held independent oil and gas exploration and production company
headquartered in Plano, Texas. Cortez was formed as a Delaware corporation by
management and Natural Gas Partners V, L.P. in March 2000 to focus on
acquisitions and exploitation drilling.
Cortez Acquisition Company
Parkway Center II
2805 North Dallas Parkway
Suite 100
Plano, Texas 75093
(972) 781-6595
Cortez Acquisition Company is an Oklahoma corporation and a wholly-owned
subsidiary of Cortez. Cortez Acquisition Company was formed to facilitate the
consummation of the merger and has conducted no activities other than in
connection with the merger and the merger agreement.
The Merger (page 11)
Cortez Acquisition Company will be merged with and into Home-Stake, with
Home-Stake being the surviving corporation, pursuant to a merger agreement dated
as of October 3, 2000, among Cortez, Cortez Acquisition Company and us.
At the effective time of the merger, each outstanding share of our common
stock will be converted automatically into the right to receive $11.00 in cash,
without interest.
After the completion of the merger, Home-Stake will be the surviving
corporation and will be a wholly-owned subsidiary of Cortez. The holders of our
common stock will have no continuing equity interest in, and will not share in
future earnings, dividends or growth, if any, of the surviving corporation. In
addition, after the merger has been completed, our common stock will no longer
be listed on the NASDAQ SmallCap Market or registered with the Securities and
Exchange Commission.
Recommendation of Our Board of Directors and
Reasons for the Merger (page 13)
After an evaluation of a variety of business, financial and market
factors and consultation with our legal and financial advisors, at a meeting on
September 27, 2000, our board of directors determined that the merger agreement
was fair to, and in the best interests of, Home-Stake and our shareholders. The
board also unanimously approved the merger, the merger agreement and the
transactions contemplated by that agreement and unanimously voted to recommend
that our shareholders approve the merger agreement.
1
<PAGE>
In reaching its recommendation, our board considered, among other things,
the following factors:
o our financial condition, assets, results of operations, business and
prospects and the risks inherent in achieving those prospects;
o the fairness opinion of Stephens Inc.;
o terms and conditions of the merger agreement;
and
o the trading history of our common stock, which has been characterized
by low daily trading volumes and the resulting illiquidity, typical of
companies of similar size.
Opinion of Financial Advisor (page 16)
On September 27, 2000, Stephens Inc. rendered an opinion to our board of
directors that, as of the date of that opinion, the $11.00 per share in cash to
be received by holders of our common stock was fair from a financial point of
view to our shareholders.
The full text of the written opinion of Stephens Inc., dated September 27,
2000, which sets forth the assumptions made, matters considered and limitations
on the review undertaken in connection with the opinion, is attached as Appendix
B to, and is incorporated by reference in, this proxy statement. The opinion of
Stephens Inc. does not constitute a recommendation as to how any holder of our
common stock should vote with respect to the merger. You should carefully read
the opinion in its entirety.
Financing Arrangements (page 20)
In connection with entering into the merger agreement, Cortez obtained
commitment letters from Fleet National Bank and First Union National Bank to
provide debt financing and a subscription agreement from Natural Gas Partners V,
L.P. to provide equity financing for the merger, on the terms and conditions set
forth in the commitment letters and the subscription agreement. As of the date
of this proxy statement, the financing commitments are in full force and effect
and have not been terminated.
Assuming the financings described above are consummated, Cortez will have
funding that is sufficient to pay the merger consideration to our shareholders
and all associated merger costs. Cortez does not anticipate completing any
financing until immediately prior to the closing of the merger, and no assurance
can be given that any financing will be completed. Cortez currently does not
have any alternative financing commitments in the event that any of the
financing commitments described above is not obtained.
Interests of Officers and Directors in the Merger
That Differ From Your Interests (page 21)
You should be aware that two of our executive officers are members of our
board of directors, and these officers and our other employees have agreements
that will provide them with interests in the merger that are different from
yours. Generally, the merger will result in severance and bonus payments being
made to these officers, directors and employees. The Cortez and Home-Stake
boards were aware of these interests and considered them in approving the merger
agreement.
The Special Meeting (page 8)
At the special meeting, our shareholders will be asked to consider and vote
upon a proposal to approve and adopt the merger agreement.
Record Date and Voting Power (page 8)
Our board of directors has fixed the close of business on , 2000 as the
record date for determining shareholders entitled to notice of, and to vote at,
the special meeting.
On the record date, we had 4,353,827
outstanding shares of common stock held by
approximately 300 shareholders of record. We have
no other class of securities outstanding. Shareholders of record on the record
date will be entitled to one vote per share of common stock on any matter that
may properly come before the special meeting and any adjournment or postponement
of that meeting.
Vote Required (page 8)
Approval and adoption of the merger agreement requires the affirmative vote
of a majority of outstanding shares of our common stock.
2
<PAGE>
Voting Agreements (page 23)
Our directors and some of their spouses, who own an aggregate of
approximately 21.1% of our outstanding shares of common stock, have entered into
agreements to vote for the merger.
Proxies, Voting and Revocation (page 8)
Shares of common stock represented at the special meeting by properly
executed proxies received prior to or at the special meeting, and not revoked,
will be voted at the special meeting, and at any adjournments or postponements
of that meeting, in accordance with the instructions on the proxies. If a proxy
is duly executed and submitted without instructions, the shares of common stock
represented by that proxy will be voted "For" the approval of the merger
agreement. Proxies are being solicited on behalf of our board of directors.
A proxy may be revoked by the person who executed it at, or before, the
special meeting by:
o delivering to our secretary a written notice of revocation of a previously
delivered proxy bearing a later date than the proxy;
o duly executing, dating and delivering to our secretary a subsequent proxy;
or
o attending the special meeting and voting in person.
Attendance at the special meeting will not, in and of itself, constitute
revocation of a proxy.
Effective Time of the Merger (page 24)
The merger will become effective as of the date and time that the
certificate of merger is accepted for filing by the Secretary of State of the
State of Oklahoma in accordance with the Oklahoma General Corporation Act, which
is expected to occur as soon as practicable after shareholder approval and the
satisfaction or waiver of all other conditions to closing of the merger.
Exchange of Stock Certificates (page 24)
At the effective time of the merger, Cortez will deposit with UMB Bank,
N.A., our stock transfer agent who is also acting as the exchange agent, cash in
an amount sufficient to pay the holders of shares of common stock outstanding
immediately prior to the effective time of the merger, other than shareholders
exercising their appraisal rights, the cash merger consideration to which they
are entitled under the merger agreement.
The merger agreement provides that within three business days after the
effective time of the merger, the exchange agent will send to each shareholder
of record, as of immediately prior to the effective time, a letter of
transmittal and detailed instructions specifying the procedures to be followed
in surrendering stock certificates. You should not send any stock certificates
to the exchange agent or to anyone else until you receive the letter of
transmittal. Upon the surrender of a stock certificate, the exchange agent will
issue to the surrendering holder the consideration described above.
Conditions to the Merger (page 30)
For the merger to occur, the holders of a majority of the shares of common
stock outstanding must approve the merger agreement and the parties must satisfy
or waive all other conditions specified in the merger agreement, including:
o that Cortez, Cortez Acquisition Company and Home-Stake receive all
consents, approvals, permits and authorizations required to be obtained
from any governmental entity or third party;
o that no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction, or other legal
restraint or prohibition preventing the completion of the merger, be in
effect;
o that no event or events have occurred that, individually or in the
aggregate, would have a material adverse effect on our business,
properties, condition, financial or otherwise, or results of operations;
and
o the completion and satisfaction by Fleet National Bank of its due diligence
investigation, customary for debt financing transactions of this type,
insofar as it relates to title to our oil and gas properties and
environmental matters involving those properties.
3
<PAGE>
Solicitation of Proposals from Other Parties (page 27)
In accordance with the merger agreement, we have agreed that, until the
termination of the merger agreement or the effective time of the merger, we will
not authorize or permit any of our directors, officers, employees, agents,
attorneys, independent accountants, independent financial advisors or other
affiliates or representatives to initiate, solicit, facilitate or encourage any
inquiries or proposals that constitute or are reasonably likely to lead to a
merger, consolidation or similar transaction involving us or a proposal to
acquire a substantial portion of our stock or assets.
We must notify Cortez promptly in writing with respect to any unsolicited
inquiry or proposal which we have received that is reasonably likely to lead to
a merger proposal.
We have no right to terminate the merger agreement if we receive an offer
from a third party to acquire us that is superior to Cortez's offer, but in such
a case our board retains the right to rescind or modify its recommendation that
our shareholders approve the merger agreement.
Termination of the Merger Agreement (page 31)
The merger agreement may be terminated at any time prior to the effective
time of the merger by, among other things, the mutual written agreement of the
parties or, after the occurrence of certain events or actions, by one of the
parties acting independently. For example, either party may independently
terminate the merger agreement if:
o the merger has not been completed by February 28, 2001;
o our shareholders holding in excess of a majority of our common stock do not
vote to approve the merger; or
o any governmental authority takes any action prohibiting the merger, which
action becomes final and non-appealable.
In addition, Cortez may terminate the merger agreement if our board withdraws or
modifies its recommendation or the special shareholders meeting to approve the
merger is not held prior to February 26, 2001.
Termination Fee; Expenses (page 31)
If the merger agreement is terminated because our board withdraws or
modifies its recommendation, because the special shareholders meeting to approve
the merger is not held prior to February 26, 2001, or because our shareholders
fail to approve the merger, then we must pay Cortez a termination fee of $2
million.
Appraisal Rights (page 34)
If you do not vote in favor of the proposal to approve and adopt the merger
agreement and you comply strictly with the applicable provisions of the Oklahoma
General Corporation Act, and the requisite number of our shareholders approve
the merger agreement, you have the right to dissent and be paid cash for the
"fair value" of your shares. This payment may be more than, the same as, or less
than the merger consideration you would receive in the merger. To perfect these
appraisal rights, you must follow the required procedures precisely. The
applicable provisions of the Oklahoma General Corporation Act are attached to
this document as Appendix C. It is a condition to the completion of the merger
that holders of not more than five percent of the outstanding voting shares
entitled to vote at the special meeting elect to exercise their appraisal
rights.
Federal Income Tax Consequences (page 36)
If the merger is completed, the exchange of our common stock by any of our
shareholders in return for the merger consideration will be a taxable
transaction under the Internal Revenue Code of 1986. Because of the complexities
of the tax laws, we advise you to consult your own tax advisors concerning the
applicable federal, state, local, foreign and other tax consequences resulting
from the merger.
4
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: How do I vote?
A: After reading this proxy statement, please fill out and sign your proxy
card. Then mail your signed and dated proxy card in the enclosed return
envelope as soon as possible so that your shares will be represented at the
special meeting.
Q: What happens if I do not return a proxy card?
A: The failure to return your proxy card will have the same effect as voting
against the merger agreement.
Q: May I vote in person?
A: Yes. You may attend the special meeting and vote your shares in person,
rather than signing and mailing your proxy card.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. You may change your vote at any time before your proxy is voted at the
special meeting by following the instructions on pages 8 and 9. You then
may either change your vote by sending in a new proxy or attending the
special meeting and voting in person.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No. Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares following the
instructions provided by your broker.
Q: Should I send in my stock certificates now?
A: No. Promptly after the merger is completed, you will receive detailed
instructions regarding the surrender of your stock certificates. You should
not send your stock certificates to us or anyone else until you receive
these instructions. Cortez will arrange for payment to be sent to you as
promptly as practicable following receipt of your stock certificates and
other required documents.
Q: What will I receive in the merger?
A: Upon completion of the merger, you will receive a cash payment of $11.00,
without interest, for each share of common stock that you hold.
Q: What will happen to my shares of Home-Stake after the merger?
A: Following completion of the merger, your shares of common stock will
represent solely the right to receive cash. Trading in our common stock on
the NASDAQ SmallCap Market will cease. Price quotations will no longer be
available and we will no longer file periodic reports with the Securities
and Exchange Commission under the Securities Exchange Act of 1934.
Q: What will happen to my quarterly dividends?
A: Pursuant to the merger agreement, we are prohibited from paying any more
cash dividends on our outstanding common stock.
5
<PAGE>
Q: What will happen to present members of Home-Stake's management?
A: At or prior to the merger, each of the members of our board of directors
and our officers will resign. Upon consummation of the merger, the officers
of Cortez Acquisition Company will become the officers of the surviving
corporation.
Q: Did the Home-Stake board retain financial advisors?
A: To assist it in making its recommendation regarding the merger, the
Home-Stake board retained Stephens Inc. as its financial advisor in
connection with its evaluation of the merger. Stephens Inc. delivered to
the Home-Stake board an opinion to the effect that, as of the date of that
opinion, the per share merger consideration to be received by the holders
of our common stock was fair, from a financial point of view, to the
holders of our common stock. We have attached as Appendix B to this proxy
statement the full text of the opinion of Stephens Inc. This opinion sets
forth the assumptions made, matters considered and limitations on the
review taken in connection with the opinion.
Q: What rights do I have if I oppose the merger?
A: Under Oklahoma law, you are entitled to appraisal rights. If you do not
vote in favor of the merger and you properly elect to exercise your
appraisal rights as described under "You Have Appraisal Rights in the
Merger" and in Appendix C, you may receive in the merger the "fair value"
of your common stock as determined by a court. The fair value could be
equal to, less than or more than $11.00 per share.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger before the end of the year.
Q: Who can help answer my questions?
A: If you have any additional questions about the merger, you should call Mr.
Chris K. Corcoran at (918) 583- 0178, extension 14.
6
<PAGE>
FORWARD LOOKING STATEMENTS
This proxy statement includes "forward looking statements" as defined by
the Securities and Exchange Commission. All statements, other than statements of
historical facts, included in this proxy statement that address activities,
events or developments that we expect, believe or anticipate will or may occur
in the future are forward looking statements and include the following:
o completion of the proposed merger;
o reserve estimates; and
o future financial performance if the merger is not completed.
These forward looking statements are based on assumptions, which we
believe are reasonable, but which are open to a wide range of uncertainties and
business risks. Factors that could cause actual results to differ materially
from those anticipated are discussed in the pertinent sections of this proxy
statement and in our periodic filings with the Securities and Exchange
Commission, including our annual report on Form 10-KSB for the year ended
December 31, 1999.
7
<PAGE>
THE SPECIAL MEETING
Date, Time and Place of the Special Meeting
The special meeting will be held at our offices at 15 East 5th Street,
Suite 2800, Tulsa, Oklahoma, on ________, 2000, at 9:00 a.m., local time.
Purpose of the Special Meeting
At the special meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the merger agreement relating to the merger of
Cortez Acquisition Company with and into Home-Stake, with Home- Stake being the
surviving corporation. As a result of the merger, Home-Stake will become a
wholly-owned subsidiary of Cortez.
Record Date and Voting Power
Our board of directors has fixed the close of business on __________,
2000, as the record date for the determination of shareholders entitled to
notice of, and to vote at, the special meeting. As of the record date, there
were outstanding shares of common stock held by approximately 300 holders of
record. Our common stock is our only outstanding class of stock. Shareholders of
record on the record date will be entitled to one vote per share of our common
stock on any matter that properly comes before the special meeting and any
adjournment or postponement of that meeting.
Quorum and Vote Required
Our bylaws require the presence, in person or by duly executed proxy, of
the holders of shares of common stock representing at least a majority of our
outstanding shares of common stock at the special meeting in order to constitute
a quorum. Approval and adoption of the merger agreement requires the affirmative
vote of a majority of the outstanding shares of our common stock. For purposes
only of determining the presence or absence of a quorum for the transaction of
business, we intend to count abstentions and broker non-votes as present at the
special meeting. Abstentions and broker non-votes are not, however, counted as
favorable votes and, therefore, have the same effect as a vote against the
proposal. Broker non-votes are proxies from brokers or other nominees indicating
that they have not received instructions from the beneficial owner or other
person entitled to vote the shares which are the subject of the proxy on a
particular matter with respect to which the broker or other nominee does not
have discretionary voting power.
Proxies, Voting and Revocation
Shares of our common stock represented at the special meeting by properly
executed proxies received prior to, or at, the special meeting, and not revoked,
will be voted at the special meeting, and at any adjournment or postponement of
that meeting, in accordance with the instructions on those proxies. If a proxy
is duly executed and submitted without instructions, the shares of our common
stock represented by that proxy will be voted "For" the approval of the merger
agreement. Proxies are being solicited on behalf of our board.
A proxy may be revoked at any time before it is voted at the special
meeting. A proxy may be revoked by the person who executed it at, or before, the
special meeting by:
o delivering to our secretary a written notice of revocation of a
previously-delivered proxy bearing a later date than the proxy;
o duly executing, dating and delivering to our secretary a subsequent
proxy; or
8
<PAGE>
o attending the special meeting and voting in person. Attendance at the
special meeting will not, in and of itself, constitute revocation of a
previously delivered proxy.
Any written notice revoking a proxy should be delivered to Home-Stake Oil & Gas
Company, 15 East 5th Street, Suite 2800, Tulsa, Oklahoma, 74103, Attention: Mr.
Chris K. Corcoran, Secretary.
Solicitation of Proxies and Expenses
We will bear the entire cost of solicitation of proxies from our
shareholders. Copies of solicitation materials will be furnished to brokerage
houses, fiduciaries and custodians holding in their names shares of our common
stock beneficially owned by others to forward to those beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone or
personal solicitation by our directors, officers or other regular employees. No
additional compensation will be paid to our directors, officers or other regular
employees for these services, but these individuals may be reimbursed for
out-of-pocket expenses incurred in connection with the solicitation. Upon
request, we will reimburse brokers, dealers, banks or similar entities acting as
nominees for their reasonable expenses incurred in forwarding copies of the
proxy materials to the beneficial owners of the shares of common stock they hold
of record. In addition, we have engaged _____________ to assist in the
solicitation of proxies. We anticipate that we will incur total fees of
approximately $_____________, plus reimbursement of out-of- pocket expenses, for
this service.
2001 Annual Meeting of Shareholders of Home-Stake
We will hold our 2001 annual meeting of shareholders only if the merger
is not consummated. In the event of the annual meeting, any shareholder
proposals intended to be presented at the meeting must be received at our
principal executive offices on or before December 11, 2000, in order to be
included in our proxy materials relating to that meeting.
9
<PAGE>
THE PARTIES TO THE MERGER
Home-Stake Oil & Gas Company
We are actively engaged in the acquisition, exploration, development and
production of oil and gas properties. Our principal geographic operating areas
lie within the states of Oklahoma, Montana, New Mexico and Texas.
We were incorporated in the State of Oklahoma in 1917. Our principal
business activity from the date of incorporation through the early 1950s was the
acquisition and leasing of oil and gas mineral interests. Accordingly, our
revenues were primarily from royalty interests in oil and gas production from
the mineral interests in properties leased to others. In the 1950s, we began
participating as a working interest partner in the acquisition and drilling of
oil and gas properties, primarily drilled and operated by industry partners. We
also originated and participated in the drilling of a few of our own prospects
and discovered several significant oil fields in south central Kansas during the
1950s. Beginning in 1985, we developed an exploration staff to generate, sell
and drill our own prospects. We now also serve as an operator for producing
wells.
In the mid-1970s, we revised our business strategy to pursue a program to
increase our revenues generated from the ownership of working interests in oil
and gas properties relative to our revenues generated from royalty interests
resulting from the ownership and leasing of oil and gas mineral interests. We
increased our relative investment in drilling ventures developed and sold by
other industry partners and in the oil and gas properties that we acquired. In
1977, we received approximately 70% of our revenues from royalty interests,
whereas, in 1999, approximately 26% of our revenues were from royalty interests.
Cortez Oil & Gas, Inc.
Cortez is a newly formed Delaware corporation that has not, to date,
conducted any significant activities other than those incident to its formation,
its execution of the merger agreement, the related documents and the financing
commitments and its participation in the preparation of this proxy statement.
Cortez has no material assets or liabilities, other than its rights and
obligations under the merger agreement, the related documents and the financing
commitments, and has not generated any material revenues or expenses. Cortez's
growth strategy involves a coordinated balance of acquisitions, exploitation and
exploration. It is anticipated that drilling and production operations of Cortez
will be located in Texas, Oklahoma, New Mexico and Montana.
Cortez Acquisition Company
Cortez Acquisition Company is an Oklahoma corporation recently formed by
Cortez to facilitate the consummation of the merger. It has not conducted any
business or activity except in connection with activities related to the merger.
10
<PAGE>
THE MERGER
General
The merger agreement provides for the merger of Cortez Acquisition
Company with and into Home-Stake, with Home-Stake being the surviving
corporation. The merger will be completed when the certificate of merger has
been accepted for filing by the Secretary of State of the State of Oklahoma in
accordance with the Oklahoma General Corporation Act, which is expected to occur
as soon as practicable after the shareholder approval of the merger and the
satisfaction or waiver of all other conditions to closing the merger.
As of the effective time of the merger, holders of shares of our common
stock will have no further ownership interest in the surviving corporation.
Instead, each holder of common stock issued and outstanding immediately prior to
the effective time of the merger will be entitled to receive $11.00 in cash per
share, without interest. Upon completion of the merger, all of Home-Stake's
outstanding stock options will be canceled and, in full settlement of these
options, Cortez will cause Home-Stake to pay each option holder an amount of
cash equal to the number of shares of common stock underlying each stock option
held by that holder multiplied by the difference between $11.00 and the option
exercise price applicable to that option.
Background of the Merger
During the course of 1999, our management continued its previous strategy
of acquiring, operating and developing oil and gas properties. In the meantime,
various members of our board, in both formal and informal discussions, expressed
concern that, in our present structure and at our present size, we would not be
able to successfully grow at a rate acceptable to our board and our
shareholders. Some of our shareholders also expressed similar concerns to
various members of our board. At regular meetings of the board on January 22,
May 24, August 5 and November 4, 1999, our board continued to discuss our past
and current operations, our stock price activity in the market, our future
strategic direction and methods by which shareholder value might be enhanced,
including our possible sale.
At the November 4th board meeting, our chairman, Mr. Simpson, told the
board that our stock price was, and would likely remain, at levels well below
the true value of the company, due largely to the lack of liquidity created by
our extremely low trading volume. He recommended that we explore various
strategic alternatives to maximize shareholder value and improve shareholder
liquidity. Our board agreed that it was in the best interests of our
shareholders for our management to consider strategic alternatives and
authorized management to retain an investment banking firm as an advisor to
assist us in soliciting, evaluating and exploring strategic alternatives. On
November 11, 1999, we issued a press release announcing our intention to explore
various strategic alternatives.
During November and December 1999, Mr. Simpson met informally with
representatives of several investment banking firms. At a special meeting of the
board on January 14, 2000, Mr. Simpson described the results of these meetings
and reviewed written proposals from six different firms. He recommended that the
board narrow the list to two or three firms, that those firms be asked to submit
additional information regarding their proposals and that a final selection of
an investment banking firm be made at the February board meeting. After
discussion, the board narrowed the list to two firms and compiled a list of
questions for Mr. Simpson to provide these firms.
At the meeting of our board on February 18, 2000, the board reviewed the
proposals of the two remaining investment banking firms and selected Stephens
Inc. as our financial advisor. Over the next two weeks we negotiated the terms
of an engagement agreement with Stephens Inc. On February 29, 2000, we entered
into the agreement with Stephens Inc. and issued a press release announcing that
we had hired Stephens Inc. to assist us in exploring strategic alternatives.
11
<PAGE>
At a special meeting of our board on March 29, 2000, Stephens Inc.
presented a written report analyzing our strategic alternatives. The report
considered various options for us, including remaining independent and
continuing our strategy of acquiring, operating and developing oil and gas
properties, merging with a larger entity or completing an outright sale of our
stock or assets for cash. Despite an improving environment for oil and gas
companies resulting from higher prevailing energy prices, our board continued to
express concern that our growth and market value would likely continue to be
hindered by our small size and illiquid trading market. Accordingly, the board,
after evaluating the various options presented, authorized Stephens Inc. to
"test the waters" for qualified buyers principally interested in a transaction
involving a sale of the company for cash.
During the next several weeks, our management and Stephens Inc. prepared
a data room and offering materials to help describe us, including our properties
and exploitation potential, to potential purchasers. Stephens Inc. began
contacting potential purchasers in order to ascertain their interest in us, and
a form of confidentiality agreement, including a standstill provision, was
prepared.
Stephens Inc. contacted 119 potential purchasers. It mailed preliminary
brochures to 93 of these candidates. Twenty-three companies returned
confidentiality agreements, including Cortez, most of whom were then provided
with detailed reserve information. Nine companies, including Cortez, sent
representatives to our data room. On June 23, 2000, a total of six proposals,
including a proposal by Cortez, to purchase us were received, four of which
involved a purchase of our stock for cash.
On June 28, 2000, a special meeting of our board was held in Tulsa to
consider the proposals which had been received. All directors, except Mr.
Morris, who participated by telephone conference, were present in person. Also
present were our legal counsel and representatives of Stephens Inc. Stephens
Inc. presented to our board an analysis of the proposals which had been
received. Our board discussed the relative advantages and disadvantages of each
proposal, the strengths of each company's indication of interest and the
likelihood that each company would be able to finance its proposal. The board
then determined that at least three of the proposals, including the proposal
submitted by Cortez, were sufficiently attractive to warrant further discussions
with the potential purchasers.
During the next few weeks, meetings were held with the three selected
potential purchasers, including Cortez, in an effort to get them to increase
their respective purchase prices. Throughout this period, representatives of the
three candidates continued their due diligence investigation of us in order to
supplement information previously learned from their evaluation of us. On July
26, 2000, revised bids to purchase us were submitted by the three potential
purchasers.
Our board convened a special meeting on August 3, 2000, to evaluate the
latest proposals, including a revised bid submitted by Cortez on August 2, 2000.
All directors were present in person, along with representatives of Stephens
Inc. and our legal counsel. After reviewing the latest proposals, Cortez was
contacted by telephone by representatives of Stephens Inc. while the board
meeting was in progress and requested to increase its purchase price. Cortez
responded by increasing its purchase price. Our board determined that the Cortez
proposal was the best offer received. After further discussion of whether we
should remain independent and continue our business strategy, the board
determined that it was in the best interests of our shareholders to pursue the
Cortez offer. Accordingly, management was instructed to begin negotiating the
terms of a definitive merger agreement with Cortez. Negotiation of definitive
documentation proceeded in earnest and Cortez continued its due diligence
investigation of us.
In connection with our negotiations with Cortez, on August 17, 2000, we
signed an exclusivity letter agreement with Cortez which prohibited us from
soliciting or responding to other offers or inquiries until September 15, 2000.
We determined that it was in our best interests to sign the letter because of
its short duration and because Cortez was expending significant resources and
time in connection with the preparation of documents, due diligence and other
activities in connection with the possible transaction and, accordingly, was
unlikely to proceed without it.
12
<PAGE>
Thereafter, representatives of Cortez and us continued to negotiate the
terms of the merger agreement. On September 14, 2000, a special meeting of our
board was held by telephone conference call for the purpose of updating the
board on the status of the negotiations with Cortez. During the negotiations,
the exclusivity period with Cortez was extended to September 30, 2000, and
Cortez agreed to an increase in the purchase price to $11.00 per share.
Negotiations on the remaining terms of the merger agreement continued until
September 27, 2000. During this process, our board was further informed of
developments through various informal meetings and telephone conversations.
On September 27, 2000, our board, together with its financial and legal
advisors, convened a special meeting to consider the proposed merger agreement
and the transactions contemplated by that agreement, including the purchase
price. Mr. Simpson, together with our legal and financial advisors, reviewed the
background of the proposed merger, the potential benefits of the merger to our
shareholders, financial and valuation analyses of the transaction, and the terms
of the merger agreement and related documents. Stephens Inc. delivered to our
board its oral opinion, subsequently confirmed in writing, that, based on
matters presented to our board and as set forth in its opinion, the
consideration to be received by the holders of our common stock pursuant to the
merger agreement was fair to such holders, taken as a whole, from a financial
point of view. After considering the presentation of Mr. Simpson and our legal
advisor and the presentation and opinion of Stephens Inc., along with various
other factors discussed below, our board unanimously:
o approved the merger agreement and the transactions contemplated by that
agreement;
o authorized our officers to execute the merger agreement on our behalf;
o approved a recommendation that our shareholders vote in favor of the
approval of the merger agreement;
o approved the voting agreements to be entered into with our directors and
some of their spouses;
o approved the separation agreements to be entered into with Mr. Simpson,
our chairman, and Mr. Corcoran, our executive vice president and chief
financial officer; and
o approved the amendment to our rights agreement which would render the
rights inapplicable to the merger and the other transactions contemplated
by the merger agreement.
During the next several days the merger agreement and related documents
were finalized. On September 29, 2000, the exclusivity period with Cortez was
extended to October 6, 2000.
On October 3, 2000, officers of Cortez and us executed and delivered the
merger agreement and our directors and some of their spouses agreed to vote
their shares of our common stock in favor of the merger and the merger
agreement. On October 3, 2000, we issued a press release announcing the proposed
merger with Cortez.
Recommendation of Our Board of Directors and Reasons for the Merger
As described above in the section entitled "Background of the Merger,"
our board unanimously approved the merger, the merger agreement and the
transactions contemplated by that agreement at a meeting held on September 27,
2000. Our board believes that the terms of the merger, the merger agreement and
the other transactions contemplated by that agreement are fair to, and in the
best interests of, Home-Stake and its shareholders. Accordingly, our board
recommends approval of the merger agreement by our shareholders. In reaching its
conclusion to approve the merger and the merger agreement, our board consulted
with our management and our legal counsel, and was advised by Stephens Inc., our
financial advisor in this transaction. The board considered our short-term and
long-term interests and those of our shareholders. In particular, our board
13
<PAGE>
considered the following factors, all of which it deemed favorable, in reaching
its decision to recommend the merger and the merger agreement:
o The consideration to be received by our shareholders in the merger
represents a premium of:
o 85% over the closing price of $5.94 on each of February 28 and
February 22, 2000, which was one day and one week, respectively,
prior to the announcement that Stephens Inc. had been hired to
serve as our financial advisor; and
o 112% over the closing price of $5.19 on each of November 10 and
November 4, 1999, which was one day and one week, respectively,
prior to the announcement that we would explore strategic
alternatives;
o the financial condition, assets, results of operations, business and
prospects of Home-Stake;
o the trading history of our common stock, which has been characterized by
low daily trading volumes and the resulting illiquidity, typical of
companies of similar size;
o the opinion of Stephens Inc. that the consideration to be issued by
Cortez in the merger was fair, from a financial point of view, to the
holders of our common stock, and the various analyses presented to our
board of directors by Stephens Inc. See "Opinion of Financial Advisor" at
page 16;
o the ability of the board to change its recommendation if it determines in
good faith, based on matters it deems appropriate, after consulting with
legal counsel, that the failure to change its recommendation would be
reasonably likely to result in a breach of its fiduciary duties under
applicable law; and
o the terms and conditions of the merger agreement, including the amount
and form of consideration, the nature of the parties' representations,
warranties, covenants and agreements, and the fact that the conditions to
Cortez's obligation to consummate the merger are reasonably limited and
thus the risk that the merger would not be consummated was reasonably
small.
Our board also considered the fact that Cortez has obtained debt and
equity commitments to provide the financing necessary to consummate the merger.
The Board considered the controlling ownership of Cortez, consisting of National
Gas Partners V, L.P., affiliates of which have provided equity financing in many
similar transactions. The board also concluded that the conditions to the debt
financing commitment letters were likely to be satisfied and that Cortez would
be able to obtain the financing necessary for the merger and related
transactions.
Our board of directors consulted with Stephens Inc. during the course of
its engagement. The board of directors believed that Stephens Inc.'s analysis
was reasonable.
Our board of directors also considered other strategic alternatives to
the merger that might be available to us, including:
o remaining independent and continuing to expand our business into new
geographical areas;
o pursuing other business combinations, including mergers involving
companies with significantly greater market capitalization than our own;
and
o rejecting the Cortez offer and soliciting additional bids from interested
third parties.
14
<PAGE>
The board considered the strategic options available to us and determined that
none of these options was reasonably likely to present superior opportunities,
or was reasonably likely to create greater value for our shareholders, than the
prospects presented by the merger. After considering the potential benefits and
risks to us and our shareholders associated with each of these alternatives, our
board determined that the merger represented the alternative that is in the best
interests of our shareholders.
o Our board also considered the following potentially negative factors of
the merger in its deliberations concerning the merger and the merger
agreement.
o Our board acknowledged that the merger would preclude the holders of our
common stock from having the opportunity to participate in the future
growth of our assets.
o In the event that Cortez is unable to raise the necessary financing for
the merger, our sole remedy is to terminate the merger agreement and sue
Cortez for any resulting damages.
o Our board of directors acknowledged that the merger is a taxable
transaction and, as a result, holders of our common stock will be
required to pay taxes on any built-in gain as a result of their receipt
of the cash consideration in the transaction.
o Our board considered the covenant in the merger agreement restricting our
ability to solicit or entertain other potential acquisition proposals.
o Our board considered that we will have to pay a $2 million termination
fee if the merger agreement is terminated under circumstances specified
in the merger agreement.
o Our board considered the risks and costs to us if the merger does not
close, which risks and costs would result from, among other things, the
extensive efforts that would be required to attempt to complete the
transaction and the significant distractions which our employees will
experience during the pendency of the transaction.
Our board also considered the potential benefits to certain directors,
officers and employees discussed in the section entitled "Interests of Officers
and Directors in the Merger," including the severance and bonus payments to be
paid to Messrs. Robert C. Simpson and Chris K. Corcoran under their respective
separation agreements, the severance payments to be made to each of our other
eligible employees under our Amended and Restated Change in Control Severance
Pay Plan and the acceleration of the vesting of all outstanding options to
acquire our common stock.
In the opinion of our board, the above factors represent the material
potential adverse consequences which could occur as a result of the merger. In
considering the merger, our board considered the impact of these factors on our
shareholders.
In view of the wide variety of factors considered by our board, our board
did not find it practicable to, and did not, quantify or otherwise attempt to
assign relative weights to the specific factors considered. Our board viewed its
position and recommendation as being based on the totality of the information
presented to, and considered by, it. After taking into consideration all the
factors set forth above, the board determined that the potential benefits of the
merger outweighed the potential detriments associated with the merger.
In the event the merger is not completed for any reason, we will continue
to explore various strategic alternatives to maximize shareholder value,
including other business combination opportunities.
15
<PAGE>
Opinion of Financial Advisor
At the special meeting of our board on September 27, 2000, to consider
approving and adopting the merger agreement, Stephens Inc. delivered its oral
opinion (subsequently confirmed by a written opinion dated September 27, 2000)
that, as of such date, the merger consideration was fair to our shareholders,
taken as a whole, from a financial point of view.
A copy of the opinion of Stephens Inc., which sets forth the principal
assumptions made, matters considered and limitations on the review undertaken by
Stephens Inc. in rendering its opinion, is attached as Appendix B to this proxy
statement and is incorporated by reference. This summary of the Stephens Inc.
opinion addresses the material items on which Stephens Inc. based its opinion.
You are strongly encouraged to carefully read the opinion in its entirety.
The Stephens Inc. opinion was provided to our board for its information
and is directed only to the fairness, from a financial point of view, to our
shareholders of the consideration to be received by our shareholders. The
Stephens Inc. opinion does not constitute a recommendation to any Home-Stake
shareholder as to how that holder should vote on the approval of the merger
agreement or as to whether the merger would be beneficial to any shareholder.
The summary set forth below describes material aspects of the analyses
underlying Stephens Inc.'s opinion and the presentation made by Stephens Inc. to
our board. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances. Therefore, the Stephens Inc. opinion is not readily susceptible
to partial analysis or summary description. In arriving at its opinion, Stephens
Inc. did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of the analyses and factors considered. Accordingly, Stephens Inc.
believes that its analyses must be considered as a whole and that selecting
portions of its analyses, without considering all of its analyses, could create
an incomplete or inaccurate view of the process underlying the Stephens Inc.
opinion.
In arriving at its opinion, Stephens Inc. met with our executive
management to discuss our business, operations and prospects. In addition,
Stephens Inc. reviewed:
o a draft of the merger agreement dated September 25, 2000, and related
documents;
o our annual report on Form 10-KSB for the year ended December 31, 1999,
and our quarterly reports on Form 10-QSB and related unaudited financial
information for the interim periods, including the six months ended June
30, 2000;
o our proved oil and gas reserves and the standardized measure of
discounted future net cash flows relating to proved oil and gas reserves
as of December 31, 1999, estimated by our management;
o our capitalization and financial condition;
o historical market prices and trading volumes for our common stock;
o the financial terms of business combinations of comparable exploration
and production companies; and
o other information, financial studies, analyses and investigations and
financial, economic and market criteria as Stephens Inc. deemed relevant
in arriving at its opinion.
16
<PAGE>
In preparing its opinion, Stephens Inc. did not independently verify any
of the foregoing information, and relied upon the information being complete and
accurate in all material respects. Stephens Inc. did not conduct a physical
inspection or make an independent evaluation or appraisal of our assets, nor,
except for the estimates of oil and gas reserves referred to above, was Stephens
Inc. furnished with any evaluation or appraisal. The Stephens Inc. opinion was
rendered on the basis of conditions in the securities markets and oil and gas
markets prevailing on September 27, 2000. We did not provide specific
instructions to, or place any limitation on, Stephens Inc. with respect to the
procedures to be followed or factors to be considered by Stephens Inc. in
performing its analyses or providing its opinion.
The following is a summary of the material aspects of the analyses
performed by Stephens Inc. in preparing the Stephens Inc. opinion.
Recent Stock Price Performance Analysis. Stephens Inc. compared the stock
price performance of our common stock for the periods commencing on November 10,
1999 and February 28, 2000, which were one day before the announcement of our
intention to explore strategic alternatives to increase shareholder value, and
one day before the announcement that we had hired Stephens Inc., respectively,
and ending on September 25, 2000 (using an assumed purchase price for our
shareholders of $11.00 per share on such date), with the performance of the
companies included in the Standard & Poor's Small-Cap Energy Index and an index
of 13 companies compiled by Stephens Inc. that it believed to be appropriate for
comparison. These companies were:
o Louis Dreyfus Natural Gas Corp.;
o Vintage Petroleum Inc.;
o Pure Resources, Inc.;
o Belco Oil & Gas Corp.;
o Comstock Resources, Inc.;
o Magnum Hunter Resources, Inc.;
o Key Production, Inc.;
o Bellwether Exploration Company;
o Brigham Exploration Company;
o PetroCorp, Inc.;
o Maynard Oil Company;
o Goodrich Petroleum Corporation; and
o Texoil, Inc.
Eleven of these 13 companies have a significantly larger market capitalization
than we have.
As a result of the foregoing analysis, Stephens Inc. noted that the
increase of 112% from the $5.19 stock price on November 10, 1999, to the assumed
offer price of $11.00 per share on September 25, 2000, compared favorably to
increases in the Standard & Poor's Small-Cap Energy Index and Stephens Inc.'s
comparable company index of 40.5% and 95.1%, respectively. Stephens Inc. further
17
<PAGE>
noted that the increase of 85.2% from the $5.94 stock price on February 28,
2000, to the $11.00 per share offer price, also compared favorably to increases
of 40.7% and 77.2%, respectively, to the Standard & Poor's Small-Cap Energy
Index and Stephens Inc.'s comparable company index.
Premiums Paid Analysis. Stephens Inc. reviewed the premiums paid over
market value in 76 merger or acquisition transactions ranging from $20 million
to $1.0 billion in size and completed from May 1992 through June 2000, where the
acquired company made a prior announcement indicating its intention to explore
strategic alternatives. As a result of the foregoing analysis, Stephens Inc.
noted that at the offer price of $11.00 per share, the premium paid to our
shareholders of 112% over its stock price both one day and one week prior to the
announcement of its intention to explore strategic alternatives exceeded the
mean premium of 46.3% and median premium of 35.0% over the target's stock price
one day before the announcement and the mean premium of 52.7% and median premium
of 43.8% over the target's stock price one week before the announcement.
Comparable Company Analysis. Stephens Inc. compared certain financial
information and commonly used valuation measurements for us to corresponding
information and measurements for the 13 companies listed above under "Recent
Stock Price Performance Analysis." These financial information and measurements
included, among other things:
o ratios of stock price to latest 12 months cash flow per share;
o ratios of stock price to estimated fiscal year 2000 cash flow per share;
and
o ratios of market value of common equity plus total debt less cash and
cash equivalents, commonly referred to as "Total Market Capitalization,"
to latest 12 month earnings before interest, taxes, depreciation,
depletion and amortization, commonly referred to as "EBITDA."
Stephens Inc. noted that the ratio of stock price to latest 12 months
cash flow per share for the 13 comparable companies ranged from 2.0x to 6.7x,
with a mean of 4.9x and a median of 5.0x. Based on these ratios, Stephens Inc.
derived an implied trading value range for our common stock of $3.64 to $12.01
per share, with a mean of $8.70 and a median of $8.96 per share.
Stephens Inc. noted that the ratio of stock price to estimated fiscal
year 2000 cash flow per share for the 13 comparable companies ranged from 1.6x
to 7.2x, with a mean of 4.0x and a median of 3.9x. Based on these ratios,
Stephens Inc. derived an implied trading range for our common stock of $3.18 to
$14.33 per share, with a mean of $7.93 and a median of $7.65 per share.
Stephens Inc. further noted that the ratios of Total Market
Capitalization to EBITDA for the 13 comparable companies ranged from 3.3x to
7.6x with a mean and median of 5.8x. Based on these ratios, Stephens Inc.
derived an implied trading range for our common stock of $6.53 to $15.61 per
share, with a mean of $11.84 and a median of $11.72 per share.
Comparable Transactions Analysis. Stephens Inc. conducted a comparable
transactions analysis by examining the terms of publicly disclosed domestic
acquisitions of businesses and assets related to the exploration and production
industry for the period January 1, 2000, through September 20, 2000, as tracked
by John S. Herold, Inc. This analysis yielded an implied reserve value, defined
as total transaction value less the value of non-oil and gas assets, of:
o $4.59 per barrel of oil equivalent, known as "boe," for all transactions;
o $3.90 per boe for Mid-Continent transactions;
18
<PAGE>
o $4.03 per boe for transactions with a total transaction value ranging
from $25 million to $100 million; and
o $2.72 per boe for Mid-Continent transactions with a total transaction
value ranging from $25 million to $100 million.
Because the majority of the comparable transactions were asset sales,
Stephens Inc. estimated how the reserves may have been valued by Cortez as if it
were an asset transaction by adding assumed liabilities in the transaction and
the tax burden of a cash for stock transaction versus a cash for assets
transaction. Stephens Inc. calculated the tax burden based on the tax basis of
the properties, the taxable gain assumed by Cortez, and an approximation of the
income taxes to be paid by Cortez over the life of the reserves based on our
reserve report and discounted back to the date of the fairness opinion. For
discount rates, Stephens Inc. chose our cost of equity as calculated by a
capital asset pricing model and the weighted average cost of capital of a
purchaser with a capital structure of 50% debt and 50% equity. Stephens Inc.
used three cases in calculating the value of the reserves. The first case
assumed no tax burden, the second case assumed the tax burden was discounted by
our cost of equity, and the third case assumed the tax burden discounted by the
weighted average cost of capital of a purchaser whose capital structure
consisted of 50% debt and 50% equity. The estimated implied reserve values for
the three respective cases were $58 million, $66 million and $68 million.
Stephens Inc. also estimated our proved reserves at the time of the
opinion by adjusting our December 31, 1999 reserve report for production through
June 30, 2000, and drilling results for 2000 year to date. Stephens Inc.
estimated that we had 12.3 million boe as of September 25, 2000.
Based on the Cortez offer price of $11.00 per share, Stephens Inc.
estimated that Cortez was paying $4.71 per boe, $5.37 per boe and $5.52 per boe
for our proved reserves for the three respective cases described above.
Stephens Inc.'s Engagement Agreement. Stephens Inc. was retained to:
o assist the board of directors with the evaluation of strategic
alternatives;
o assist the board in preparing confidential data, contacting potential
purchasers and facilitating due diligence investigations by potential
purchasers; and
o render its opinion on the basis of its experience with mergers and
acquisitions in the energy business.
Stephens Inc. is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for corporate and other purposes. The Home-Stake board
of directors selected Stephens Inc. as financial advisor because of its
expertise, reputation and familiarity with us.
Under the terms of the engagement agreement between us and Stephens Inc.,
we paid Stephens Inc. a fee of $50,000 upon execution of the engagement
agreement and $50,000 upon the decision by our board to begin the process of
marketing the company and also reimbursed Stephens Inc. for its out-of-pocket
expenses. In addition, we will pay Stephens Inc. a percentage of the total value
of the merger consideration payable in the merger if the merger is consummated,
which amount shall not exceed $826,000. We have agreed to reimburse Stephens
Inc. for additional out-of-pocket expenses incurred in connection with its
rendering of the fairness opinion, which amount shall not exceed $1,500, and to
indemnify Stephens Inc. and its controlling persons against liabilities and
expenses relating to or arising out of the consummation of the merger, including
liabilities under federal securities laws. To the extent that the
indemnification includes liabilities arising under federal securities laws, it
may not be enforceable as it may be determined to be against public policy. No
portion of Stephens Inc.'s fee was contingent upon whether Stephens Inc.
rendered a favorable opinion with respect to the proposed merger. The terms of
Stephens Inc.'s engagement agreement with us, which are customary for
19
<PAGE>
transactions of this nature, were negotiated at arm's length between our board
and Stephens Inc., and our board was aware of these terms at the time of its
approval of the merger agreement.
Financing Arrangements
Cortez estimates that it will require approximately $57.3 million in
order to finance the merger. These funds will be used to:
o pay the merger consideration, including payments for the surrender of
outstanding stock options; and
o pay the fees and expenses incurred in connection with the merger.
Cortez expects to obtain these funds from the following sources:
o the performance by Fleet National Bank under its commitment to provide
$22 million in debt financing for the merger transaction;
o the performance by First Union National Bank under its commitment to
provide $20 million in debt financing for the merger transaction; and
o the injection of $20.6 million in cash by Natural Gas Partners V, L.P., a
shareholder of Cortez, upon a call for payment by Cortez pursuant to a
subscription agreement between Natural Gas Partners and Cortez for the
purchase of Cortez common stock.
Cortez has obtained financing commitment letters from Fleet National Bank
and First Union National Bank and a subscription agreement from Natural Gas
Partners V, L.P., with respect to the terms of the financing or investment
described above. The obligations of Fleet National Bank to provide financing
will terminate in the event comprehensive loan documentation has not been signed
on or before December 26, 2000. The term loan is expected to be secured by the
assets of Cortez and its subsidiaries and to contain representations,
warranties, covenants, events of default and other terms that are customary for
a transaction of this type.
The obligations of Fleet National Bank to provide the financing described
above are also subject to the satisfaction by Cortez of financial tests and
other conditions, which include:
o the absence of any material adverse change in the business, condition,
operations, performance or properties of Cortez and its subsidiaries,
including Home-Stake;
o the successful completion of the merger;
o the receipt of any necessary consents of third parties or governmental
authorities;
o the absence of any breach of any representation, warranty or covenant in
any loan document or other document relating to the merger;
o the injection of cash into Cortez by Natural Gas Partners as described
above;
o the performance by First Union National Bank under its commitment to
provide $20 million of debt financing;
20
<PAGE>
o the preparation and execution of comprehensive loan documentation
acceptable to Fleet National Bank and First Union National Bank;
o the absence of any material misstatements or omissions from any financial
information provided to Fleet National Bank; and
o the completion and satisfaction by Fleet National Bank of its due
diligence investigation, customary for debt financing transactions of
this type, including but not limited to title to and condition, including
environmental matters, of the properties of Cortez and us.
In the merger agreement, Cortez represents and warrants to us that,
assuming the financings described above are consummated, Cortez will have
funding sufficient to pay the merger consideration to our shareholders and all
associated merger costs. Cortez further represents and warrants that, as of the
date of the merger agreement, it is not aware of any facts or circumstances that
create a reasonable basis for Cortez to believe that it will not be able to
obtain financing in accordance with the terms of its existing financing
commitments. The merger agreement also requires Cortez to notify us upon the
occurrence of any event which causes Cortez to reasonably believe that it will
not be able to obtain the financing described above.
Cortez does not anticipate completing any financing until immediately
prior to the closing of the merger, and no assurance can be given that any
financing will be completed. Cortez currently does not have any alternative
financing commitments in the event that any of its existing financing
commitments is not obtained. If Cortez notifies us that it reasonably believes
that it will not be able to obtain the financing described above, it will have
10 business days to secure alternative financing on terms that contain no
greater conditions than those contained in the original financing commitments.
The failure by Cortez to obtain sufficient financing to complete the merger
would be considered a material breach of the merger agreement. If no alternative
financing is obtained within this 10 business day period, we will have the right
to terminate the merger agreement and seek damages for any losses incurred in
connection with the failed merger transaction.
Interests of Officers and Directors in the Merger
Robert C. Simpson, our Chairman, President and Chief Executive Officer,
and Chris K. Corcoran, our Executive Vice President, Chief Financial Officer and
Secretary, each has an employment agreement with us which provides for a cash
severance payment in the event his employment is terminated following a change
in control transaction. Under their existing agreements, Messrs. Simpson and
Corcoran are each entitled to a cash severance payment equal to 36 times the
highest monthly salary paid to them during the 12-month period immediately
preceding the merger, plus an amount equal to the sum of the bonuses paid to
each of them over the past three years. In addition, Messrs. Simpson and
Corcoran have an arrangement with us, which was previously approved by our board
of directors, that in the event of a sale of Home-Stake, Mr. Simpson would be
paid an amount equal to 2.2% of the "transaction value" and Mr. Corcoran would
be paid a bonus of $200,000.
In connection with the merger, Messrs. Simpson and Corcoran have each
entered into separation agreements with us. The separation agreements provide
for the cancellation of the employment agreements described above and that
Messrs. Simpson's and Corcoran's employment with us will terminate when the
merger is completed. The separation agreement for Mr. Simpson provides that he
will receive a one-time cash payment of $1,867,149, which represents the
severance payment and the transaction bonus described above. In addition, he
will receive a cash payment of $888,405 to cover taxes imposed on him by Section
4999 of the Internal Revenue Code or any similar federal or state excise tax.
The separation agreement for Mr. Simpson also gives him the option of purchasing
a company automobile at the lesser of its book value as shown on our books and
records and its "blue book" fair market value.
21
<PAGE>
The separation agreement for Mr. Corcoran provides that he will receive a
one-time cash payment of $735,700, which represents the severance payment and
the transaction bonus described above. In addition, he will receive a cash
payment of $326,805 to cover taxes imposed on him by Section 4999 of the
Internal Revenue Code or any similar federal or state excise tax.
In 1999, the board of directors amended and restated the Home-Stake Oil &
Gas Company Change in Control Severance Pay Plan. The severance plan is designed
to provide severance payments in the event that all or substantially all of our
assets or stock are acquired by another party. An "eligible employee" is an
employee, other than Robert C. Simpson or Chris K. Corcoran, who is receiving
salary for personal services rendered to us or who would be receiving such
remuneration except for a leave of absence. Under the severance plan, eligible
employees who have been employed by us for less than five years will be entitled
to three months' salary as severance pay. Eligible employees who have been
employed by us for five years or more will be entitled to one month's salary for
each year of service and a pro-rata portion of one month's salary for any
fractional year of service as severance pay. Department managers identified in
the severance plan will receive, in addition to the severance payment based on
the years of service, one year's compensation as part of the severance payment.
The minimum payment under the severance plan is three months' salary and the
maximum payment is the lesser of (1) three years' salary or (2) $1.00 less than
the amount which would result in the imposition of excise tax under the
so-called "excess parachute payment" provisions of the Internal Revenue Code. We
estimate that our employees will be entitled to receive an aggregate amount of
approximately $920,000 in severance payments under the severance plan.
As of the closing of the merger, all of our outstanding stock options
will become fully vested and exercisable. In full settlement of these options,
Cortez will cause Home-Stake to make a cash payment to each option holder who
returns an executed option surrender agreement equal to the difference between
the merger consideration that would be payable with respect to each share of our
common stock underlying that option and the applicable option exercise price. As
a result, the options set forth in the following table held by our officers and
directors will become fully vested and our officers and directors will receive
approximately (i.e., before withholding) the indicated cash payment in
settlement of his or her options.
Option Shares
Number of Exercise Price/ Option
Option Shares Range Settlement Amount
------------- --------------- -----------------
Robert C. Simpson........ 37,000 $4.50 $240,500
Chris K. Corcoran........ 73,000 $4.50-5.00 $453,000
L. W. Allegood........... 20,000 $4.50 $130,000
Larry F. Grindstaff...... 20,000 $4.50 $130,000
Ronald O. Gutman......... 20,000 $4.50 $130,000
James L. Houghton........ 20,000 $4.50 $130,000
Joseph J. McCain, Jr..... 20,000 $4.50 $130,000
I. Wistar Morris, III.... 20,000 $4.50 $130,000
Gary W. Fisher........... 31,000 $4.50-5.00 $194,500
Barbara C. Long.......... 33,000 $4.50-5.00 $207,500
In addition, under the terms of the merger agreement, our directors and
officers will be entitled to indemnification in some circumstances, as more
fully described in the section entitled "The Merger Agreement-- Covenants and
Agreements--Indemnification and Insurance of Home-Stake Officers and Directors."
22
<PAGE>
The law firm of Conner & Winters, a Professional Corporation, regularly
performs legal services as our counsel. Joseph J. McCain, Jr., a director of
Home-Stake, is president and a shareholder and director of Conner & Winters.
Voting Agreements with Directors and Senior Management
Cortez has entered into stock voting agreements with Messrs. Simpson and
Corcoran and with all of the members of our board of directors and some of their
spouses. In these agreements, our officers and directors and some of their
spouses, acting solely in their capacity as shareholders of Home-Stake and not
in their capacity as directors or officers of Home-Stake, agreed to vote in
favor of the merger and the other transactions contemplated by the merger
agreement and not to encourage or solicit any competing offers. These officers,
directors and spouses agreed not to transfer their shares before the merger. In
the aggregate, these officers, directors and spouses own approximately 919,860
shares of our common stock, which accounts for approximately 21.1 percent of our
outstanding common stock.
Some Effects of the Merger
If the merger is completed, holders of shares of our common stock will
not have an opportunity to continue their equity interest in us as an ongoing
corporation and, therefore, will not have the opportunity to share in our future
earnings, dividends or growth, if any. In addition, upon completion of the
merger, our common stock will no longer be listed on the NASDAQ SmallCap Market
and will cease to be registered with the Securities and Exchange Commission.
Method of Accounting
The merger will be accounted for under the purchase method of accounting.
23
<PAGE>
THE MERGER AGREEMENT
The terms of and conditions to the merger are contained in the merger
agreement, a copy of which is attached to this proxy statement as Appendix A and
incorporated in this document by reference. Set forth below is a description of
the material terms and conditions of the merger. This description is qualified
in its entirety by, and made subject to, the more complete information set forth
in the merger agreement.
Effective Time of the Merger
The merger will become effective when the Secretary of State of the State
of Oklahoma has accepted for filing the certificate of merger in accordance with
the Oklahoma General Corporation Act. At that time, Cortez Acquisition Company
will be merged with and into Home-Stake and will cease to exist as a separate
entity and Home-Stake will become a wholly-owned subsidiary of Cortez. We expect
the merger to become effective as soon as practicable after approval of the
merger by our shareholders and the satisfaction or waiver of all other
conditions to closing the merger.
Conversion of Shares Pursuant to the Merger
At the effective time of the merger, each issued and outstanding share of
our common stock will be converted into the right to receive $11.00 in cash,
without interest.
Exchange of Stock Certificates
Cortez has designated UMB Bank, N.A., to act as exchange agent in the
merger. The merger agreement provides that within three business days after the
effective time of the merger, the exchange agent will mail a letter of
transmittal to each record holder of an outstanding stock certificate or
certificates, which immediately prior to the effective time represented shares
of our common stock and were converted into the right to receive the merger
consideration. The letter of transmittal will specify that delivery will be
effected and risk of loss and title to stock certificates will pass only upon
proper delivery of the stock certificate to the exchange agent. In addition, the
exchange agent will also mail to each record holder instructions on how to
properly surrender the stock certificates for payment. You should not surrender
your stock certificates until you receive a letter of transmittal and
instructions.
Upon the surrender to the exchange agent of your stock certificate,
together with a duly executed letter of transmittal and any other required
documents, and subject to any required withholding of taxes, you will be paid
the merger consideration for each share of our common stock previously
represented by your stock certificate, and the stock certificate will then be
canceled.
No interest will be paid or accrued on the cash payable upon the
surrender of your stock certificate. Until surrendered in accordance with the
provisions stated above, each certificate will, after the effective time of the
merger, represent only the right to receive the merger consideration.
After the effective time of the merger, there will be no transfers of
certificates that previously represented shares of our common stock on our stock
books. If, after the effective time, stock certificates are presented to the
surviving corporation or the exchange agent for payment, they will be canceled
and exchanged for the merger consideration, without interest. However, no holder
of a stock certificate will have any greater rights against the surviving
corporation than may be accorded to general creditors of the surviving
corporation under applicable law.
If you have lost a certificate, or if your certificate has been stolen or
destroyed, in order to receive the merger consideration, you will have to sign
an affidavit stating that your certificate was lost, stolen or destroyed. In
24
<PAGE>
addition, if Cortez requires, you may have to post a bond indemnifying Cortez
against any claims against it with respect to the lost, stolen or destroyed
certificate.
One year after the closing of the merger, upon Cortez's request, the
exchange agent will deliver to Cortez any cash held by the exchange agent that
has not been paid to our shareholders pursuant to the merger agreement. From and
after that time, if you have not yet exchanged your shares of common stock for
the merger consideration, you must surrender your certificates to Cortez, rather
than the exchange agent, to receive the merger consideration.
Conduct of the Business Before the Merger
We have agreed that, prior to the merger, we will generally:
o conduct our business as usual;
o preserve our present business organization;
o operate and maintain our oil and gas interests in accordance with the
law, applicable agreements and prudent practices;
o keep available the services of our officers and employees;
o preserve our existing business relationships;
o maintain our corporate existence and rights;
o keep and maintain accurate books, records and accounts;
o maintain the policies or binders of insurance described in the merger
agreement;
o pay all applicable taxes;
o pay all claims and expenses when they become due and payable; and
o comply with all applicable laws and regulations and provisions of
material agreements.
In addition, the merger agreement specifically prohibits us, without
Cortez's consent, from taking a number of corporate acts prior to the completion
of the merger, including the following actions:
o amending organizational documents;
o changing our capital stock;
o paying any dividends;
o issuing or encumbering any shares or options except upon the exercise of
currently existing options;
o acquiring any of our capital stock;
o merging or transferring all or substantially all of our assets;
o liquidating, winding up or dissolving;
25
<PAGE>
o acquiring another business entity or an interest in another business
entity;
o disposing of or encumbering oil and gas interests meeting the
specifications set forth in the merger agreement;
o acquiring oil and gas interests or any other assets that have a value in
excess of $25,000;
o entering into hedging or derivative contracts unless exempted in the
merger agreement;
o disposing of or encumbering securities of a third party;
o making any loans or investments;
o entering into any agreements that would cause us to spend in excess of
$5,000 or any agreements that are not terminable by us upon notice of 30
days or less and without penalty or other obligation;
o agreeing to limit or restrict our ability to compete or otherwise conduct
our business;
o incurring any debt;
o incurring any cost or expense for leasehold or geophysical items;
o incurring any obligations or liabilities outside the ordinary course of
business;
o making a capital expenditure or series of related capital expenditures in
excess of $5,000 unless exempted in the merger agreement;
o becoming liable or responsible in any way for the liabilities or
obligations of a third party;
o relinquishing voluntarily any right as operator of any of our oil and gas
interests;
o entering into or becoming liable or obligated under or pursuant to any
benefit plans, employee plans or agreements for directors, officers or
employees or modifying the plans or agreements;
o paying or becoming obligated to pay any benefits to our employees or
consultants unless pursuant to an existing agreement;
o entering into or amending any material agreements;
o entering into a new line of business;
o taking any action that causes our representations and warranties in the
merger agreement to become untrue;
o engaging in any transaction with any of our affiliates other than those
specifically exempted in the merger agreement;
o encumbering any of our assets unless exempted in the merger agreement;
o entering into any agreement relating to the voting, registration or
transfer of our securities; or
26
<PAGE>
o agreeing to take any of the above actions.
Covenants and Agreements
Special Meeting. We have agreed to cause the special meeting of our
shareholders to be duly called and held as promptly as practicable for the
purpose of voting on the approval and adoption of the merger agreement.
No Solicitation. In the merger agreement, we have agreed that:
o we will immediately cease and cause to be terminated any existing
activities, discussions or negotiations conducted prior to the date of
the merger agreement with respect to any Acquisition Proposal, as defined
below; and
o we will not, and will not authorize or permit any of our directors,
officers, employees, agents, attorneys, independent accountants,
independent financial advisors or other affiliates or representatives to,
solicit or encourage the submission of an Acquisition Proposal.
However, the merger agreement does not prohibit:
o us from entering into discussions or negotiations with a third party and
furnishing that third party information concerning Home-Stake in response
to an unsolicited Acquisition Proposal solely for purposes of determining
whether or not to rescind or modify our recommendation of the merger or
the merger agreement;
o our board from taking and disclosing to our shareholders a position with
respect to a tender offer by a third party pursuant to Rule 14e-2 under
the Securities Exchange Act of 1934; and
o our board from withdrawing or modifying its approval or recommendation of
the merger and the merger agreement;
if our board determines that this action or disclosure is required in order for
our board to act in a manner consistent with its fiduciary duties to our
shareholders.
The term "Acquisition Proposal" means any proposal or offer that could
reasonably be expected to lead to a tender or exchange offer, a merger,
consolidation or other business combination involving Home-Stake or any proposal
to acquire in any manner a substantial equity interest in, or any substantial
portion of the assets of, Home- Stake.
Indemnification and Insurance of Home-Stake Officers and Directors.
Cortez has agreed that, for six years after the merger is completed, Cortez will
indemnify and hold harmless the present and former directors, officers,
employees, controlling shareholders and agents of Home-Stake against various
liabilities to the fullest extent permitted under Oklahoma law. Cortez has also
agreed to maintain our directors' and officers' liability and insurance policy,
for a period of at least six years after the merger is completed, provided that
Cortez will not be required to pay an annual premium in excess of 200% of the
last annual premium paid by us prior to the merger agreement.
Additional Mutual Covenants. The merger agreement contains certain mutual
covenants of the parties, including covenants relating to:
o preparation of this document;
o public announcements;
27
<PAGE>
o notification of various matters; and
o payment of expenses in connection with the merger.
Representations and Warranties of Home-Stake and Cortez
In the merger agreement, we make various representations and warranties,
subject to exceptions which were disclosed to Cortez, concerning our business
and assets. These representations and warranties cover various matters, such as:
o corporate organization and similar corporate matters;
o certificate of incorporation and bylaws;
o absence of ownership interests in other entities;
o corporate authority;
o non-contravention of existing agreements;
o government approvals and required consents;
o documents and other reports filed with the SEC;
o capitalization;
o absence of undisclosed liabilities;
o indemnification;
o absence of specified changes or events;
o compliance with laws and material agreements;
o governmental regulation;
o litigation;
o absence of specified restrictions;
o audits and settlements;
o tax issues;
o employee benefit plans and ERISA;
o material agreements;
o labor and employment matters;
28
<PAGE>
o accounts receivable;
o insurance;
o intellectual property;
o title to assets;
o reports regarding our oil and gas interests;
o oil and gas operations;
o hydrocarbon sales and purchase agreements;
o financial and commodity hedging;
o environmental matters;
o books and records;
o absence of brokers;
o powers of attorney and authorized signatories;
o vote required to approve the merger agreement and related transactions;
o fairness opinion;
o absence of untrue statements or omissions;
o real property;
o expiring leasehold acreage;
o fees; and
o key employee incentive bonus plan.
The merger agreement also contains customary representations and
warranties of Cortez and Cortez Acquisition Company relating to various aspects
of their business and the merger, including:
o corporate organization and similar corporate matters;
o certificate of incorporation and bylaws;
o corporate authority;
o non-contravention of existing agreements;
o government approvals and required consents;
29
<PAGE>
o interim operations of Cortez Acquisition Company;
o financing;
o absence of brokers; and
o absence of untrue statements or omissions.
Conditions to the Merger
Conditions to the Obligation of Each Party. The obligations of Cortez and
us to consummate the merger depend upon the satisfaction of the following
conditions:
o the merger agreement shall have been approved and adopted by the vote of
a majority of our outstanding common stock;
o the receipt of all necessary governmental approvals; and
o the absence of any injunction, order or other legal restraint or
prohibition that would prohibit the consummation of the merger.
Conditions to our Obligation. Our obligation to consummate the merger is
further subject to satisfaction of the following conditions:
o Cortez shall have performed in all material respects the obligations
required to be performed by it at or prior to the effective time; and
o each of Cortez's representations and warranties contained in the merger
agreement shall be true and correct in all material respects as of the
effective time as if made at that time.
Conditions to the Obligation of Cortez. The obligation of Cortez to
consummate the merger is further subject to the satisfaction of the following
conditions:
o we shall have performed in all material respects the obligations required
to be performed by us at or prior to the effective time and each of our
representations and warranties contained in the merger agreement shall be
true and correct in all material respects as of the effective time as if
made at that time;
o some of our representations and warranties shall be true and correct in
all respects, without regard to materiality;
o the absence of any event since June 30, 2000 that would have a material
adverse effect on us;
o the total number of shares of our common stock which are entitled to vote
at the special meeting which are held by shareholders who exercise their
appraisal rights under the Oklahoma General Corporation Act to dissent
from the proposed merger shall not exceed five percent of the total
number of our outstanding shares entitled to vote at the special meeting;
o the conditions relating to the closing of the Fleet National Bank
commitment letter, involving title to our oil and gas interests and
environmental matters relating to those properties, shall have been
fulfilled; and
o Cortez shall have received the written resignations of each of our
officers and directors.
30
<PAGE>
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to the effective
time, whether before or after approval by our shareholders:
o by the mutual written consent of Cortez and us;
o by either Cortez or us, if the merger has not been consummated by
February 28, 2001;
o by either Cortez or us, if any final and non-appealable order, decree,
ruling or other action enjoining any party from consummating the merger
shall have been entered by any governmental authority;
o by either Cortez or us, if the requisite shareholder approval is not
obtained by a vote of our shareholders at the special meeting;
o by us, if Cortez or Cortez Acquisition Company is in material breach of
any representations and warranties and the breach is not cured in all
material respects within 10 days after notice of the breach;
o by Cortez, if we are in material breach of our representations and
warranties or our covenants and agreements and the breach is not cured in
all material respects within 10 days after notice of the breach;
o by Cortez, if we are in material breach of our covenants relating to the
conduct of our business prior to closing, without regard to any cure
period;
o by Cortez, if our board of directors shall have failed to recommend
adoption of the merger agreement at the time this proxy statement is
first mailed to shareholders or its recommendation is subsequently
amended or withdrawn; or
o by Cortez, if, from and after June 30, 2000, our business incurs any
material adverse effect.
Termination Fee
If the merger is terminated:
o due to the failure of our board to recommend adoption of the merger
agreement or the subsequent withdrawal or amendment of its prior
recommendation;
o because the special shareholders meeting to approve the merger is not
held prior to February 26, 2001; or
o due to our shareholders' failure to approve the merger agreement by the
requisite vote;
we will pay to Cortez a termination fee equal to $2 million.
Merger Expenses
The merger agreement provides that all expenses incurred by the parties
to the merger agreement shall be borne solely and entirely by the party that has
incurred the expenses. We will pay all costs and expenses in connection with the
printing of this document, as well as all Securities and Exchange Commission
filing fees and fees to comply with applicable state securities or "blue sky"
laws related to the transactions contemplated by the merger agreement. The costs
31
<PAGE>
and expenses associated with mailing this document to our shareholders and the
soliciting of votes of our shareholders will be borne by us.
Amendments
The merger agreement may be amended only by written agreement of Cortez
and us at any time before the effective time. However, after the required
Home-Stake shareholder approval is obtained, no amendment may be made to the
merger agreement that by law would require further approval by our shareholders,
unless such further approval is obtained.
Home-Stake Rights Plan
We have a rights agreement with UMB Bank, N.A., as rights agent. Pursuant
to the merger agreement, we have amended the rights agreement so as to render
the rights inapplicable to the merger and the other transactions contemplated by
the merger agreement.
Pursuant to the rights agreement, rights attach to each share of common
stock outstanding and entitle the registered holder to purchase from us one
one-thousandth of a share of our junior participating preferred stock, par value
$1.00 per share, at a purchase price of $22, which is subject to adjustment as
described in the rights agreement. Each share of our common stock outstanding
has attached to it one right.
The rights will separate from common stock upon the earlier of:
o the first date of public announcement that a person or group of
affiliated or associated persons, also referred to as a Home-Stake
acquiring person, has acquired or obtained the right to acquire
beneficial ownership of 15% or more of the outstanding shares of our
common stock; and
o 10 business days or such later date as may be fixed by our board
following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 15% or more of our
outstanding shares of common stock.
The date of any such event is referred to as the Home-Stake distribution
date. Until the Home-Stake distribution date:
o the rights will be evidenced by our common stock certificates and will be
transferred with and only with our common stock certificates;
o our common stock certificates will contain a notation incorporating the
rights agreement by reference; and
o the transfer of any certificates representing our outstanding common
stock will also constitute the transfer of the rights associated with our
common stock represented by such certificate.
If we are acquired in a merger or other business combination transaction
or 50% or more of our consolidated assets or earning power are sold after a
person or group has become a Home-Stake acquiring person, each holder of a right
will then have the right to receive, upon the exercise of the right at the
current exercise price of the right, that number of shares of common stock of
the acquiring company which at the time of the transaction will have a market
value of two times the exercise price of the right. In the event that any person
or group of affiliated or associated persons becomes a Home-Stake acquiring
person, each holder of a right, other than rights beneficially owned by the
Home-Stake acquiring person which will then be void, will then have the right to
receive upon exercise that number of shares of our common stock having a market
value of two times the exercise price of the right.
32
<PAGE>
At any time after any person or group becomes a Home-Stake acquiring
person and prior to the acquisition by that person or group of 50% or more of
our outstanding common stock, our board may exchange the rights other than the
rights owned by that person or group, which will have become void, in whole or
in part, generally at an exchange ratio of one share of our common stock, or one
one-thousandth of a share of our junior participating preferred stock, for each
two shares of our common stock for which each right is then exercisable.
The rights are not exercisable until the Home-Stake distribution date and
will expire at the close of business on January 3, 2010, unless earlier redeemed
by us as further described in the rights agreement. At no time will the holder
of the rights have any voting power or any rights as a shareholder due to his
position as a holder of the rights. Subject to certain exceptions, any of the
provisions of the rights agreement may be amended by our board prior to the
Home-Stake distribution date.
The above summary of the rights agreement may not contain all the
information that is important to you. For a more detailed description of the
rights, you should read the rights agreement which has been filed with the
Securities and Exchange Commission. See "Where You Can Find More Information."
Treatment of Stock Options
The merger agreement provides that each stock option under our 1997
Incentive Stock Plan which is outstanding immediately prior to the effective
time of the merger, whether or not then exercisable, and which has not been
exercised or canceled prior to that time, will become fully vested and
exercisable. Upon receipt of an executed option surrender agreement, in full
settlement of all remaining outstanding options, Cortez will cause us to pay to
each holder of an option an amount equal to the product of the number of shares
of common stock underlying that stock option and the excess, if any, of the
merger consideration over the exercise price per share of common stock provided
for in that stock option. At and following the effective time of the merger, all
outstanding options to purchase our common stock will automatically be canceled
and each stock option will represent only the right to receive the cash payment
described above.
33
<PAGE>
YOU HAVE APPRAISAL RIGHTS IN THE MERGER
General
Our shareholders are entitled to dissent and be paid cash for the "fair
value" of their shares of our common stock. This payment may be more than, the
same as, or less than the merger consideration our shareholders will receive in
the merger. These appraisal rights arise under Section 1091 of the Oklahoma
General Corporation Act, or OGCA. Section 1091 of the OGCA is reprinted in its
entirety as Appendix C to this proxy statement.
Exercising Procedures
The following discussion addresses the material provisions of Section
1091 of the OGCA. If you wish to exercise statutory appraisal rights or preserve
your right to do so, you should review this discussion and Appendix C carefully
to comply strictly with the procedures set forth below and in Appendix C, or you
may lose your appraisal rights.
If you elect to demand the appraisal of your shares, you must:
o deliver to us before the taking of the vote on the merger agreement, a
written demand for appraisal of your shares; and
o not vote in favor of the merger agreement.
Your demand is in addition to and separate from your proxy or vote against the
merger agreement. Voting against, abstaining from voting, or failing to vote on
the merger agreement will not constitute a demand for appraisal. If you elect to
demand appraisal rights, you will not be granted appraisal rights if you have
voted in favor of, or consented in writing to, the merger agreement, including
by granting the proxy solicited by this proxy statement or by returning a signed
proxy without specifying a vote against the merger agreement or a direction to
abstain from the vote. Additionally, appraisal rights will not be granted if you
do not continuously hold your shares of our common stock for which you demand
appraisal through the effective time of the merger.
You must fully and correctly sign your demand for appraisal as your name
appears on the certificate or certificates representing your shares of our
common stock. If your shares of our common stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, the fiduciary
must execute the demand. If the shares of our common stock are owned of record
by more than one person, as in a joint tenancy or tenancy in common, all joint
owners must execute the demand. An authorized agent, including an agent for two
or more joint owners, may execute your demand for appraisal. However, the agent
must identify you as the record owner and expressly disclose the fact that, in
exercising the demand, that person is acting as your agent. If you hold shares
of our common stock through a broker who in turn holds the shares through a
central securities depository nominee such as Cede & Co., a demand for appraisal
must be made on behalf of the depository nominee and must identify the
depository nominee as a holder of record.
If you elect to exercise your appraisal rights, you must mail or deliver
your written demand to us at 15 East 5th Street, Suite 2800, Tulsa, Oklahoma
74103, Attention: Mr. Chris K. Corcoran. Your written demand must specify:
o your name and mailing address;
o the number of shares of our common stock that you own; and
o that you are demanding appraisal of your shares.
34
<PAGE>
Within 10 days after the effective time of the merger, we, as the surviving
corporation, must provide notice of the effective time to all shareholders who
have complied with Section 1091 and who have not voted for or consented to the
merger agreement.
Fair Value Determination
Within 120 days after the effective time of the merger, either we or any
shareholder who has complied with Section 1091 may file a petition in an
Oklahoma district court demanding a determination of the value of the shares of
our common stock held by dissenting shareholders. If a petition for an appraisal
is timely filed, after a hearing on the petition, the district court will
determine which shareholders are entitled to appraisal rights and will appraise
the shares of our common stock owned by those shareholders. The district court
will determine the fair value of those shares exclusive of any element of value
arising from the accomplishment or expectation of the merger, together with a
fair rate of interest to be paid, if any, upon the amount determined to be the
fair value. In determining fair value, the district court is required to take
into account all relevant factors.
If you seek appraisal, you should know that the "fair value" of your
shares of our common stock determined under Section 1091 could be more than, the
same as, or less than the merger consideration you will receive in the merger,
and that the fairness opinion of Stephens Inc. is not an opinion as to fair
value under Section 1091. Moreover, we reserve the right to assert in any
appraisal proceeding that, for purposes of Section 1091, the "fair value" of the
common stock is less than $11.00 per share.
Costs
The cost of the appraisal proceeding may be determined by the district
court and assessed against the parties as the district court deems equitable in
the circumstances. Upon application of a dissenting shareholder, the district
court may order that all or a portion of the expenses incurred by any dissenting
shareholder in connection with the appraisal proceeding, including reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all shares of our common stock entitled to appraisal.
Withdrawal; Loss of Appraisal Rights
At any time within 60 days after the effective time of the merger, you
will have the right to withdraw your demand for appraisal and to accept the
terms offered in the merger. After this period, you may withdraw your demand for
appraisal only with our consent. If no petition for appraisal is filed with the
district court within 120 days after the effective time of the merger,
shareholders' appraisal rights will cease, and all holders of shares of our
common stock will be entitled to receive the merger consideration as provided in
the merger agreement. Because we have no obligation to file any petition for an
appraisal, and have no present intention to do so, any dissenting shareholder is
advised to file a petition for appraisal on a timely basis. However, no petition
timely filed by a shareholder in the district court demanding appraisal will be
dismissed without the approval of the district court, and that approval may be
conditioned on any terms that the court deems just.
You should be aware that any failure to proceed in accordance with the
provisions of Section 1091 will result in loss of appraisal rights. In addition,
if the merger is abandoned prior to its consummation, no appraisal rights will
be available.
35
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Following is a discussion of the material federal income tax consequences
of the merger to our shareholders. The discussion is based upon the Internal
Revenue Code, Treasury regulations, IRS rulings, and judicial and administrative
decisions in effect as of the date of this proxy statement. This discussion
assumes that your Home-Stake common stock is generally held for investment. In
addition, this discussion does not address all of the tax consequences that may
be relevant to you in light of your particular circumstances or to any of our
shareholders subject to special rules, such as non-United States persons,
financial institutions, tax-exempt organizations, dealers in securities or
foreign currencies or insurance companies.
Your receipt of cash for Home-Stake common stock pursuant to the merger
will be a taxable transaction for federal income tax purposes to you, and may be
a taxable transaction for state, local and foreign tax purposes as well. You
will recognize a gain or loss measured by the difference between your tax basis
for the Home-Stake common stock owned by you at the time of the merger and the
amount of cash you receive for your Home-Stake common stock. Your gain or loss
will be a capital gain or loss if your Home-Stake common stock is a capital
asset in your hands. If your Home-Stake common stock was held as a capital
asset, your gain or loss will be long-term capital gain or loss if you held your
stock for more than one year; otherwise, it will be short-term gain or loss.
Under federal law, the exchange agent must withhold 31% of the cash
payments to holders of Home-Stake common stock to whom backup withholding
applies, and the federal income tax liability of such persons will be reduced by
the amount withheld. To avoid backup withholding, you must provide the exchange
agent with your taxpayer identification number and complete a form in which you
certify that you have not been notified by the IRS that you are subject to
backup withholding. The exchange agent will include the form with the
transmittal letter and instructions which specify the procedures for you to
follow in surrendering your common stock certificate(s).
The tax consequences of the merger to you may vary depending upon your
particular circumstances. Therefore, you should consult your tax advisor to
determine the particular tax consequences of the merger to you, including those
relating to state, local and/or foreign taxes.
REGULATORY AND OTHER APPROVALS
There are no federal or state regulatory requirements which remain to be
complied with in order to consummate the merger, other than the filing of the
certificate of merger with the Secretary of State of the State of Oklahoma. The
merger did not require filings with the Federal Trade Commission and the
Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
36
<PAGE>
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth our information as of September 30, 2000,
relating to the beneficial ownership of our common stock, by
o any person known to us to own beneficially more than 5% of the
outstanding shares of common stock,
o each of our directors,
o each of our executive officers, and
o all of our current executive officers and directors as a group.
Shares of common stock which were not outstanding but which could be
acquired by a person upon exercise of an option within sixty days of September
30, 2000, are deemed outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by that person. These shares, however, are
not deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person.
Except as otherwise indicated, each of the persons named below is
believed by us to be the direct owner and to possess sole voting and investment
power with respect to the shares of common stock beneficially owned by that
person.
Number Percentage
Name of Owner or Identity of Group of Shares of Shares
---------------------------------- --------- ---------
L. W. Allegood....................................... 186,083 (1) 4.3
Chris K. Corcoran.................................... 73,637 (2) 1.7
Larry F. Grindstaff.................................. 22,341 (1)(3) *
Ronald O. Gutman..................................... 95,282 (1)(3) 2.2
James L. Houghton.................................... 23,100 (1) *
Joseph L. McCain, Jr................................. 24,312 (1)(4) *
I. Wistar Morris, III................................ 507,546 (5) 11.6
Robert C. Simpson.................................... 226,602 (6) 5.2
Gary W. Fisher....................................... 31,158 (7) *
Barbara C. Long...................................... 34,124 (8) *
Helen G. Trippet Revocable Trust (9)................. 490,714 11.3
Norvell Living Trust (10)............................ 453,916 10.4
Arnhold and S. Bleichroeder, Inc.(11)................ 250,241 5.8
All executive officers and directors as a group
(10 persons)..................................... 1,224,185 (12) 26.3
---------
*Less than one percent.
(1) Includes 20,000 shares subject to stock options which are currently
exercisable at an exercise price of $4.50 per share.
(2) Includes 73,000 shares subject to stock options which are currently
exercisable at exercise prices of $4.50 per share and $5.00 per share.
37
<PAGE>
(3) Includes 30 shares owned by the owner's wife.
(4) Includes 100 shares owned by Mr. McCain's wife.
(5) Includes 375,630 shares over which Mr. Morris maintains sole voting and
dispositive power. This represents 346,747 shares owned by Mr. Morris,
20,000 shares subject to stock options which are currently exercisable at
an exercise price of $4.50 per share, and 8,883 shares held for the
benefit of investment advisory clients of Mr. Morris. Also includes
131,916 shares owned by Mr. Morris' wife over which she has sole voting
power and shared dispositive power. Mr. and Mrs. Morris' address is 234
Broughton Lane, Villanova, Pennsylvania 19085.
(6) Includes 48,150 shares owned by Mr. Simpson's wife. Also includes 37,000
shares subject to stock options which are currently exercisable at an
exercise price of $4.50 per share. Mr. Simpson's address is 15 E. 5th
Street, Suite 2800, Tulsa, Oklahoma 74103.
(7) Includes 31,000 shares subject to stock options which are currently
exercisable at exercise prices of $4.50 per share and $5.00 per share.
(8) Includes 33,000 shares subject to stock options which are currently
exercisable at exercise prices of $4.50 per share and $5.00 per share.
(9) The shareholder's address is 4623 South Victor, Tulsa, Oklahoma 74105.
(10) The shareholder's address is P.O. Box 76, Mendocino, California 95460.
(11) Information is based on the shareholder's Schedule 13G dated February 14,
2000. The shareholder is a registered broker/dealer and shares voting and
dispositive power over the shares with its broker/dealer clients. The
shareholder's address is 1345 Avenue of the Americas, New York, New York
10105.
(12) Includes 294,000 shares subject to stock options which are currently
exercisable at exercise prices of $4.50 per share and $5.00 per share.
OTHER MATTERS
Our management knows of no other business to be presented at the special
meeting. If other matters do properly come before the special meeting, it is the
intention of the persons named in the proxy to vote on these matters according
to their best judgment unless the authority to do so is withheld in such proxy.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
SEC's public reference rooms in New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our filings with the SEC are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
You should rely only on the information contained in this proxy statement
to vote on the merger. We have not authorized anyone to give any information
that is different from what is contained in this proxy statement. The delivery
of this proxy statement will not create an implication that there has been no
change in the affairs of Cortez or us since the date of this proxy statement or
that the information in this proxy statement is correct as of any time after the
date of this proxy statement.
By the Order of the Board of Directors
Chris K. Corcoran
Secretary
Tulsa, Oklahoma
___________, 2000
38
<PAGE>
APPENDIX A
AGREEMENT
AND
PLAN OF MERGER
Among
Cortez Oil & Gas, Inc. ("Parent"),
Cortez Acquisition Company ("Merger Sub")
And
Home-Stake Oil & Gas Company ("Company")
October 3, 2000
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1...................................................................A-1
DEFINITIONS........................................................A-1
1.1 Defined Terms.............................................A-1
1.2 References and Titles.....................................A-8
ARTICLE 2...................................................................A-9
THE MERGER.........................................................A-9
2.1 The Merger................................................A-9
2.2 Effect of the Merger......................................A-9
2.3 Governing Instruments, Directors and
Officers of the Surviving Corporation..................A-9
2.4 Effect on Securities......................................A-9
2.5 Exchange of Certificates/Option Agreements/Severance
and Bonus Payments....................................A-10
2.6 Closing..................................................A-12
2.7 Effective Time of the Merger ............................A-12
2.8 Taking of Necessary Action; Further Action...............A-12
ARTICLE 3..................................................................A-12
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................A-12
3.1 Organization.............................................A-12
3.2 Other Equity Interests...................................A-12
3.3 Authority and Enforceability.............................A-12
3.4 No Violations............................................A-13
3.5 Consents and Approvals...................................A-13
3.6 SEC Documents............................................A-14
3.7 Capital Structure........................................A-14
3.8 No Undisclosed Liabilities...............................A-15
3.9 Indemnification..........................................A-15
3.10 Absence of Certain Changes or Events.....................A-15
3.11 Compliance with Laws, Material Agreements and Permits....A-17
3.12 Governmental Regulation..................................A-17
3.13 Litigation...............................................A-17
3.14 No Restrictions..........................................A-17
3.15 Audits and Settlements...................................A-18
3.16 Taxes....................................................A-18
3.17 Employee Benefit Plans...................................A-19
3.18 Company Material Agreements..............................A-21
3.19 Labor and Employment Matters.............................A-21
3.20 Accounts Receivable......................................A-21
3.21 Insurance................................................A-21
3.22 Intangible Property......................................A-22
3.23 Title to Assets..........................................A-22
3.24 Company Engineering Report...............................A-22
3.25 Oil and Gas Operations...................................A-22
3.26 Hydrocarbon Sales and Purchase Agreements................A-23
3.27 Financial and Commodity Hedging..........................A-24
3.28 Environmental Matters....................................A-24
3.29 Books and Records........................................A-25
3.30 Brokers..................................................A-25
-i-
<PAGE>
3.31 Powers of Attorney; Authorized Signatories...............A-26
3.32 Vote Required............................................A-26
3.33 Fairness Opinion.........................................A-26
3.34 Disclosure and Investigation.............................A-26
3.35 Real Property............................................A-26
3.36 Expiring Acreage.........................................A-26
3.37 Other Fees...............................................A-26
3.38 Key Employee Incentive Bonus Plan........................A-26
ARTICLE 4..................................................................A-26
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...........A-26
4.1 Organization.............................................A-26
4.2 Authority and Enforceability.............................A-27
4.3 No Violations............................................A-27
4.4 Consents and Approvals...................................A-27
4.5 Interim Operations of Merger Sub.........................A-27
4.6 Financing................................................A-28
4.7 Brokers..................................................A-28
4.8 Disclosure and Investigation.............................A-28
ARTICLE 5..................................................................A-28
COVENANTS.........................................................A-28
5.1 Conduct of Business by the Company Pending Closing.......A-28
5.2 Access to Assets, Personnel and Information..............A-30
5.3 No Solicitation..........................................A-32
5.4 Third-Party Standstill Agreements........................A-32
5.5 Shareholders Meeting.....................................A-32
5.6 Proxy Statement..........................................A-33
5.7 Additional Arrangements..................................A-33
5.8 Public Announcements.....................................A-34
5.9 Notification of Certain Matters..........................A-34
5.10 Payment of Expenses......................................A-34
5.11 Indemnification and Insurance............................A-34
5.12 Shareholder Litigation...................................A-36
5.13 Opinion of Financial Advisor.............................A-36
5.14 Resignations of Officers and Directors of the Company....A-36
5.15 Other Agreements.........................................A-36
5.16 Option Surrender Agreements..............................A-36
5.17 Financing................................................A-36
5.18 Separation Agreements....................................A-36
5.19 Retirement Agreement.....................................A-36
5.20 Deferred Compensation Agreements.........................A-36
ARTICLE 6..................................................................A-37
CONDITIONS........................................................A-37
6.1 Conditions to Each Party's Obligation to
Effect the Merger......................................A-37
6.2 Conditions to Obligations of Parent and Merger Sub.......A-37
6.3 Conditions to Obligation of the Company..................A-38
ARTICLE 7..................................................................A-38
TERMINATION.......................................................A-38
7.1 Termination Rights.......................................A-38
-ii-
<PAGE>
7.2 Effect of Termination....................................A-39
7.3 Fees and Expenses........................................A-39
ARTICLE 8..................................................................A-40
MISCELLANEOUS.....................................................A-40
8.1 Nonsurvival of Representations and Warranties............A-40
8.2 Amendment................................................A-40
8.3 Notices..................................................A-40
8.4 Counterparts.............................................A-41
8.5 Severability.............................................A-41
8.6 Entire Agreement; No Third Party Beneficiaries...........A-41
8.7 Applicable Law...........................................A-41
8.8 No Remedy in Certain Circumstances.......................A-41
8.9 Assignment...............................................A-41
8.10 Waivers..................................................A-41
8.11 Confidentiality Agreement................................A-42
8.12 No Recourse Against Others...............................A-42
8.13 Incorporation............................................A-42
8.14 Specific Performance.....................................A-42
8.15 Section 1090.3...........................................A-42
EXHIBIT A -- Form of Stock Voting Agreement
EXHIBIT B-1 -- Form of Separation Agreement for Robert C. Simpson
EXHIBIT B-2 -- Form of Separation Agreement for Chris K. Corcoran
EXHIBIT C -- Form of Rights Agreement Amendment
EXHIBIT D -- Supplemental Summary Pages of Company Engineering Report
EXHIBIT E -- Company Hedging Program
SCHEDULES
Parent Disclosure Schedule
Company Disclosure Schedule
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into as of the 3rd day of October, 2000, by and among Cortez Oil & Gas,
Inc., a Delaware corporation ("Parent"); Cortez Acquisition Company, an Oklahoma
corporation ("Merger Sub"); and Home-Stake Oil & Gas Company, an Oklahoma
corporation (the "Company").
RECITALS
A. Parent and the Company desire to effect a merger of Merger Sub with
and into the Company (the "Merger").
B. The board of directors of the Company has determined it advisable
and in the best interests of the Company's shareholders to consummate the
Merger, upon the terms and subject to the conditions set forth herein.
C. The boards of directors of Parent and Merger Sub have determined it
advisable and in the best interests of Parent's and Merger Sub's shareholders,
respectively, to consummate the Merger, upon the terms and subject to the
conditions set forth herein.
D. As a condition and an inducement to Parent and Merger Sub entering
into this Agreement and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, certain officers and
directors of the Company, who own an aggregate of approximately 21.1% of the
outstanding shares of Company Common Stock, are entering into separate Stock
Voting Agreements (the "Stock Voting Agreements") with Parent in the form of
Exhibit A.
E. As a condition and an inducement to Parent and Merger Sub entering
into this Agreement and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, each of Robert C. Simpson and
Chris K. Corcoran of the Company are entering into separate Separation
Agreements (the "Separation Agreements") with the Company in the form of Exhibit
B-1 and Exhibit B-2, respectively.
F. As a condition and an inducement to Parent and Merger Sub entering
into this Agreement and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, the Company is entering into
an amendment (the "Rights Agreement Amendment") to the Rights Agreement, dated
as of January 3, 2000, by and between the Company and UMB Bank, N.A., as rights
agent (the "Rights Agreement"), with Parent in the form of Exhibit C.
G. Parent, Merger Sub and the Company (the "Parties") desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, for and in consideration of the Recitals and the mutual
covenants and agreements set forth in this Agreement, the Parties hereby agree
as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, each of the following
terms has the meaning given in this Section 1.1 or in the Section referred to
below:
A-1
<PAGE>
"Affiliate" means, with respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with such Person. The
term "control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, of the actual power to
direct or cause the direction of the management policies of a Person, whether
through the ownership of stock, by contract, credit arrangement or otherwise.
"Agreement" means this Agreement and Plan of Merger, as amended,
supplemented and/or modified from time to time.
"Acquisition Proposal" has the meaning specified in Section 5.3(b).
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and any successor federal and state
statutes and any regulations promulgated thereunder, and any foreign statutes
and regulations modeled thereon.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System List.
"Certificate of Merger" means the certificate of merger, prepared and
executed in accordance with the applicable provisions of the OGCA, filed with
the Secretary of State of the State of Oklahoma to effect the Merger.
"Claim" has the meaning specified in Section 5.11(b).
"Closing" means the closing of the Merger and the consummation of the
other transactions contemplated by this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the introductory paragraph
hereof.
"Company Bank Credit Agreement" means the Special Loan Agreement, dated
November 8, 1999, between the Company, as borrower, and Bank of Oklahoma, N.A.,
as lender (as amended and supplemented).
"Company Benefit Program or Agreement" has the meaning specified in
Section 3.17(a).
"Company Certificate" means a certificate representing shares of the
Company Common Stock.
"Company Common Stock" means the common stock, par value $.01 per
share, of the Company.
"Company Disclosure Schedule" means the Company Disclosure Schedule
attached hereto and any documents listed on such Company Disclosure Schedule and
expressly incorporated therein by reference.
"Company Employee Benefit Plans" has the meaning specified in Section
3.17(a).
"Company Engineering Report" means the reserve report effective as of
January 1, 2000, covering the Ownership Interests and prepared by the Company as
set forth originally in the data books provided to Parent via Stephens Inc. on
or about May 8, 2000, and as updated in the supplemental data books provided to
Parent on or about July 14, 2000, a copy of the most recent summary pages of
which is attached hereto as Exhibit D.
"Company ERISA Affiliate" has the meaning specified in Section 3.17(a).
A-2
<PAGE>
"Company Financial Statements" has the meaning specified in Section
3.6.
"Company Material Agreement(s)" means (a) the Company Bank Credit
Agreement and any other agreement with respect to indebtedness of the Company;
(b) any agreement or contract, written or oral, between the Company and any
Affiliate thereof; (c) any hedging agreement to which the Company is a party or
by which any of its assets is bound; (d) any agreement, contract, commitment or
understanding, written or oral, granting any Person registration, purchase or
sale rights with respect to any security of the Company; (e) any agreement,
contract, commitment or understanding, written or oral, granting any Person a
right of indemnification and/or contribution by the Company; (f) any voting or
other agreement relating to any security of the Company; (g) any employment,
severance, retention, termination or consulting agreement between the Company
and any other Person; (h) any office leases to which the Company is a party; (i)
any operating bonds and letters of credit with respect to which the Company is
liable or contingently liable; (j) any agreements with investment bankers or
financial advisors to which the Company is a party; (k) any indemnification
agreements between the Company and its employees, officers or directors; (l) any
insurance policy, binder, or other agreement to which the Company is a party;
(m) any guaranties pursuant to which the Company is obligated; or (n) any
agreement that would be required by Item 601 of Regulation S-B to be filed with
the SEC as an exhibit to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999.
"Company Meeting" means the meeting of the shareholders of the Company
called for the purpose of voting on the Company Proposal or any adjournment
thereof.
"Company Option" means an option (issued and outstanding immediately
prior to the Effective Time) to acquire shares of Company Common Stock granted
pursuant to the Company's 1997 Incentive Stock Plan, as amended.
"Company Permits" has the meaning specified in Section 3.11.
"Company Plan" has the meaning specified in Section 3.17(a).
"Company Preferred Stock" means the preferred stock, par value $1.00
per share, of the Company.
"Company Proposal" means the proposal to approve this Agreement and the
Merger, which proposal is to be presented to the shareholders of the Company in
the Proxy Statement.
"Company Representative" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors), Affiliate or other
representative of the Company.
"Company SEC Documents" has the meaning specified in Section 3.6.
"Company Stock Equivalents" means all rights, warrants, options
(including the Company Options), convertible securities or indebtedness,
exchangeable securities or other instruments, or other rights that are
outstanding and exercisable for or convertible or exchangeable into, directly or
indirectly, shares of Company Common Stock at the time of issuance or upon the
passage of time or occurrence of some future event.
"Confidentiality Agreement" means the letter agreement dated April 27,
2000, between the Company and Parent relating to the Company's furnishing of
information to Parent in connection with Parent's evaluation of the possibility
of the Merger.
"Debt Commitments" has the meaning specified in Section 4.6.
"Defensible Title" means such right, title and interest that is (a)
evidenced by an instrument or instruments filed of record in accordance with the
conveyance and recording laws of the applicable jurisdiction to the extent
A-3
<PAGE>
necessary to prevail against competing claims of bona fide purchasers for value
without notice, and (b) subject to Permitted Encumbrances, free and clear of all
Liens, claims, infringements, burdens and other defects.
"Disclosure Schedule" means, as applicable, the Company Disclosure
Schedule or the Parent Disclosure Schedule.
"Dissenting Shareholder" means a holder of Company Common Stock who has
validly perfected appraisal rights under Section 1091 of the OGCA.
"Effective Time" has the meaning specified in Section 2.7.
"Environmental Law" means any federal, state, local or foreign statute,
code, ordinance, rule, regulation, policy, guideline, permit, consent, approval,
license, judgment, order, writ, decree, common law, injunction or other
authorization in effect on the date hereof, at the Closing Date, or at a
previous time applicable to the operations of the Company: (a) relating to
emissions, discharges, releases or threatened releases of Hazardous Materials
into the natural environment, including into ambient air, soil, sediments, land
surface or subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land; (b) relating to the
generation, treatment, storage, disposal, use, handling, manufacturing,
recycling, transportation or shipment of Hazardous Materials; (c) relating to
occupational health and safety; or (d) otherwise relating to the pollution of
the environment, solid waste handling treatment or disposal, operation or
reclamation of oil and gas operations or mines, reclamation or remediation
activities, or protection of environmentally sensitive areas.
"Equity Commitments" has the meaning specified in Section 4.6.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" has the meaning specified in Section 2.5(a).
"Exchange Fund" has the meaning specified in Section 2.5(a).
"Financing" has the meaning specified in Section 4.6.
"Financing Commitments" has the meaning specified in Section 4.6.
"Financing Termination Notice" has the meaning specified in Section
5.17.
"GAAP" means generally accepted accounting principles, as recognized by
the U.S. Financial Accounting Standards Board (or any generally recognized
successor).
"Governmental Action" means any authorization, application, approval,
consent, exemption, filing, license, notice, registration, permit or other
requirement of, to or with any Governmental Authority.
"Governmental Authority" means any national, state, county or municipal
government, domestic or foreign, any agency, board, bureau, commission, court,
department or other instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over the Company or the Parent Companies or any
of their respective properties or assets.
"Hazardous Material" means: (a) any "hazardous substance," as defined
by CERCLA; (b) any "hazardous waste" or "solid waste," in either case as defined
by the Resource Conservation and Recovery Act, as amended, and any successor
federal and state statutes and any regulations promulgated thereunder, and any
foreign statutes and regulations modeled thereon; (c) any solid, hazardous,
dangerous or toxic chemical, material, waste or substance, within the meaning of
A-4
<PAGE>
and regulated by any Environmental Law; (d) any radioactive material, including
any naturally occurring radioactive material, and any source, special or
byproduct material as defined in 42 U.S.C. 2011 et seq. and any amendments or
authorizations thereof; (e) any asbestos-containing materials in any form or
condition; (f) any polychlorinated biphenyls in any form or condition; or (g)
petroleum, petroleum hydrocarbons or any fraction or byproducts thereof.
"Hydrocarbons" means oil, condensate, gas, casinghead gas and other
liquid or gaseous hydrocarbons.
"Hydrocarbon Agreement" means any of the Hydrocarbon Sales Agreements
and Hydrocarbon Purchase Agreements.
"Hydrocarbon Purchase Agreement" means any material sales agreement,
purchase contract, or marketing agreement that is currently in effect and under
which the Company is a buyer of Hydrocarbons for resale (other than purchase
agreements entered into in the ordinary course of business with a term of three
months or less, terminable without penalty on 30 days' notice or less, which
provide for a price not greater than the market value price that would be paid
pursuant to an arm's-length contract for the same term with an unaffiliated
third-party seller, and which do not obligate the purchaser to take any
specified quantity of Hydrocarbons or to pay for any deficiencies in quantities
of Hydrocarbons not taken).
"Hydrocarbon Sales Agreement" means any material sales agreement,
purchase contract, or marketing agreement that is currently in effect and under
which the Company is a seller of Hydrocarbons (other than "spot" sales
agreements entered into in the ordinary course of business with a term of three
months or less, terminable without penalty on 30 days' notice or less, and which
provide for a price not less than the market value price that would be received
pursuant to an arm's-length contract for the same term with an unaffiliated
third party purchaser).
"Indemnified Parties" has the meaning specified in Section 5.11(b).
"Lien" means any lien, mortgage, security interest, pledge, deposit,
production payment, restriction, burden, encumbrance, right of purchase, rights
of a vendor under any title retention or conditional sale agreement, or lease or
other arrangement substantially equivalent thereto.
"Material Adverse Effect" means: (a) when used with respect to the
Company, a result or consequence that (i) would reasonably be expected to
materially adversely affect the condition (financial or otherwise), prospects,
results of operations or business of the Company or the aggregate value of its
assets, (ii) would reasonably be expected to materially impair the ability of
the Company to own, hold, develop and operate its assets, or (iii) would
reasonably be expected to impair the Company's ability to perform its
obligations hereunder or consummate the transactions contemplated hereby; and
(b) when used with respect to Parent, a result or consequence that (i) would
reasonably be expected to materially adversely affect the condition (financial
or otherwise), prospects, results of operations or business of the Parent
Companies (taken as a whole) or the aggregate value of their assets, (ii) would
reasonably be expected to materially impair the ability of the Parent Companies
(taken as a whole) to own, hold, develop and operate their assets, or (iii)
would reasonably be expected to impair Parent's or Merger Sub's ability to
perform its respective obligations hereunder or consummate the transactions
contemplated hereby; provided, however, that if the Company's representations
contained in Section 3.27 are true and correct in all respects, then "Material
Adverse Effect" shall not include results or consequences from changes or
trends, including changes or trends in commodity prices, generally prevalent in
or affecting the oil and gas industry.
"Material Representations" means the representations and warranties
contained in Sections 3.8 (the last sentence therein), 3.17(g), 3.27, 3.30,
3.33, 3.37 and 3.38 of this Agreement.
"Merger" has the meaning specified in the Recitals to this Agreement.
"Merger Consideration" means the per share cash consideration to be
issued in connection with the Merger.
A-5
<PAGE>
"Merger Sub" has the meaning specified in the introductory paragraph of
this Agreement.
"Merger Sub Common Stock" means the common stock, par value $.01 per
share, of Merger Sub.
"NASDAQ" means the Nasdaq Small Cap Market.
"OGCA" means the Oklahoma General Corporation Act, as amended.
"Oil and Gas Interest(s)" means: (a) direct and indirect interests in
and rights with respect to oil, gas, mineral and related properties and assets
of any kind and nature, direct or indirect, including, without limitation,
working, royalty and overriding royalty interests, mineral interests, leasehold
interests, production payments, operating rights, net profits interests, other
non-working interests and non-operating interests; (b) interests in and rights
with respect to Hydrocarbons and other minerals or revenues therefrom and
contracts in connection therewith and claims and rights thereto (including oil
and gas leases, operating agreements, unitization and pooling agreements and
orders, division orders, transfer orders, mineral deeds, royalty deeds, oil and
gas sales, exchange and processing contracts and agreements and, in each case,
interests thereunder), surface interests, fee interests, reversionary interests,
reservations and concessions; (c) easements, rights of way, licenses, permits,
leases, and other interests associated with, appurtenant to, or necessary for
the operation of any of the foregoing; and (d) interests in equipment and
machinery (including well equipment and machinery), oil and gas production,
gathering, transmission, compression, treating, processing and storage
facilities (including tanks, tank batteries, pipelines and gathering systems),
pumps, water plants, electric plants, gasoline and gas processing plants,
refineries and other tangible personal property and fixtures associated with,
appurtenant to, or necessary for the operation of any of the foregoing.
"Option Surrender Agreement" has the meaning specified in Section
2.5(f).
"Ownership Interests" means the ownership interests of the Company in
the Oil and Gas Interests of the Company, as set forth in the Company
Engineering Report.
"Parent" has the meaning specified in the introductory paragraph of
this Agreement.
"Parent Affiliate" has the meaning specified in Section 8.12.
"Parent Companies" means Parent and Merger Sub.
"Parent Disclosure Schedule" means the Parent Disclosure Schedule
attached hereto and any documents listed on such Parent Disclosure Schedule and
expressly incorporated therein by reference.
"Parent Representative" means any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors), Affiliate or other
representative of any of the Parent Companies and any potential provider of debt
or equity financing to any of the Parent Companies.
"Parties" has the meaning specified in the Recitals to this Agreement.
"Permitted Encumbrances" means: (a) Liens for Taxes, assessments or
other governmental charges or levies if the same shall not at the particular
time in question be due and delinquent or (if foreclosure, distraint, sale or
other similar proceedings shall not have been commenced or, if commenced, shall
have been stayed) are being contested in good faith by appropriate proceedings
and if the Company shall have set aside on its books such reserves (segregated
to the extent required by sound accounting practices) as may be required by or
consistent with GAAP and, whether reserves are set aside or not, are listed on
the applicable Disclosure Schedule; (b) Liens of carriers, warehousemen,
mechanics, laborers, materialmen, landlords, vendors, workmen and operators
arising by operation of law in the ordinary course of business or by a written
A-6
<PAGE>
agreement existing as of the date hereof and necessary or incident to the
exploration, development, operation and maintenance of Hydrocarbon properties
and related facilities and assets for sums not yet due or being contested in
good faith by appropriate proceedings, if the Company shall have set aside on
its books such reserves (segregated to the extent required by sound accounting
practices) as may be required by or consistent with GAAP and, whether reserves
are set aside or not, are listed on the applicable Disclosure Schedule, to the
extent that such are in existence as of the date hereof; (c) Liens incurred in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation (other than ERISA)
which would not and will not, individually or in the aggregate, result in a
Material Adverse Effect on the Company; (d) Liens incurred in the ordinary
course of business to secure the performance of bids, tenders, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance and
repayment bonds and other obligations of a like nature which would not and will
not, individually or in the aggregate, result in a Material Adverse Effect on
the Company; (e) Liens, easements, rights-of-way, restrictions, servitudes,
permits, conditions, covenants, exceptions, reservations and other similar
encumbrances incurred in the ordinary course of business or existing on property
and not materially impairing the value of the assets of the Company, or
interfering with the ordinary conduct of the business of the Company, or rights
to any of its assets; (f) Liens arising pursuant to Section 9.319 of the Texas
Business and Commerce Code and all other similar Liens created or arising by
operation of law to secure a party's obligations as a purchaser of oil and gas,
(g) all rights to consent by, required notices to, filings with, or other
actions by Governmental Authorities to the extent customarily obtained
subsequent to closing; (h) farm-out, carried working interest, joint operating,
unitization, royalty, overriding royalty, sales and similar agreements relating
to the exploration or development of, or production from, Hydrocarbon properties
entered into in the ordinary course of business and not in violation of Section
5.1, provided the effect thereof of any of such agreements in existence as of
the date hereof on the working and net revenue interest of the Company, has been
properly reflected in its Ownership Interests; (i) any defects, irregularities
or deficiencies in title to easements, rights-of-way or other surface use
agreements that do not materially adversely affect the value of any asset of the
Company by an amount in excess of $100,000; (j) Liens arising under or created
pursuant to the Company Bank Credit Agreement; and (k) Liens described in
Section 3.16(c) of the Company Disclosure Schedule.
"Person" means any natural person, corporation, company, limited or
general partnership, joint stock company, joint venture, association, limited
liability company, trust, bank, trust company, land trust, business trust or
other entity or organization, whether or not a Governmental Authority.
"Proxy Statement" means a proxy statement in definitive form relating
to the Company Meeting and the Company Proposal.
"Reserve Data Value" means the 10% discounted present value (before
tax) of the proved reserves contained in the Company's Oil and Gas Interests as
shown on the Company Engineering Report.
"Responsible Officer" means, with respect to any corporation, the
President, the Chief Executive Officer, the Chief Operating Officer, the Chief
Financial Officer, or any Vice President or other member of executive management
of such corporation.
"Rights Agreement" has the meaning specified in the Recitals to this
Agreement.
"Rights Agreement Amendment" has the meaning specified in the Recitals
to this Agreement.
"Seal Agreement" has the meaning specified in Section 5.19.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Agreements" has the meaning specified in the Recitals to
this Agreement.
A-7
<PAGE>
"Stock Action" has the meaning specified in Section 2.4(b)(ii).
"Stock Voting Agreements" has the meaning specified in the Recitals to
this Agreement.
"Strother Agreements" has the meaning specified in Section 5.20.
"Subsidiary" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which (a) such
Person or any other Subsidiary of such Person is a general partner or (b) 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 is, directly or indirectly, owned or controlled by such Person or
by any one or more of its Subsidiaries, or by such Person and any one or more of
its Subsidiaries.
"Surviving Corporation" has the meaning specified in Section 2.2.
"Tax Returns" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Taxes" means taxes of any kind, levies or other like assessments,
customs, duties, imposts, charges or fees, including income, gross receipts, ad
valorem, value added, excise, real or personal property, asset, sales, use,
federal royalty, license, payroll, transaction, capital, net worth and franchise
taxes, estimated taxes, withholding, employment, social security, workers'
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes and other
governmental taxes imposed or payable to the United States or any state, local
or foreign governmental subdivision or agency thereof, and in each instance such
term shall include any interest, penalties or additions to tax attributable to
any such tax, including penalties for the failure to file any Tax Return or
report.
"Third-Party Consent" means the consent or approval of any Person other
than any Governmental Authority.
"Transaction Documents" has the meaning specified in Section 3.3.
1.2 References and Titles. All references in this Agreement to
Exhibits, Schedules, Articles, Sections, subsections and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections
and other subdivisions of or to this Agreement unless expressly provided
otherwise. Titles appearing at the beginning of any Articles, Sections,
subsections or other subdivisions of this Agreement are for convenience only, do
not constitute any part of this Agreement, and shall be disregarded in
construing the language hereof. The words "this Agreement," "herein," "hereby,"
"hereunder" and "hereof," and words of similar import, refer to this Agreement
as a whole and not to any particular subdivision unless expressly so limited.
The words "this Article," "this Section" and "this subsection," and words of
similar import, refer only to the Article, Section or subsection hereof in which
such words occur. The word "or" is not exclusive, and the word "including" (in
its various forms) means including without limitation. Pronouns in masculine,
feminine or neuter genders shall be construed to state and include any other
gender, and words, terms and titles (including terms defined herein) in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
As used in the representations and warranties contained in this
Agreement, the phrase "to the knowledge" of the representing Party shall mean
that Responsible Officers of such Party, individually or collectively, either
(a) know that the matter being represented and warranted is true and accurate or
(b) have no reason, after reasonable inquiry, to believe that the matter being
represented and warranted is not true and accurate.
A-8
<PAGE>
ARTICLE 2
THE MERGER
2.1 The Merger. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Merger Sub shall be merged with and into the
Company in accordance with the provisions of this Agreement.
2.2 Effect of the Merger. Upon the effectiveness of the Merger, the
separate existence of Merger Sub shall cease, and the Company, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under the laws of the State of Oklahoma. The Merger shall
have the effects specified in this Agreement and the OGCA.
2.3 Governing Instruments, Directors and Officers of the Surviving
Corporation.
(a) The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until duly amended in accordance with
its terms and applicable law.
(b) The bylaws of the Company, as in effect immediately prior to
the Effective Time, shall be the bylaws of the Surviving Corporation until duly
amended in accordance with their terms and applicable law.
(c) The directors and officers of Merger Sub at the Effective Time
shall be the directors and officers, respectively, of the Surviving Corporation
from the Effective Time until their respective successors have been duly elected
or appointed in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation and applicable law.
2.4 Effect on Securities.
(a) Merger Sub Common Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder thereof, each share
of Merger Sub Common Stock issued and outstanding immediately prior to the
Effective Time shall remain issued and outstanding and shall continue as one
share of common stock of the Surviving Corporation and each certificate
evidencing ownership of any such shares shall continue to evidence ownership of
the same number of shares of the capital stock of the Surviving Corporation.
(b) Company Securities.
(i) Company Common Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder thereof, each share
of the Company Common Stock that is issued and outstanding immediately prior to
the Effective Time (other than shares of Company Common Stock held by Dissenting
Shareholders, by the Company as treasury shares or by Parent or Merger Sub)
shall be converted into the right to receive $11.00 per share. Each share of the
Company Common Stock, when so converted, shall automatically be canceled and
retired, shall cease to exist and shall no longer be outstanding; and the holder
of any Company Certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration to be issued in exchange therefor, upon the surrender of such
Company Certificate. All shares of Company Common Stock held by the Company as
treasury shares or by Parent or Merger Sub shall automatically be canceled and
retired and shall cease to exist as of the Effective Time and no consideration
shall be delivered or deliverable in exchange therefor.
(ii) Recapitalization. If between the date of this Agreement
and the Effective Time, the Company shall split, combine or otherwise reclassify
the Company Common Stock, or pay a stock dividend or other stock distribution in
Company Common Stock, or otherwise change the Company Common Stock into other
securities, or make any other such stock dividend or distribution in capital
stock of the Company in respect of the Company Common Stock (collectively a
A-9
<PAGE>
"Stock Action"), the per share Merger Consideration shall be correspondingly
adjusted to reflect such Stock Action.
(iii) Company Stock Options. Prior to the Effective Time, the
Company shall take such action as may be necessary for all Company Options to be
exercisable in full as of immediately prior to the Effective Time. At the
Effective Time, Parent will cause the Surviving Corporation to acquire each
outstanding Company Option pursuant to the provisions of Section 10 of the
Company's 1997 Incentive Stock Plan, as amended, such that, at the Effective
Time, all Company Options held by each particular holder shall be canceled and
such holder shall be entitled to receive from the Surviving Corporation, in
respect of each share of Company Common Stock otherwise issuable upon exercise
of each Company Option, cash (subject to all applicable withholding taxes) in an
amount equal to the difference of (i) the per share Merger Consideration, and
(ii) the per share exercise price of such Company Option. From and after the
Effective Time, each Company Option shall only represent the right to receive
the cash payment provided in this Section 2.4(b)(iii).
(iv) Shares of Dissenting Shareholders. Any issued and
outstanding shares of Company Common Stock held by a Dissenting Shareholder
shall be converted into the right to receive such consideration as may be
determined to be due to such Dissenting Shareholder pursuant to the OGCA;
provided, however, shares of Company Common Stock outstanding at the Effective
Time and held by a Dissenting Shareholder who shall, after the Effective Time,
withdraw his, her or its demand for appraisal or lose his, her or its right of
appraisal as provided in the OGCA, shall be deemed to be converted, as of the
Effective Time, into the right to receive the Merger Consideration, in
accordance with the procedures specified in this Article 2. Prior to the
Effective Time, the Company shall give Parent (A) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to the OGCA relating to appraisal rights received by
the Company, and (B) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the OGCA. Prior to the Effective
Time, the Company will not voluntarily make any payment with respect to any
demands for appraisal and will not, except with the prior written consent of
Parent, settle or offer to settle any such demands.
(v) Other. Except as provided in this Section 2.4 or as
otherwise agreed to by the Parties (A) the provisions of any other plan, program
or arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Company shall become null and void at the
Effective Time, and (B) the Company shall use all reasonable best efforts to
ensure that, following the Effective Time, no holder of Company Stock
Equivalents or rights or any participant in any plan, program or arrangement
shall have any right thereunder to acquire any equity securities of the Company,
Merger Sub, Parent or any direct or indirect subsidiary thereof.
2.5 Exchange of Certificates/Option Agreements/Severance and Bonus
Payments.
(a) Exchange Agent. Prior to the Effective Time, Parent shall
designate a bank or trust company, reasonably acceptable to the Company, to act
as Exchange Agent hereunder (the "Exchange Agent"). At the Effective Time,
Parent shall deliver, in trust, to the Exchange Agent, for the benefit of the
holders of Company Common Stock, for exchange in accordance with this Section
2.5 through the Exchange Agent, cash in the aggregate amount necessary to
promptly make all cash payments due under Section 2.4 in exchange for
outstanding shares of Company Common Stock. The cash delivered to the Exchange
Agent pursuant to this Section 2.5 and comprising the Merger Consideration shall
be hereinafter referred to as the "Exchange Fund." The Exchange Fund shall not
be used for any other purpose; provided, the Exchange Agent shall invest any
cash included in the Exchange Fund in one or more bank accounts or in
high-quality, short-term investments, as directed by Parent, on a daily basis.
Any interest and other income resulting from such investments will be paid to
Parent.
(b) Letters of Transmittal. As soon as practicable after the
Effective Time, but in no event more than three business days thereafter, Parent
shall cause the Exchange Agent to mail to each holder of record of Company
Certificates (i) a customary form of letter of transmittal, reasonably
acceptable to the Company, specifying that delivery shall be effected, and risk
of loss and title to the Company Certificates shall pass, only upon proper
delivery of the Company Certificates to the Exchange Agent, and (ii)
instructions for use in surrendering such Company Certificates in exchange for
A-10
<PAGE>
the Merger Consideration. Upon surrender of a Company Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, the holder of such Company Certificate shall be entitled to
promptly receive in exchange therefor payment by check of an amount equal to the
product of the Merger Consideration multiplied by the number of shares of
Company Common Stock formerly represented by the surrendered Company
Certificate, after giving effect to any required tax withholding, and the
Company Certificate so surrendered shall forthwith be canceled. Until
surrendered as contemplated by this Section 2.5(b), each Company Certificate
shall be deemed from and after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration. In no event shall the
holder of any such surrendered Company Certificate be entitled to receive
interest on any cash to be received in the Merger.
(c) Lost Certificate. If any Company Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Company Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such person of a bond, in such reasonable and
customary amount as Parent may direct, as indemnity against any claim that may
be made against it with respect to such Company Certificate, the Exchange Agent
will promptly issue in exchange for such lost, stolen or destroyed Company
Certificate the Merger Consideration.
(d) No Transfer. After the Effective Time, there shall be no
further registration of transfers on the Surviving Corporation's stock transfer
books of the shares of the Company Common Stock that were outstanding
immediately prior to the Effective Time.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund
held by the Exchange Agent in accordance with the terms of this Section 2.5 that
remains unclaimed by the former shareholders of the Company for a period of one
year following the Effective Time shall be delivered to Parent, upon demand.
Thereafter, any former shareholders of the Company who have not theretofore
complied with the provisions of this Section 2.5 shall look only to Parent for
payment of their claim for Merger Consideration (all without interest).
(f) Option Surrender Agreements. Within 20 days after the date of
this Agreement, the Company shall distribute an option surrender agreement (an
"Option Surrender Agreement"), in the form delivered to the Company immediately
prior to execution of this Agreement, to each holder of a Company Option. After
the Effective Time, Parent shall cause the Surviving Corporation to pay the
amount of cash due to each holder of a Company Option under Section 2.4(b)(iii),
with such payment being made (i) on the Closing Date as to each particular
holder of Company Options who has delivered to the Company an executed Option
Surrender Agreement at least five business days prior to the Closing Date or
(ii) if clause (i) above is not applicable, within three business days after the
date that each particular holder of Company Options has delivered to the Company
an executed Option Surrender Agreement.
(g) Severance and Bonus Payments. At the Effective Time, Parent
shall pay (subject to all applicable withholding taxes and in accordance with
and to the extent then due and payable under the terms of the Separation
Agreements and the Company's Amended and Restated Change in Control Severance
Pay Plan, as such may be applicable) all severance, bonus and other amounts set
forth in Section 3.17(g) of the Company Disclosure Schedule.
(h) No Liability. 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 or Company Options for any amount properly
delivered to any public official pursuant to any applicable abandoned property,
escheat, or similar law. Any amounts remaining unclaimed by former holders of
shares of Company Common Stock or Company Options after a period of three years
following the Effective Time (or such earlier date immediately prior to the time
at which such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of Parent free and clear of any claims or interest of any such
holders or their successors, assigns, or personal representative previously
entitled thereto.
A-11
<PAGE>
2.6 Closing. Subject to the terms and conditions of this Agreement, the
Closing shall take place at the offices of Vinson & Elkins L.L.P., 2001 Ross
Avenue, Suite 3700, Dallas, Texas 75201, at 10:00 a.m., local time, on the first
business day after the conditions set forth in Article 6 have been satisfied or
waived or on such other date and at such other time and place as Parent and the
Company shall agree; provided, however, that the Closing shall occur no earlier
than December 1, 2000; provided further, however, that if the Company breaches
its representation in Section 3.27 hereof, then the Closing shall occur on the
first business day after the conditions set forth in Article 6 have been
satisfied or waived.
2.7 Effective Time of the Merger . The Merger shall become effective
immediately when the Certificate of Merger is accepted for filing by the
Secretary of State of the State of Oklahoma or at such time thereafter as is
provided in the Certificate of Merger (the "Effective Time"). The Certificate of
Merger shall be filed, and the Effective Time shall occur, on the Closing Date;
provided, however, that the Certificate of Merger may be filed prior to the
Closing Date or prior to the Closing so long as it provides for an Effective
Time that occurs on the Closing Date immediately after the Closing.
2.8 Taking of Necessary Action; Further Action. Each of Parent, Merger
Sub, and the Company shall use all reasonable efforts to take all such actions
as may be necessary or appropriate in order to effectuate the Merger under the
OGCA as promptly as commercially practicable. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of both Merger Sub and the Company, the officers and directors of
the Surviving Corporation are fully authorized, in the name of the Surviving
Corporation or otherwise to take, and shall take, all such lawful and necessary
action.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows (such representations and warranties being deemed to be made on a
continuous basis until the Effective Time):
3.1 Organization. The Company: (a) is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation or formation; (b) has the requisite power and authority to own,
lease and operate its properties and to conduct its business as it is presently
being conducted; and (c) is duly qualified to do business as a foreign
corporation and is in good standing, in each jurisdiction where the character of
the properties owned or leased by it or the nature of its activities makes such
qualification necessary (except where any failure to be so qualified as a
foreign corporation or to be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on the Company). Accurate and complete
copies of the certificate or articles of incorporation, bylaws, minute books
and/or other organizational documents of the Company have heretofore been
delivered, or in the case of minute books, been made available, to Parent. The
Company has no Subsidiaries.
3.2 Other Equity Interests. The Company does not own any equity
interest in any general or limited partnership, corporation, limited liability
company or other entity other than as set forth in Section 3.2 of the Company
Disclosure Schedule (other than joint venture, joint operating, other ownership
arrangements and tax partnerships entered into in the ordinary course of
business that, individually or in the aggregate, are not material to the
operations or business of the Company). The Company has terminated and dissolved
H-S Royalty, Ltd., of which it served as general partner, in accordance with the
terms of the partnership agreement of H-S Royalty, Ltd. and applicable law.
3.3 Authority and Enforceability. The Company has the requisite
corporate power and authority to enter into and deliver this Agreement and the
other agreements and documents entered into by the Company in connection with
this Agreement, including without limitation the Stock Voting Agreements, the
A-12
<PAGE>
Separation Agreements and the Rights Agreement Amendment (collectively with this
Agreement, the "Transaction Documents") and (with respect to consummation of the
transactions included in the Company Proposal, subject to the valid approval of
the Company Proposal by the shareholders of the Company) to consummate the
transactions contemplated hereby and thereby. The execution and delivery of the
Transaction Documents and (with respect to consummation of the transactions
included in the Company Proposal, subject to the valid approval of the Company
Proposal by the shareholders of the Company) the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Company,
including approval by the board of directors of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize the
execution or delivery of the Transaction Documents or (with respect to
consummation of the transactions included in the Company Proposal, subject to
the valid approval of the Company Proposal by the shareholders of Company) to
consummate the transactions contemplated hereby and thereby. The Transaction
Documents have been duly and validly executed and delivered by the Company and
(with respect to consummation of the transactions included in the Company
Proposal, subject to the valid approval of the Company Proposal by the
shareholders of Company, and assuming that the Transaction Documents constitute
valid and binding obligations of Parent, Merger Sub and the other Persons party
to the Transaction Documents (other than the Company)) constitute valid and
binding obligations of the Company, enforceable against it in accordance with
their terms.
3.4 No Violations. The execution and delivery of each Transaction
Document does not, and the consummation of the transactions contemplated hereby
and thereby and compliance by the Company with the provisions hereof or thereof
will not, conflict with, result in any violation of or default (with or without
notice or lapse of time or both) under, give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation of any Lien on any of the properties or
assets of the Company under, any provision of: (a) the certificate of
incorporation, bylaws or any other organizational documents of the Company; (b)
any Company Material Agreement including any loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or
other agreement or instrument applicable to the Company; or (c) assuming the
consents, approvals, authorizations, permits, filings and notifications referred
to in Section 3.5 are duly and timely obtained or made, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
any of its properties or assets, other than, in the case of clause (b) or (c)
above, any such conflict, violation, default, right, loss or Lien that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. Neither the provisions of Article Eleven of the Company's Restated
and Amended Certificate of Incorporation nor Sections 1145 through 1155 of the
OGCA are applicable to the transactions contemplated by the Transaction
Documents.
3.5 Consents and Approvals. No consent, approval, order or
authorization of, registration, declaration or filing with, or permit from, any
Governmental Authority is required by or with respect to the Company in
connection with the execution and delivery of the Transaction Documents by the
Company or the consummation by the Company of the transactions contemplated
hereby and thereby, except for the following: (a) any such consent, approval,
order, authorization, registration, declaration, filing or permit which the
failure to obtain or make would not, individually or in the aggregate, have a
Material Adverse Effect on the Company; (b) the filing of the Certificate of
Merger with the Secretary of State of the State of Oklahoma pursuant to the
provisions of the OGCA; (c) the filing with the SEC of the Proxy Statement (in
preliminary and definitive form) and such reports under Section 13(a) of the
Exchange Act and such other compliance with the Exchange Act and the Securities
Act and the rules and regulations of the SEC thereunder as may be required in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby and the obtaining from the SEC of such orders as may be so
required; (d) such filings as may be required by NASDAQ; and (e) such filings
and approvals as may be required by any applicable state takeover laws or
Environmental Laws. No Third-Party Consent is required by or with respect to the
Company in connection with the execution and delivery of the Transaction
Documents or the consummation of the transactions contemplated hereby or
thereby, except for (x) any such Third-Party Consent which the failure to obtain
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company and (y) the valid approval of the Company Proposal by the
shareholders of the Company.
A-13
<PAGE>
3.6 SEC Documents. The Company has made available to Parent a true and
complete copy of each report, schedule, registration statement, and definitive
proxy statement filed by the Company with the SEC since December 31, 1996 and
prior to or on the date of this Agreement (the "Company SEC Documents"), which
are all the documents (other than preliminary material) that the Company was
required to file with the SEC between December 31, 1996 and the date of this
Agreement. As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The financial statements of the Company included in the Company SEC
Documents (the "Company Financial Statements") complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Rule 10-01
of Regulation S-X of the SEC) and fairly present in accordance with applicable
requirements of GAAP (subject, in the case of the unaudited statements, to
normal, recurring adjustments, none of which are material) the consolidated
financial position of the Company as of their respective dates and the
consolidated results of operations and the consolidated cash flows of the
Company for the periods presented therein. Section 3.6 of the Company Disclosure
Schedule describes all agreements, arrangements, or understandings between the
Company and any party who is (any time after December 31, 1996) an Affiliate of
the Company that are required to be disclosed in the Company SEC Documents.
3.7 Capital Structure.
(a) The authorized capital stock of the Company consists of
12,000,000 shares of Company Common Stock and 2,000,000 shares of Company
Preferred Stock.
(b) As of the date hereof, (i) there are issued and outstanding
4,353,827 shares of Company Common Stock and (ii) 243,536 shares of Company
Common Stock are held by the Company as treasury stock. As of the date hereof,
371,736 shares of Company Common Stock are issuable upon exercise of outstanding
Company Options (whether or not currently exercisable). As of the date hereof,
there are no shares of Company Preferred Stock issued and outstanding. As of the
date hereof, 4,353,827 rights are issued and outstanding under the Rights
Agreement.
(c) Except as set forth in Section 3.7(b), there are outstanding
(i) no shares of capital stock or other voting securities of the Company, (ii)
no securities of the Company or any other Person convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities of the Company, and (iii) no Company Stock Equivalents or other
options issued or outstanding or any other subscriptions, options, warrants,
calls, rights (including preemptive rights), commitments, understandings or
agreements to which the Company is a party or by which it is bound obligating
the Company to issue, deliver, sell, purchase, redeem or acquire shares of
capital stock or other voting securities of the Company (or securities
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities of the Company) or obligating the Company to grant,
extend or enter into any such subscription, option, warrant, call, right,
commitment, understanding or agreement.
(d) Other than the Stock Voting Agreements, there are not any
shareholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or by which it is bound relating to the voting of
any shares of the capital stock of the Company that will limit in any way the
solicitation of proxies by or on behalf of the Company, or the casting of votes
by the shareholders of the Company with respect to the Merger. Other than the
Stock Voting Agreements, there are no agreements or understandings to which the
Company is a party or by which it is bound relating to registration rights or
transfer of securities of the Company. The exercise price or conversion price of
each of the outstanding Company Options, the holder thereof and when each
Company Option became or will become exercisable is set forth in Section 3.7(b)
of the Company Disclosure Schedule.
A-14
<PAGE>
3.8 No Undisclosed Liabilities. There are no liabilities of the Company
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, that would, individually or in the aggregate, have a
Material Adverse Effect on the Company, other than (a) liabilities adequately
provided for in the Company Financial Statements, (b) liabilities incurred in
the ordinary course of business subsequent to December 31, 1999, (c) liabilities
under this Agreement, and (d) liabilities set forth in Section 3.8 of the
Company Disclosure Schedule. As of the date hereof, the Company has no
indebtedness for borrowed money.
3.9 Indemnification. Except as set forth in Section 3.9 of the Company
Disclosure Schedule, the Company does not have any presently effective
indemnification obligation (whether or not a claim has been asserted thereunder)
to any Person other than its present or former directors, officers, employees or
agents as provided in the organizational documents of the Company, as permitted
by the OGCA, and pursuant to indemnification agreements with any of the
Company's employees, officers and directors.
3.10 Absence of Certain Changes or Events. Except as otherwise set
forth in Section 3.10 of the Company Disclosure Schedule or as specifically
contemplated by the Transaction Documents, since December 31, 1999, the Company
has not done any of the following:
(a) Discharged or satisfied any Lien or paid any obligation or
liability, absolute or contingent, other than current liabilities incurred and
paid in the ordinary course of business and consistent with past practices;
(b) Paid, declared or set aside any dividends or distributions
(whether payable in cash, property or securities), purchased, cancelled,
redeemed, acquired or retired any indebtedness, stock or other securities from
its shareholders or other securityholders, made any loans, advances or capital
contributions or guaranteed any loans or advances to, or investments in, any
Person (other than loans, advances or guaranties made in the ordinary course of
business and consistent with past practices), or otherwise incurred or suffered
to exist any liabilities (other than current liabilities incurred in the
ordinary course of business and consistent with past practices);
(c) Except for Permitted Encumbrances, suffered or permitted any
Lien to arise or be granted or created against or upon any of its assets;
(d) Canceled, waived or released any rights or claims against,
or indebtedness owed by, third parties;
(e) Amended its certificate or articles of incorporation, bylaws
or other organizational documents;
(f) Made or permitted any amendment, supplement, modification or
termination of, or any acceleration under, any Company Material Agreement;
(g) Sold, leased, transferred, assigned, farmed out or otherwise
disposed of or mortgaged, pledged or otherwise encumbered (i) any Oil and Gas
Interests of the Company that, individually or in the aggregate, were assigned a
value in the Reserve Data Value of $25,000 or more, (ii) any mineral interests
or undeveloped leasehold interests or any other Oil and Gas Interests not
reflected in the Company Engineering Report, or (iii) any other assets that,
individually or in the aggregate, had a value at the time of such lease,
transfer, assignment or disposition of $25,000 or more (and, in each case where
a sale, lease, transfer, assignment or other disposition was made, it was made
for fair consideration in the ordinary course of business); provided, however,
that this Section 3.10(g) shall not apply to the sale of Hydrocarbons in the
ordinary course of business and the execution of oil and gas leases with respect
to mineral interests in the ordinary course of business;
(h) Made any investment in or contribution, payment, advance or
loan to any Person (other than investments, contributions, payments or advances,
or commitments with respect thereto, less than $10,000 in the aggregate, made in
the ordinary course of business and consistent with past practices);
A-15
<PAGE>
(i) Paid, loaned or advanced (other than the payment,
advancement or reimbursement of expenses in the ordinary course of business) any
amounts to, or sold, transferred or leased any of its assets to, or entered into
any other transaction with, any of its Affiliates;
(j) Made any material change in any of the accounting principles
followed by it or the method of applying such principles;
(k) Entered into any material transaction (other than the
Transaction Documents) except in the ordinary course of business and consistent
with past practices;
(l) Increased benefits or benefit plan costs or changed bonus,
insurance, pension, severance, compensation or any other benefit plan or
arrangement or granted or entered into any agreement providing for any
severance, termination or retention plan or agreement or any bonus or increase
in wages, salary or other compensation or made any other change in employment
terms to any officer, director or employee of the Company;
(m) Issued any note or other debt security or created, incurred,
assumed or guaranteed any indebtedness for borrowed money or capitalized lease
obligation involving more than $10,000 in the aggregate (other than pursuant to
the Company Bank Credit Agreement);
(n) Delayed or postponed the payment of accounts payable or
other liabilities (except in the ordinary course of business);
(o) Canceled, compromised, waived or released any right or claim
(or series of related rights and claims) involving more than $100,000;
(p) Issued, sold, or otherwise disposed of any of its capital
stock or other equity interest or granted any option, warrant, or other right to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock or other equity interest;
(q) Made any loan to, or entered into any other transaction
with, any of its directors, officers or employees;
(r) Made or pledged to make any charitable or other capital
contribution;
(s) Made or committed to make any single (or series of related)
capital expenditure in excess of $100,000;
(t) Made any change in any material Tax election or the manner
Taxes are reported;
(u) Entered into any swap, hedging or similar arrangement which
remains open;
(v) Accelerated the vesting period of any outstanding option or
warrant;
(w) Otherwise been involved in any other material occurrence,
event, incident, action, failure to act, or transaction involving the Company
(except in the ordinary course of business);
(x) Agreed, whether in writing or otherwise, to do any of the
foregoing;
(y) Suffered any material damage, destruction, or loss, whether
or not covered by insurance, affecting its assets or prospects;
(z) Suffered any material labor trouble or any material
controversies with any of its employees or collective bargaining association
representing any of its employees;
A-16
<PAGE>
(aa) Taken any of the actions referred to in Sections
5.1(a)(ii), 5.1(b)(ix), 5.1(c)(v) and 5.1(e) except as would have been permitted
or required thereby had such Sections been applicable at the time of such
action; or
(bb) Suffered any Material Adverse Effect.
3.11 Compliance with Laws, Material Agreements and Permits. The Company
is not in violation of, or in default in any material respect under, and no
event has occurred that (with notice or the lapse of time or both) would
constitute a violation of or default under (a) its certificate or articles of
incorporation, bylaws or other organizational documents, (b) any applicable law,
rule, regulation, ordinance, order, writ, decree or judgment of any Governmental
Authority, or (c) any Company Material Agreement, except (in the case of clause
(b) or (c) above) for any violation or default that would not, individually or
in the aggregate, have a Material Adverse Effect on the Company. The Company has
obtained and holds all permits, licenses, variances, exemptions, orders,
franchises, approvals and authorizations of all Governmental Authorities
necessary for the lawful conduct of its business and the lawful ownership, use
and operation of its assets ("Company Permits"), except for Company Permits
which the failure to obtain or hold would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. None of the Company Permits will
be adversely affected by the consummation of the transactions contemplated under
any of the Transaction Documents or requires any filing or consent in connection
therewith. The Company is in compliance with the terms of its Company Permits,
except where the failure to comply would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. No investigation or review by any
Governmental Authority with respect to the Company is pending or, to the
knowledge of the Company, threatened, other than those the outcome of which
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. To the knowledge of the Company, no other party to any Company
Material Agreement is in material breach of the terms, provisions or conditions
of such Company Material Agreement.
3.12 Governmental Regulation. The Company is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940 or any state public
utilities laws.
3.13 Litigation. Except as set forth in Section 3.13 of the Company
Disclosure Schedule: (a) no litigation, arbitration, investigation or other
proceeding of any Governmental Authority is pending or, to the knowledge of the
Company, threatened against the Company or its assets which, if adversely
determined, would, individually or in the aggregate, have a Material Adverse
Effect on the Company; (b) the Company is not subject to any outstanding
injunction, judgment, order, decree, settlement agreement, conciliation
agreement, letter of commitment, deficiency letter or ruling (other than routine
oil and gas field regulatory orders); and (c) the Company is not subject to any
settlement agreement, conciliation agreement, letter of commitment, deficiency
letter or consent decree with any present or former employee of the Company or
applicant for employment with the Company, labor union or other employee
representative, or any Governmental Authority relating to claims of unfair labor
practices, employment discrimination, or other claims with respect to employment
and labor practices and policies, and no Governmental Authority has issued a
judgment, order, decree, injunction, decision, award or finding with respect to
the employment and labor practices or policies of the Company which has any
present material effect (or could have any future material effect) on the
Company or the employment and labor practices and policies of the Company. There
is no litigation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company that questions the
validity or enforceability of this Agreement or any other document, instrument
or agreement to be executed and delivered by the Company in connection with the
transactions contemplated hereby. Section 3.13 of the Company Disclosure
Schedule contains an accurate and complete list of all suits, actions and
proceedings pending or, to the knowledge of the Company, threatened against or
affecting the Company as of the date hereof.
3.14 No Restrictions. Except as set forth in Section 3.14 of the
Company Disclosure Schedule, the Company is not a party to: (a) any agreement,
indenture or other instrument that contains restrictions with respect to the
payment of dividends or other distributions with respect to its capital; (b) any
financial arrangement with respect to or creating any indebtedness to any
Person; (c) any agreement, contract or commitment relating to the making of any
A-17
<PAGE>
advance to, or investment in, any Person (other than advances in the ordinary
course of business); (d) any guaranty or other contingent liability with respect
to any indebtedness or obligation of any Person (other than (i) guaranties
pursuant to the Company Bank Credit Agreement, (ii) guaranties undertaken in the
ordinary course of business, and (iii) the endorsement of negotiable instruments
for collection in the ordinary course of business); (e) any management, service,
consulting, or other contract of a similar nature that cannot be terminated by
the Company, upon written notice of 30 days or less and without penalty or other
obligation; or (f) any agreement, contract or commitment limiting in any respect
its ability to compete with any Person or otherwise conduct business of any line
or nature.
3.15 Audits and Settlements. Except as set forth in Section 3.15 of the
Company Disclosure Schedule, the Company is not a party or subject to any (a)
unresolved or incomplete Tax audit or settlement or (b) other audit conducted by
any other Person pursuant to a contractual or legal right.
3.16 Taxes.
(a) The Company and any affiliated, combined or unitary group of
which the Company is or was a member has: (i) timely filed all Tax Returns
required to be filed by it with respect to any Taxes, which Tax Returns are
true, correct and complete in all material respects; (ii) timely paid all Taxes
that are due and payable (except for Taxes that are being contested in good
faith by appropriate proceedings and for which sufficient reserves have been
established) for which the Company may be liable; (iii) complied with all
applicable laws, rules and regulations relating to the reporting, payment and
withholding of Taxes; and (iv) timely withheld from employee wages and paid over
to the proper governmental authorities all amounts required to be so withheld
and paid over.
(b) Except as set forth in Section 3.16(b) of the Company
Disclosure Schedule: (i) no audits or other administrative or court proceedings
are presently pending or, to the knowledge of the Company, threatened, with
regard to any federal, state or local Taxes for which the Company would be
liable; and (ii) there are no pending requests for rulings from any taxing
authority, no outstanding subpoenas or requests for information by any taxing
authority with respect to any Taxes, no proposed reassessments by any taxing
authority of any property owned or leased, and no agreements in effect to extend
the time to file any Tax Return or the period of limitations for the assessment
or collection of any Taxes for which the Company would be liable.
(c) Except as set forth in Section 3.16(c) of the Company
Disclosure Schedule: (i) there are no Liens on any of the assets of the Company
for unpaid Taxes, other than inchoate Liens for Taxes not yet due and payable;
(ii) the Company has no liability under Treasury Regulation ss.1.1502-6 or any
analogous state, local or foreign law by reason of having been a member of any
consolidated, combined or unitary group; (iii) the Company has never been
included in an affiliated group of corporations within the meaning of Section
1504 of the Code; and (iv) the Company neither is nor has been a party to any
Tax sharing or allocation agreement between related corporations.
(d) The total amounts reflected as liabilities for current and
deferred Taxes in the Company Financial Statements are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are, or are
hereafter found to be, or to have been, due by or with respect to the Company up
to and through the periods ending on the dates thereof.
(e) The Company has made available to Parent complete copies of
all Tax Returns filed by the Company with respect to any Taxes and all Tax audit
reports, work papers, statements of deficiencies, and closing or other
agreements with respect thereto with respect to Tax years 1997, 1998 and 1999.
(f) Except as set forth in Section 3.16(f) of the Company
Disclosure Schedule: (i) the Company is not required to treat any of its assets
as owned by another person for federal income tax purposes or as tax-exempt bond
financed property or tax-exempt use property within the meaning of Section 168
of the Code; (ii) the Company has not entered into any compensatory agreement
which under certain circumstances could result in a limited deductible expense
or a nondeductible expense pursuant to Section 280G or Section 162(m) of the
A-18
<PAGE>
Code; (iii) no election has been made under Section 338 of the Code and no
events have occurred which would result in a deemed election under Section 338
of the Code with respect to the Company; (iv) no election has been made under
Section 341(f) of the Code with respect to the Company; (v) the Company has not
participated in any international boycott as defined in Code Section 999; (vi)
there are no outstanding balances of deferred gain or loss accounts with respect
to the Company under Treas. Reg. ss.ss. 1.1502-13 or 1.1502-13T; (vii) the
Company has not made nor will it make any election under Treas. Reg.
ss.1.502-20(g)(1) with respect to the reattribution of net operating losses;
(viii) the Company is not subject to any arrangement treated as a partnership
subject to the provisions of subchapter K of the Code; and (ix) the Company has
never conducted branch operations in any foreign country within the meaning of
Treas. Reg. ss.1.367(a)-6T.
(g) The books and records of the Company contain accurate and
complete information with respect to: (i) all material Tax elections in effect
with respect to the Company; (ii) the current Tax basis of the assets of the
Company; (iii) any excess loss accounts of the Company; (iv) the current and
accumulated earnings and profits of the Company; (v) the net operating losses
and net capital losses of the Company, the years that such net operating and net
capital losses expire, and any restrictions to which such net operating and net
capital losses are subject under any provision of the Code or consolidated
return regulations; (vi) Tax credit carryovers of the Company; and (vii) any
overall foreign losses to the Company under Section 904(f) of the Code.
(h) No shareholder of the Company that is a foreign corporation
or a nonresident alien individual has owned as much as five percent of the
outstanding stock of the Company at any time during the five-year period ending
on the date hereof.
3.17 Employee Benefit Plans.
(a) Section 3.17(a) of the Company Disclosure Schedule sets
forth a complete and accurate list of each of the following (whether oral or in
writing) which is or has been sponsored, maintained or contributed to since
January 1, 1994, by the Company or any trade or business, whether or not
incorporated (a "Company ERISA Affiliate"), that together with the Company would
be considered affiliated with the Company or any Company ERISA Affiliate under
Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA for
the benefit of any person who, as of the Closing, is a current or former
employee or subcontractor of the Company: (i) each "employee benefit plan," as
such term is defined in Section 3(3) of ERISA (each, a "Company Plan"); and (ii)
each personnel policy, stock option plan, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy, program
or agreement, deferred compensation agreement or arrangement, executive
compensation or supplemental income arrangement, retiree benefit plan or
arrangement, fringe benefit program or practice (whether or not taxable),
employee loan, consulting agreement, employment agreement, severance agreement
and each other employee benefit plan, agreement, arrangement, program, practice
or understanding which is not described in Section 3.17(a)(i) (each, a "Company
Benefit Program or Agreement") (such Company Plans and Company Benefit Programs
or Agreements are sometimes collectively referred to in this Agreement as the
"Company Employee Benefit Plans").
(b) True, correct and complete copies of each of the Company
Plans and related trusts, if applicable, including all amendments thereto, have
been furnished or made available to Parent. There has also been furnished or
made available to Parent, with respect to each Company Plan required to file
such report and description, the report on Form 5500 for the past three years,
to the extent applicable, and the most recent summary plan description. True,
correct and complete copies or descriptions of all Company Benefit Programs or
Agreements have also been furnished or made available to Parent.
(c) Except as otherwise set forth in Section 3.17(c) of the
Company Disclosure Schedule: (i) neither the Company nor any Company ERISA
Affiliate contributes to or has an obligation to contribute to, nor has at any
time since January 1, 1994, contributed to or had an obligation to contribute
to, a multiemployer plan within the meaning of Section 3(37) of ERISA or any
other plan subject to Title IV of ERISA; (ii) each of the Company and the
Company ERISA Affiliates has performed all obligations, whether arising by
operation of law or by contract, including ERISA and the Code, required to be
performed by it in connection with the Company Employee Benefit Plans, and, to
A-19
<PAGE>
the knowledge of the Company, there have been no defaults or violations by any
other party to the Company Employee Benefit Plans; (iii) all reports, returns,
notices, disclosures and other documents relating to the Company Plans required
to be filed with or furnished to governmental entities, plan participants or
plan beneficiaries have been timely filed or furnished in accordance with
applicable law, and each Company Employee Benefit Plan has been administered in
compliance with its governing written documents; (iv) each of the Company Plans
intended to be qualified under Section 401 of the Code satisfies the
requirements of such Section and has received a favorable determination letter
from the IRS regarding such qualified status and has not been amended, operated
or administered in a way which would adversely affect such qualified status; (v)
there are no actions, suits or claims pending (other than routine claims for
benefits) or, to the knowledge of the Company, contemplated or threatened
against, or with respect to, any of the Company Employee Benefit Plans or their
assets; (vi) each trust maintained in connection with each Company Plan, which
is qualified under Section 401 of the Code, is tax exempt under Section 501 of
the Code; (vii) all contributions required to be made to the Company Employee
Benefit Plans have been made timely; (viii) no accumulated funding deficiency,
whether or not waived, within the meaning of Section 302 of ERISA or Section 412
of the Code has been incurred, and there has been no termination or partial
termination of any Company Plan within the meaning of Section 411(d)(3) of the
Code; (ix) no act, omission or transaction has occurred which could result in
imposition on the Company or any Company ERISA Affiliate of (A) breach of
fiduciary duty liability damages under Section 409 of ERISA, (B) a civil penalty
assessed pursuant to subsections (c), (i) or (1) of Section 502 of ERISA or (C)
a tax imposed pursuant to Chapter 43 of Subtitle D of the Code; (x) to the
knowledge of the Company, there is no matter pending with respect to any of the
Company Plans before the IRS, the Department of Labor or the PBGC; (xi) each of
the Company Employee Benefit Plans complies, in form and operation, with the
applicable provisions of the Code and ERISA; (xii) each Company Employee Benefit
Plan may be unilaterally amended or terminated in its entirety without any
liability or other obligation; (xiii) the Company and the Company ERISA
Affiliates have no liabilities or other obligations, whether actual or
contingent, under any Company Employee Benefit Plan for post-employment benefits
of any nature (other than COBRA continuation coverage and severance benefits
under the Company's Amended and Restated Change in Control Severance Pay Plan);
and (xiv) neither the Company nor any of the Company ERISA Affiliates or any
present or former director, officer, employee or other agent of the Company or
any of the Company ERISA Affiliates has made any written or oral representations
or promises to any present or former director, officer, employee or other agent
concerning his or her terms, conditions or benefits of employment, including the
tenure of any such employment or the conditions under which such employment may
be terminated by the Company, any of the Company ERISA Affiliates which will be
binding upon or enforceable against Parent or the Surviving Corporation after
the Effective Time.
(d) Except as otherwise set forth in Section 3.17(d) of the
Company Disclosure Schedule, no employee is currently on a leave of absence due
to sickness or disability and no claim is pending or expected to be made by an
employee, former employee or independent contractor for workers' compensation
benefits.
(e) Except as set forth in Section 3.17(e) of the Company
Disclosure Schedule: (i) with respect to the Company Employee Benefit Plans,
there exists no condition or set of circumstances that would, individually or in
the aggregate, have a Material Adverse Effect on the Company, and (ii) with
respect to the Company Employee Benefit Plans, individually and in the
aggregate, there are no unfunded benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
GAAP, on the financial statements of the Company, which obligations would,
individually or in the aggregate, have a Material Adverse Effect on the Company.
(f) Except as set forth in Section 3.17(f) of the Company
Disclosure Schedule, neither the execution or delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in any payment
becoming due to any employee or group of employees of the Company.
(g) Except as set forth in Section 3.17(g) of the Company
Disclosure Schedule, there will be no payments due to any employee of the
Company (i) by virtue of the termination of such employment relationship without
cause immediately after the Effective Time or (ii) that become due as a result
of the occurrence of the Effective Time, whether severance, bonus, accrued
vacation or tax indemnification obligations, excluding accrued salary through
A-20
<PAGE>
the date of such termination. Section 3.17(g) of the Company Disclosure Schedule
sets forth the name of each employee of the Company to whom such payments may
become due and separately sets forth for each employee the amounts of severance,
bonus, accrued vacation, tax indemnification obligation and any other similar
payments that may become due to each such employee.
(h) Except as set forth in Section 3.17(h) of the Company
Disclosure Schedule, no employee of the Company or any other Person owns, or has
any right granted by the Company to acquire, any interest in any of the assets
or business of the Company.
3.18 Company Material Agreements. Except as set forth in Section 3.18
of the Company Disclosure Schedule, there are no Company Material Agreements.
3.19 Labor and Employment Matters.
(a) No employees of the Company are represented by any labor
organization. No labor organization or group of employees of the Company has, at
any time, made a demand for recognition or certification as the exclusive
bargaining representative of any of the employees of the Company, and there are
no representation or certification proceedings or petitions seeking such
representation or certification proceeding presently pending or threatened in
writing to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. There are no organizing activities
involving employees of the Company.
(b) The Company is in material compliance with all laws, rules,
regulations and orders relating to labor and employment, including without
limitation all such laws, rules, regulations and orders relating to wages and
other compensation, employee benefits, hours of work, collective bargaining,
discrimination, civil rights, affirmative action, safety and health, workers'
compensation, plant closing and mass layoff, unemployment, disability,
whistleblowing, and the collection and payment of income Tax withholding, Social
Security Taxes, Medicare Taxes and similar Taxes, except where the failure to
comply would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
(c) The Company does not have, and has not had since December
31, 1999, any charges, complaints or proceedings before the Equal Employment
Opportunity Commission, Department of Labor or any other Governmental Authority
responsible for regulating labor or employment practices, pending or, to the
Company's knowledge, threatened against the Company.
3.20 Accounts Receivable. Except as set forth in Section 3.20 of the
Company Disclosure Schedule: (a) all of the accounts, notes and loans receivable
that have been recorded on the books of the Company are bona fide and represent
accounts, notes and loans receivable validly due for goods sold or services
rendered and are reasonably expected to be collected in full within 90 days
after the applicable invoice or note maturity date (other than such accounts,
notes and loans receivable that, individually or in the aggregate, do not have a
book value as of the date hereof in excess of $10,000); (b) except for Permitted
Encumbrances, all of such accounts, notes and loans receivable are free and
clear of any and all Liens and other adverse claims and charges, and none of
such accounts, notes or loans receivable is subject to any offset or claim of
offset; and (c) none of the obligors on such accounts, notes or loans receivable
has given notice to the Company that it will or may refuse to pay the full
amount or any portion thereof.
3.21 Insurance. Set forth in Section 3.21(i) of the Company Disclosure
Schedule is an accurate listing of the Company's insurance schedule of
directors' and officers' liability insurance, primary and excess casualty
insurance policies providing coverage for bodily injury and property damage to
third parties, including any products liability and completed operations
coverage, and workers compensation, in effect as of the date hereof. The Company
maintains insurance with reputable insurers (or pursuant to prudent
self-insurance programs) in such amounts and covering such risks as are in
accordance with normal industry practice for companies engaged in businesses
similar to that of the Company and owning properties in the same general area in
which the Company conducts its business. The Company may terminate each of its
insurance policies or binders at or after the Closing and will incur no
A-21
<PAGE>
penalties or other material costs in doing so. None of such insurance coverage
was obtained through the use of false or misleading information or the failure
to provide the insurer with all information requested in order to evaluate the
liabilities and risks insured. There is no material default with respect to any
provision contained in any such policy or binder, and the Company has not failed
to give any notice or present any claim under any such policy or binder in due
and timely fashion. There are no billed but unpaid premiums past due under any
such policy or binder. Except as set forth in Section 3.21(ii) of the Company
Disclosure Schedule: (a) there are no outstanding claims under any such policies
or binders and, to the knowledge of the Company, there has not occurred any
event that might reasonably form the basis of any claim against or relating to
the Company that is not covered by any of such policies or binders; (b) no
notice of cancellation or non-renewal of any such policies or binders has been
received; and (c) there are no performance bonds outstanding with respect to the
Company.
3.22 Intangible Property. There are no material trademarks, trade
names, patents, service marks, brand names, computer programs, databases,
industrial designs, copyrights or other intangible property that are necessary
for the operation, or continued operation, of the business of the Company, or
for the ownership and operation, or continued ownership and operation, of any of
its assets, for which the Company does not hold valid and continuing authority
in connection with the use thereof.
3.23 Title to Assets. The Company has Defensible Title to all of its
Oil and Gas Interests. Each Oil and Gas Interest included or reflected in the
Ownership Interests entitles the Company to receive not less than the undivided
interest set forth in (or derived from) the Ownership Interests of all
Hydrocarbons produced, saved and sold from or attributable to such Oil and Gas
Interest, and the portion of the costs and expenses of operation and development
of such Oil and Gas Interest that is borne or to be borne by the Company is not
greater than the undivided interest set forth in (or derived from) the Ownership
Interests. Except for Permitted Encumbrances, the Company has good, marketable,
and defensible title to its assets (other than the Oil and Gas Interests of the
Company). All leases pursuant to which the Company leases any assets are in full
force and effect, and the Company has not received any notice of default under
any such lease.
3.24 Company Engineering Report. All information supplied to Parent by
or on behalf of the Company that was material to Parent's evaluation of the
Company's Oil and Gas Interests in connection with the preparation of the
Company Engineering Report was (at the time supplied or as modified or amended
prior to the issuance of the Company Engineering Report) true and correct in all
material respects. Except for changes in classification or values of oil and gas
reserve or property interests that occurred in the ordinary course of business
since December 31, 1999 and except for changes (including changes in commodity
prices) generally affecting the oil and gas industry, there has been no material
adverse change with respect to the matters addressed in the Company Engineering
Report.
3.25 Oil and Gas Operations. Except as set forth in Section 3.25 of the
Company Disclosure Schedule, to the knowledge of the Company, as to wells not
operated by the Company, and without qualification as to knowledge, as to wells
operated by the Company:
(a) Except as reflected in Section 3.25 of the Company
Disclosure Schedule, as of the respective dates reflected thereon, (i) none of
the wells included in the Oil and Gas Interests of the Company has been
overproduced such that it is subject or liable to being shut-in or to any
overproduction penalty, (ii) the Company has not received any deficiency payment
under any gas contract for which any Person has a right to take deficiency gas
from the Company, and (iii) the Company has not received any payment for
production which is subject to refund or recoupment out of future production;
(b) There have been no changes proposed in the production
allowables for any wells included in the Oil and Gas Interests of the Company
that could reasonably be expected to have a Material Adverse Effect on the
Company;
(c) All wells included in the Oil and Gas Interests of the
Company have been drilled and (if completed) completed, operated, and produced
in accordance with good oil and gas field practices and in compliance in all
A-22
<PAGE>
material respects with applicable oil and gas leases and applicable laws, rules,
and regulations, except where any failure or violation could not reasonably be
expected to have a Material Adverse Effect on the Company;
(d) The Company has neither agreed to nor is it now obligated to
abandon any well operated by it and included in the Oil and Gas Interests of the
Company that is or will not be abandoned and reclaimed in accordance with
applicable laws, rules, and regulations and good oil and gas industry practices;
(e) Proceeds from the sale of Hydrocarbons produced from and
attributable to the Company's Oil and Gas Interests are being received by the
Company in a timely manner and are not being held in suspense for any reason
(except for amounts, individually or in the aggregate, not in excess of $20,000
and held in suspense in the ordinary course of business);
(f) No Person has any call on, option to purchase, or similar
rights with respect to the Company's Oil and Gas Interests or to the production
attributable thereto, and upon consummation of the transactions contemplated by
this Agreement, the Company will have the right to market production from the
Company's Oil and Gas Interests on terms no less favorable than the terms upon
which such company is currently marketing such production; and
(g) All royalties, overriding royalties, compensatory royalties
and other payments due from or in respect of production with respect to the
Company's Oil and Gas Interests, have been or will be, prior to the Effective
Time, properly and correctly paid or provided for in all material respects,
except for those for which the Company has a valid right to suspend.
3.26 Hydrocarbon Sales and Purchase Agreements. Except as otherwise
disclosed in Section 3.26 of the Company Disclosure Schedule:
(a) None of the Hydrocarbon Sales Agreements of the Company or
Hydrocarbon Purchase Agreements of the Company has required since December 31,
1999, or will require as of or after the Closing Date, the Company (i) to have
sold or delivered, or to sell or deliver, Hydrocarbons for a price materially
less than the market value price that would have been, or would be, received
pursuant to any arm's-length contract for a term of one month with an
unaffiliated third-party purchaser or (ii) to have purchased or received, or to
purchase or receive, Hydrocarbons for a price materially greater than the market
value price that would have been, or would be, paid pursuant to an arm's-length
contract for a term of one month with an unaffiliated third-party seller;
(b) Each of the Hydrocarbon Agreements of the Company is valid,
binding, and in full force and effect, and no party is in material breach or
default of any Hydrocarbon Agreement of the Company, and to the knowledge of the
Company, no event has occurred that with notice or lapse of time (or both) would
constitute a material breach or default or permit termination, modification, or
acceleration under any Hydrocarbon Agreement of the Company;
(c) There have been no claims from any third party for any price
reduction or increase or volume reduction or increase under any of the
Hydrocarbon Agreements of the Company, and the Company has not made any claims
for any price reduction or increase or volume reduction or increase under any of
the Hydrocarbon Agreements of the Company;
(d) Payments for Hydrocarbons sold pursuant to each Hydrocarbon
Sales Agreement of the Company have been made (subject to adjustment in
accordance with such Hydrocarbon Sales Agreements) materially in accordance with
prices or price-setting mechanisms set forth in such Hydrocarbon Sales
Agreements;
(e) No purchaser under any Hydrocarbon Sales Agreement of the
Company has notified the Company (or, to the knowledge of the Company, the
operator of any property) of its intent to cancel, terminate, or renegotiate any
Hydrocarbon Sales Agreement of the Company or otherwise to fail and refuse to
take and pay for Hydrocarbons in the quantities and at the price set out in any
A-23
<PAGE>
Hydrocarbon Sales Agreement, whether such failure or refusal was pursuant to any
force majeure, market out, or similar provisions contained in such Hydrocarbon
Sales Agreement or otherwise;
(f) The Company is not obligated in any Hydrocarbon Sales
Agreement by virtue of any prepayment arrangement, a "take-or-pay" or similar
provision, a production payment, or any other arrangements to deliver
Hydrocarbons produced from an Oil and Gas Interest of the Company at some future
time without then or thereafter receiving payment therefor;
(g) Section 3.26(g) of the Company Disclosure Schedule contains
a true and correct calculation of the Company's gas balancing positions as of
the dates shown therein.
(h) The Hydrocarbon Agreements of the Company are of the type
generally found in the oil and gas industry, do not, individually or in the
aggregate, contain unusual or unduly burdensome provisions that would,
individually or in the aggregate, have a Material Adverse Effect on the Company,
and are in form and substance considered normal within the oil and gas industry.
3.27 Financial and Commodity Hedging. Other than the hedging program
set forth in Exhibit E, the Company has no currently outstanding Hydrocarbon or
financial hedging positions (including fixed price controls, collars, swaps,
caps, hedges or puts). Prior to the date hereof, the Company instituted the
hedging program set forth in Exhibit E and such hedging program is in effect in
accordance with its terms.
3.28 Environmental Matters. Except as set forth in Section 3.28 of the
Company Disclosure Schedule:
(a) The Company has conducted its business and operated its
assets, and is conducting its business and operating its assets, in material
compliance with all Environmental Laws;
(b) The Company has not been notified by any Governmental
Authority or other third party that any of the operations or assets of the
Company is the subject of any investigation or inquiry by any Governmental
Authority or other third party evaluating whether any material remedial action
is needed to respond to a release or threatened release of any Hazardous
Material or to the improper storage or disposal (including storage or disposal
at offsite locations) of any Hazardous Material;
(c) Neither the Company nor, to the Company's knowledge, any
other Person has filed any notice under any federal, state or local law
indicating that (i) the Company is responsible for the improper release into the
environment, or the improper storage or disposal, of any Hazardous Material, or
(ii) any Hazardous Material is improperly stored or disposed of upon any
property of the Company or any property formerly owned, leased or operated by
the Company;
(d) The Company has no material contingent liability in
connection with (i) the release or threatened release into the environment at,
beneath or on any property now or previously owned, leased or operated by the
Company, or (ii) the storage or disposal of any Hazardous Material;
(e) The Company has not received any claim, complaint, notice,
inquiry or request for information involving any matter which remains unresolved
as of the date hereof with respect to any alleged violation of any Environmental
Law or regarding potential liability under any Environmental Law relating to or
in connection with operations or conditions of any facilities or property
(including off-site storage or disposal of any Hazardous Material from such
facilities or property) currently or formerly owned, leased or operated by the
Company;
A-24
<PAGE>
(f) No property now or previously owned, leased or operated by
the Company is listed on the National Priorities List pursuant to CERCLA or on
the CERCLIS or on any other federal or state list as sites requiring
investigation or cleanup;
(g) All underground storage tanks and solid waste storage,
treatment and/or disposal facilities owned or operated by the Company are used
and operated in material compliance with Environmental Laws;
(h) The Company is not transporting, has not transported, is not
arranging or has not arranged for the transportation of any Hazardous Material
to any location which is listed on the National Priorities List pursuant to
CERCLA, on the CERCLIS or on any similar federal or state list or which is the
subject of federal, state or local enforcement actions or other investigations
that may lead to material claims against the Company for removal or remedial
work, contribution for removal or remedial work, damage to natural resources or
personal injury, including claims under CERCLA;
(i) The Company has obtained all material permits, licenses,
approvals and other authorizations that are required with respect to the
operation of the Company's properties and assets under the Environmental Laws
and are in material compliance with all terms and conditions of such required
permits, licenses, approvals and authorizations;
(j) There are no polychlorinated biphenyls or asbestos located
in, at, on or under any facility or real property owned, leased or operated by
the Company that require removal, decontamination or abatement pursuant to
Environmental Laws;
(k) There are no past or present events, conditions,
circumstances, activities, practices, incidents or actions that could reasonably
be expected to interfere with or prevent material compliance by the Company with
any Environmental Law, or that could reasonably be expected to give rise to any
material liability under the Environmental Laws;
(l) No Lien has been recorded against any property, facility or
assets currently owned by the Company under any Environmental Law; and
(m) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby will not affect the
validity or require the transfer of any permits, licenses or approvals held by
the Company under any Environmental Law, and will not require any notification,
disclosure, registration, reporting, filing, investigation or remediation under
any Environmental law.
3.29 Books and Records. All books, records and files of the Company
(including those pertaining to the Company's Oil and Gas Interests, wells and
other assets, those pertaining to the production, gathering, transportation
and sale of Hydrocarbons, and corporate, accounting, financial and employee
records): (a) have been prepared, assembled and maintained in accordance with
usual and customary policies and procedures; and (b) fairly and accurately
reflect the ownership, use, enjoyment and operation by the Company of its
assets. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that: (x) transactions are accurately
and promptly recorded; (y) transactions are executed in accordance with
management's specific or general authorization; and (z) access to its books,
records and assets is permitted only in accordance with management's general or
specific authorization.
3.30 Brokers. Except as disclosed in Section 3.30 of the Company
Disclosure Schedule, no broker, finder, investment banker or other Person is or
will be, in connection with the transactions contemplated by this Agreement,
entitled to any brokerage, finder's or other fee or compensation based on any
arrangement or agreement made by or on behalf of the Company and for which the
Surviving Corporation or the Company will have any obligation or liability.
A-25
<PAGE>
3.31 Powers of Attorney; Authorized Signatories. Section 3.31 of the
Company Disclosure Schedule lists: (a) the names and addresses of all Persons
holding powers of attorney on behalf of the Company; (b) the names of all banks
and other financial institutions in which the Company currently has one or more
bank accounts or safe deposit boxes, along with the account numbers and the
names of all persons authorized to draw on such accounts or to have access to
such safe deposit boxes.
3.32 Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Company Common Stock is the only vote of the
holders of any class or series of Company capital stock or other voting
securities necessary to approve this Agreement, the Merger and the transactions
contemplated hereby.
3.33 Fairness Opinion. The Company has received the written opinion of
Stephens Inc. to the effect that the Merger is fair to the Company and its
shareholders from a financial point of view, and as of the date of this
Agreement such opinion has not been withdrawn, revoked or modified. In
connection with this Agreement and any of the other Transaction Documents and
the transactions contemplated herein and therein, the entire amount of fees due
and payable to Stephens Inc. shall not exceed $826,000, and the entire amount of
reimbursable expenses due and payable to Stephens Inc. shall not exceed $1,500.
3.34 Disclosure and Investigation. No representation or warranty of the
Company set forth in this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein not misleading.
3.35 Real Property. Section 3.35 of the Company Disclosure Schedule (i)
sets forth a complete and accurate list of all real property, other than Oil and
Gas Interests, that is owned or leased by the Company and (ii) indicates whether
such real property contains structures, improvements or fixtures thereon.
3.36 Expiring Acreage. Section 3.36 of the Company Disclosure Schedule
sets forth a complete and accurate list of all leasehold acreage of the Company
that under the terms thereof would expire before March 31, 2001, without action
by the Company.
3.37 Other Fees. In connection with this Agreement and any of the other
Transaction Documents and the transactions contemplated herein and therein, the
entire amount of fees and reimbursable expenses due and payable by the Company
to its (a) legal counsel shall not exceed $250,000 and (b) independent
accountants shall not exceed $10,000, except, in the case of the independent
accountants, as set forth in that certain letter agreement dated September 25,
2000, between such independent accountants and the Company.
3.38 Key Employee Incentive Bonus Plan. The Company's Key Employee
Incentive Bonus Plan has been suspended and all amounts that are due and payable
or that may become due and payable thereunder have been paid.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company as follows (such representations and warranties being
deemed to be made on a continuous basis until the Effective Time):
4.1 Organization. Each of the Parent Companies: (a) is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation or formation; (b) has the requisite power and authority
to own, lease and operate its properties and to conduct its business as it is
presently being conducted; and (c) is duly qualified to do business as a foreign
corporation, and is in good standing, in each jurisdiction where the character
of the properties owned or leased by it or the nature of its activities makes
such qualification necessary (except where any failure to be so qualified as a
foreign corporation or to be in good standing would not, individually or in the
A-26
<PAGE>
aggregate, have a Material Adverse Effect on Parent). Accurate and complete
copies of the certificate or articles of incorporation, bylaws, minute books
and/or other organizational documents of each of the Parent Companies have
heretofore been delivered to the Company.
4.2 Authority and Enforceability. Each of Parent and Merger Sub has the
requisite corporate power and authority to enter into and deliver the
Transaction Documents and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of Parent
and Merger Sub, including approval by the board of directors of Parent and the
board of directors and the sole shareholder of Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize the execution or delivery of the Transaction Documents or to
consummate the transactions contemplated hereby and thereby. The Transaction
Documents have been duly and validly executed and delivered by Parent and Merger
Sub and constitute valid and binding obligations of each of Parent and Merger
Sub, enforceable against each of them in accordance with their terms.
4.3 No Violations. The execution and delivery of each of the
Transaction Documents does not, and the consummation of the transactions
contemplated hereby and thereby and compliance by Parent and Merger Sub with the
provisions hereof and thereof will not, conflict with, result in any violation
of or default (with or without notice or lapse of time or both) under, give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any Lien on
any of the properties or assets of Parent or Merger Sub under, any provision of
(a) the certificate of incorporation, bylaws or any other organizational
documents of any of the Parent Companies, (b) any loan or credit agreement,
note, bond, mortgage, indenture, lease, permit, concession, franchise, license
or other agreement or instrument applicable to Parent or Merger Sub, or (c)
assuming the consents, approvals, authorizations, permits, filings and
notifications referred to in Section 4.4 are duly and timely obtained or made,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to any of the Parent Companies or any of their respective properties
or assets, other than, in the case of clause (b) or (c) above, any such
conflict, violation, default, right, loss or Lien that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent.
4.4 Consents and Approvals. No consent, approval, order or
authorization of, registration, declaration or filing with, or permit from, any
Governmental Authority is required by or with respect to any Parent Company in
connection with the execution and delivery of the Transaction Documents by
Parent and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby and thereby, except for the following: (a) any
such consent, approval, order, authorization, registration, declaration, filing
or permit which the failure to obtain or make would not, individually or in the
aggregate, have a Material Adverse Effect on Parent; (b) the filing of the
Certificate of Merger with the Secretary of State of the State of Oklahoma
pursuant to the provisions of the OGCA; (c) the filing with the SEC of the Proxy
Statement (in preliminary and definitive form) and such reports under Section
13(a) of the Exchange Act and such other compliance with the Exchange Act and
the Securities Act and the rules and regulations of the SEC thereunder as may be
required in connection with the Transaction Documents and the transactions
contemplated hereby and thereby and the obtaining from the SEC of such orders as
may be so required; (d) filings with the NASDAQ; and (e) such filings and
approvals as may be required by any applicable state takeover laws or
Environmental Laws. No Third-Party Consent is required by or with respect to any
of the Parent Companies in connection with the execution and delivery of the
Transaction Documents or the consummation of the transactions contemplated
hereby and thereby, except for (x) any such Third-Party Consent which the
failure to obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Parent and (y) the valid approval of the Company Proposal by
the shareholders of the Company.
4.5 Interim Operations of Merger Sub. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement and
has not engaged in any business or activity (or conducted any operations) of any
kind, entered into any agreement or arrangement with any person or entity, or
incurred, directly or indirectly, any liabilities or obligations, except in
connection with its incorporation, the negotiation of this Agreement, the Merger
and the transactions contemplated hereby.
A-27
<PAGE>
4.6 Financing. Parent has delivered to the Company a true and complete
copy of (i) a letter of commitment obtained by Parent from Fleet National Bank
and First Union National Bank to provide debt financing for the transactions
contemplated hereby (collectively, the "Debt Commitments") and (ii) a
subscription agreement from each of Natural Gas Partners V, L.P., C. Randall
Hill, R. Cory Richards and David C. Myers to provide certain equity financing
(collectively, the "Equity Commitments" and, together with the Debt Commitments,
the "Financing Commitments"). Executed copies of the Financing Commitments are
included as Section 4.6 of the Parent Disclosure Schedule. Assuming that the
financing contemplated by the Financing Commitments is consummated in accordance
with the terms thereof, the funds to be borrowed and/or provided thereunder will
provide sufficient funds to pay the Merger Consideration, all other amounts due
under Section 2.5 of this Agreement and all related fees and expenses (the
"Financing"). As of the date of this Agreement, Parent is not aware of any facts
or circumstances that create a reasonable basis for Parent to believe that
Parent will not be able to obtain the Financing in accordance with the terms of
the Financing Commitments.
4.7 Brokers. Except as disclosed in Section 4.7 of the Parent
Disclosure Schedule, no broker, finder, investment banker or other Person is or
will be, in connection with the transactions contemplated by this Agreement,
entitled to any brokerage, finder's or other fee or compensation based on any
arrangement or agreement made by or on behalf of Parent or Merger Sub and for
which Parent, Merger Sub or the Company will have any obligation or liability.
4.8 Disclosure and Investigation. No representation or warranty of
Parent or Merger Sub set forth in this Agreement contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein not misleading.
ARTICLE 5
COVENANTS
5.1 Conduct of Business by the Company Pending Closing. The Company
covenants and agrees with Parent that, from the date of this Agreement until the
Effective Time, the Company will conduct its business only in the ordinary and
usual course consistent with past practices. Notwithstanding the preceding
sentence, the Company covenants and agrees with Parent that, except as
specifically contemplated in this Agreement, from the date of this Agreement
until the Effective Time, without the prior written consent of Parent:
(a) The Company will not: (i) amend its certificate or articles
of incorporation, bylaws or other organizational documents; (ii) split, combine
or reclassify any of its outstanding capital stock; (iii) declare, set aside or
pay any dividends or other distributions (whether payable in cash, property or
securities) with respect to its capital stock; (iv) issue, sell or agree to
issue or sell any securities or other equity interests, including its capital
stock (including shares of capital stock held as treasury shares), any rights,
options or warrants to acquire its capital stock, or securities convertible into
or exchangeable or exercisable for its capital stock (other than shares of
Company Common Stock issued pursuant to the exercise of any Company Option
outstanding on the date of this Agreement); (v) purchase, cancel, retire, redeem
or otherwise acquire any of its outstanding capital stock or other securities or
other equity interests; (vi) merge or consolidate with, or transfer all or
substantially all of its assets to, any other Person; (vii) liquidate, wind-up
or dissolve (or suffer any liquidation or dissolution); or (viii) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing.
(b) The Company will not: (i) acquire any corporation,
partnership or other business entity or any interest therein; (ii) sell, lease
or sublease, transfer, farm out or otherwise dispose of or mortgage, pledge or
otherwise encumber any Oil and Gas Interests of the Company that were assigned a
Reserve Data Value in excess of $25,000 in the aggregate, (except that this
clause shall not apply to the sale of Hydrocarbons in the ordinary course of
business pursuant to existing arrangements and contracts or to encumbrances
under the Company Bank Credit Agreement); (iii) acquire any Oil and Gas
Interests or any other assets that have a value at the time of such acquisition
in excess of $25,000 in the aggregate (except that other assets with an
A-28
<PAGE>
aggregate purchase price of no more than $25,000 may be acquired that are
incidental to the business of the Company and acquired in the ordinary course of
the business of the Company consistent with past practices); (iv) enter into any
hedging or derivative contracts (financial, commodity or otherwise) other than
the hedging program set forth in Exhibit E; (v) sell, transfer or otherwise
dispose of or mortgage, pledge or otherwise encumber any securities of any other
Person; (vi) make any loans, advances or capital contributions to, or
investments in, any Person; (vii) enter into any agreement (including the
proposal for or approval of any authority for expenditure) or series of related
agreements or authorities for expenditure that would cause the Company to spend
more than $5,000 or any other agreement not terminable by the Company upon
notice of 30 days or less and without penalty or other obligation; (viii) agree
with any Person to limit or otherwise restrict in any manner the ability of the
Company to compete or otherwise conduct its business, or (ix) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing.
(c) The Company will not: (i) incur any indebtedness for
borrowed money; (ii) incur any cost or expense for leasehold or geophysical
items including acquisition, processing, reprocessing or interpretation; (iii)
incur any other obligation or liability (other than liabilities incurred in the
ordinary course of business consistent with past practices); (iv) make a capital
expenditure or series of related capital expenditures in excess of $5,000 except
in connection with those authorities for expenditures set forth in Section
5.1(c) of the Company Disclosure Schedule (provided, however, that nothing
herein shall prohibit the Company from paying or prepaying any indebtedness
under the Company Bank Credit Agreement); (v) assume, endorse (other than
endorsements of negotiable instruments in the ordinary course of business),
guarantee or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the liabilities or obligations of any other
Person; or (vi) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing.
(d) The Company will operate, maintain and otherwise deal with
the Oil and Gas Interests of the Company in accordance with good and prudent oil
and gas field practices and in accordance with all applicable oil and gas leases
and other contracts and agreements and all applicable laws, rules and
regulations.
(e) The Company will not resign, transfer or otherwise
voluntarily relinquish any right it has as of the date of this Agreement, as
operator of any Oil and Gas Interest of the Company.
(f) The Company will not: (i) enter into, or otherwise become
liable or obligated under or pursuant to, (1) any employee benefit, pension or
other plan (whether or not subject to ERISA), (2) any other stock option, stock
purchase, incentive or deferred compensation plan or arrangement or other fringe
benefit plan, (3) any consulting, employment, severance, bonus, termination or
similar agreement with any Person, or (4) any amendment or extension of any such
plan, arrangement or agreement; (ii) except for payments made pursuant to any
existing Company Employee Benefit Plan or any other plan, agreement or
arrangement described in Section 3.17(a) of the Company Disclosure Schedule,
grant, or otherwise become liable for or obligated to pay, any severance or
termination payment, bonus or increase in compensation or benefits to, or
forgive any indebtedness of, any employee or consultant of the Company; (iii)
enter into or amend any Company Material Agreements or (iv) enter into any
contract, agreement, commitment or arrangement to do any of the foregoing.
(g) The Company will not create, incur, assume or permit to
exist any Lien on any of its assets, except for Permitted Encumbrances.
(h) The Company will: (i) keep and maintain accurate books,
records and accounts; (ii) maintain in full force and effect the policies or
binders of insurance described in Section 3.21; (iii) pay all Taxes, assessments
and other governmental charges imposed upon any of its assets or with respect to
its franchises, business, income or assets before any penalty or interest
accrues thereon; (iv) pay all claims and expenses (including claims and expenses
for labor, services, materials and supplies) when they become due and payable in
accordance with their terms; and (v) comply in all material respects with the
requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority, obtain or take all Governmental Actions necessary in the
operation of its business, and comply with and enforce the provisions of all
Company Material Agreements, including paying when due all indebtedness,
payables, rentals, royalties, expenses and other liabilities relating to its
business or assets.
A-29
<PAGE>
(i) The Company will at all times preserve and keep in full
force and effect its corporate existence and rights and franchises material to
its performance under this Agreement.
(j) The Company will not engage in any practice, take any action
or permit by inaction any of the representations and warranties contained in
Article 3 to become untrue.
(k) The Company shall carry on its businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and shall use all commercially reasonable efforts to preserve intact
its present business organizations, keep available the services of its current
officers and employees (provided, however, that the Company will not hire any
additional employees) and endeavor to preserve its relationships with customers,
suppliers and others having business dealings with it to the end that its
goodwill and ongoing business shall not be impaired in any material respect at
the Effective Time.
(l) The Company will not engage in any line of business in which
it is not engaged as of the date hereof.
(m) The Company will not, directly or indirectly, enter into or
permit to exist any transaction (including the purchase, sale, lease, or
exchange of any assets, unless otherwise permitted hereby, or the rendering of
any service) with any Affiliate of the Company, other than pursuant to the
Company Employee Benefit Plans in effect as of the date hereof and business
expense advancements or reimbursements in the ordinary course of business.
(n) Other than the Stock Voting Agreements, the Company will not
enter into, or otherwise be a party to, any agreement or understanding relating
to the voting, registration or transfer of any shares of its capital stock or
other securities.
5.2 Access to Assets, Personnel and Information.
(a) From the date hereof until the Effective Time, the Company
shall: (i) afford to Parent and the Parent Representatives, at Parent's sole
risk and expense, reasonable access to any of the assets, books and records,
contracts, employees, representatives, agents and facilities of the Company;
(ii) provide to Parent all information which pertains to matters requiring
Parent's approval under Section 5.1 and cooperate with Parent to institute
procedures and practices to facilitate the joint approval by Parent and the
Company of such matters; (iii) upon request, furnish promptly to Parent (at
Parent's expense) a copy of any file, book, record, contract, permit,
correspondence, or other written information, document or data concerning the
Company (or any of its assets) that is within the possession or control of the
Company; and (iv) consent to its independent auditors to make available their
work papers to Parent and the Parent Representatives as permitted by the
applicable AICPA Professional Standards.
(b) Parent and the Parent Representatives shall, at Parent's
sole risk and expense, have the right to make an environmental and physical
assessment of the assets of the Company and, in connection therewith, shall have
the right to enter and inspect such assets and all buildings and improvements
thereon, conduct soil and water tests and borings and generally conduct such
tests, examinations, investigations and studies as Parent deems necessary,
desirable or appropriate for the preparation of engineering or other reports
relating to such assets, their condition and the presence of Hazardous Materials
and compliance with Environmental Laws. The Company shall be provided not less
than 24 hours' prior notice of such activities, and the Company Representatives
shall have the right to witness all such tests and investigations. Parent shall
(and shall cause the Parent Representatives to) keep any data or information
acquired by any such examinations and the results of any analyses of such data
and information strictly confidential and will not (and will cause the Parent
Representatives not to) disclose any of such data, information or results to any
Person unless otherwise required by law or regulation and then only after
written notice to the Company of the determination of the need for disclosure.
Parent shall indemnify, defend and hold the Company and the Company
Representatives harmless from and against any and all claims to the extent
arising out of or as a result of the activities of Parent and the Parent
Representatives on the assets of the Company in connection with conducting such
A-30
<PAGE>
environmental and physical assessment, except to the extent of and limited by
the negligence or willful misconduct of the Company or any Company
Representative.
(c) From the date hereof until the Effective Time, the Company
will fully and accurately disclose to Parent and the Parent Representatives all
information that is (i) reasonably requested by Parent or any of the Parent
Representatives, (ii) known to the Company, and (iii) relevant in any manner or
degree to the value, ownership, use, operation, development or transferability
of the assets of the Company or financing of the Merger by Parent.
(d) From the date hereof until the Effective Time, the Company
shall: (i) furnish to Parent, promptly upon receipt or filing (as the case may
be), a copy of each communication between the Company and the SEC after the date
hereof relating to the Merger or the Proxy Statement and each report, schedule,
proxy statement or other document filed by the Company with the SEC after the
date hereof relating to the Merger or the Proxy Statement; and (ii) promptly
advise Parent of the substance of any oral communications with the SEC relating
to the Merger or the Proxy Statement.
(e) The Company will (and will cause the Company Representatives
to) fully cooperate in all reasonable respects with Parent and the Parent
Representatives in connection with Parent's examinations, evaluations and
investigations described in this Section 5.2.
(f) Parent will not (and will cause Merger Sub and the Parent
Representatives not to) use any information obtained pursuant to this Section
5.2 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement.
(g) Notwithstanding anything in this Section 5.2 to the
contrary, the Company shall not be obligated under the terms of this Section 5.2
to disclose to Parent or the Parent Representatives, or grant Parent or the
Parent Representatives access to, information that is within the possession or
control of the Company but subject to a valid and binding confidentiality
agreement with a third party without first obtaining the consent of such third
party, and the Company, to the extent reasonably requested by Parent, will use
its reasonable best efforts to obtain any such consent.
A-31
<PAGE>
5.3 No Solicitation.
(a) From and after the date hereof, the Company will not, and
will not authorize or permit any of the Company Representatives to, directly or
indirectly, solicit or encourage (including by way of providing information) any
prospective acquiror or the invitation or submission of any inquiries, proposals
or offers or any other efforts or attempts that constitute, or may reasonably be
expected to lead to, any Acquisition Proposal (as hereinafter defined) from any
Person or engage in any discussions or negotiations with respect thereto or
otherwise cooperate with or assist or participate in, or facilitate any such
proposal; provided, however, that notwithstanding any other provision of this
Agreement, (i) the Company's Board of Directors may take and disclose to the
shareholders of the Company a position contemplated by Rule 14e-2(a) promulgated
under the Exchange Act and (ii) to the extent that the Board of Directors of the
Company determines in good faith, after considering the advice of its legal
counsel, that such action is required in order for the Board of Directors of the
Company to act in a manner consistent with its fiduciary duties under applicable
law and solely for purposes of determining whether or not to rescind or modify
the recommendation of the Board of Directors of the Company contemplated by
Section 5.5, the Company and the Company Representatives, in response to an
unsolicited Acquisition Proposal, may enter into discussions or negotiations
with the Person presenting such Acquisition Proposal and provide information to
such Person; provided that prior to entering into such discussions or
negotiations or providing any such information the Company shall enter into a
customary confidentiality agreement with such Person containing terms no more
favorable to such Person than contained in the Confidentiality Agreement. The
Company shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by the Company or any of the Company's
Representatives with respect to any Acquisition Proposal. The Company will
promptly notify in writing Parent of any receipt by the Company or any of the
Company Representatives of a request from a third party for information
concerning the Company and its business, properties and assets or the receipt of
any Acquisition Proposal, including the identity of the person or group
requesting such information or making such Acquisition Proposal, and the
material terms and conditions of any Acquisition Proposal.
(b) As used in this agreement, "Acquisition Proposal" means any
proposal or offer, other than a proposal or offer by Parent or any of its
Affiliates, for, or that could be reasonably expected to lead to, a tender or
exchange offer, a merger, consolidation or other business combination involving
the Company or any proposal to acquire in any manner a substantial equity
interest in, or any substantial portion of the assets of, the Company.
(c) Nothing in this Section 5.3 shall permit the Company to
terminate this Agreement except as specifically provided in Section 7.1.
5.4 Third-Party Standstill Agreements. During the period from the date
hereof through the Effective Time, the Company shall not terminate, amend,
modify or waive any provision of the Rights Agreement or of any confidentiality
or standstill agreement to which the Company is a party, except for the Rights
Agreement Amendment.
5.5 Shareholders Meeting. The Company shall take all action necessary
in accordance with applicable law and its certificate of incorporation and
bylaws to convene a meeting of its shareholders as promptly as practicable after
the date hereof for the purpose of voting on the Company Proposal. Subject to
the fiduciary duties of the Board of Directors of the Company and Section 5.3,
the Company will (through its Board of Directors) recommend to its shareholders
approval of the Company Proposal and not rescind or modify such recommendation
and shall use its reasonable best efforts to obtain approval and adoption of the
Company Proposal by its shareholders. If, however, the Board of Directors of the
Company rescinds or modifies such recommendation pursuant to the first clause of
the immediately preceding sentence, the Company Proposal shall be submitted to
the Company's shareholders.
A-32
<PAGE>
5.6 Proxy Statement.
(a) The Company and Parent shall cooperate and the Company shall
promptly prepare the Proxy Statement to enable the Company to file the Proxy
Statement with the SEC, as preliminary proxy material, as soon as practicable
after the date hereof and in any event not later than 20 days after the date
hereof. The Company shall use all reasonable best efforts, and Parent shall
cooperate with the Company (including furnishing all information concerning
Parent as may be reasonably requested by the Company), to have the Proxy
Statement cleared by the SEC as promptly as practicable after such filing and to
mail the Proxy Statement to the Company's shareholders as soon as possible
thereafter. The Company shall use all reasonable best efforts, and Parent shall
cooperate with the Company, to obtain any necessary state anti-takeover
approvals in connection with the Merger.
(b) The Company will cause the Proxy Statement, at the time it
is first mailed to shareholders of the Company, to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations of the SEC thereunder.
(c) The Company hereby covenants and agrees with Parent that the
Proxy Statement (at the time it is first mailed to shareholders of the Company
and at the time of the Company Meeting) will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading (provided, however, that
this clause (c) shall apply only to information contained in the Proxy Statement
that was supplied by the Company for inclusion therein). If, at any time prior
to the Company Meeting, any event with respect to the Company, or with respect
to other information supplied by the Company for inclusion in the Proxy
Statement, occurs and such event is required to be described in a supplement to
the Proxy Statement, the Company shall promptly notify Parent of such occurrence
and shall promptly prepare, file and disseminate such supplement.
(d) Parent hereby covenants and agrees with the Company that the
Proxy Statement (at the time it is first mailed to shareholders of the Company
and at the time of the Company Meeting) will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading (provided, however, that
this clause (d) shall not apply to information contained in the Proxy Statement
that was supplied by the Company for inclusion therein). If, at any time prior
to the Company Meeting, any event with respect to Parent, or with respect to
other information supplied by Parent for inclusion in the Proxy Statement,
occurs and such event is required to be described in a supplement to the Proxy
Statement, Parent shall promptly notify the Company of such occurrence and shall
cooperate with the Company in the preparation, filing and dissemination of such
supplement.
(e) Neither the Proxy Statement nor any amendment or supplement
thereto will be filed or disseminated to the shareholders of the Company without
the approval of both Parent and the Company. The Company shall advise Parent,
promptly after it receives notice thereof, of the time when the Proxy Statement
has been cleared by the SEC, or any comments or requests for additional
information received from the SEC, whether orally or in writing, with respect to
the Proxy Statement.
5.7 Additional Arrangements. Subject to the terms and conditions herein
provided, each of the Company and Parent shall take, or cause to be taken, all
action and shall do, or cause to be done, all things necessary, appropriate or
desirable under any applicable laws and regulations or under applicable
governing agreements to consummate and make effective the transactions
contemplated by this Agreement, including using all reasonable efforts to obtain
all necessary waivers, consents and approvals and effecting all necessary
registrations and filings. Each of the Company and Parent shall take, or cause
to be taken, all action or shall do, or cause to be done, all things necessary,
appropriate or desirable to cause the covenants and conditions applicable to the
transactions contemplated hereby to be performed or satisfied as soon as
practicable. In addition, if any Governmental Authority shall have issued any
order, decree, ruling or injunction, or taken any other action that would have
the effect of restraining, enjoining or otherwise prohibiting or preventing the
consummation of the transactions contemplated hereby, each of the Company and
Parent shall use its reasonable best efforts to have such order, decree, ruling
or injunction or other action declared ineffective as soon as practicable.
A-33
<PAGE>
5.8 Public Announcements. Prior to the Closing, the Company and Parent
will consult with each other before issuing any press release or otherwise
making any public statement with respect to the transactions contemplated by
this Agreement and shall not issue any such press release or make any such
public statement prior to obtaining the approval of the other Party, which
approval shall not be unreasonably withheld; provided, however, that such
approval shall not be required where such release or announcement is required by
applicable law or exchange or NASDAQ rule or regulation; and provided further,
that either the Company or Parent may respond to inquiries by the press or
others regarding the transactions contemplated by this Agreement, so long as
such responses are consistent with such Party's previously issued press
releases.
5.9 Notification of Certain Matters. The Company shall give prompt
notice to Parent of any of the following: (a) any representation or warranty
contained in Article 3 being untrue or inaccurate when made; (b) the occurrence
of any event or development that would cause (or could reasonably be expected to
cause) any representation or warranty contained in Article 3 to be untrue or
inaccurate on the Closing Date; and (c) any failure of the Company to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder. Parent shall give prompt notice to the Company of any
of the following: (x) any representation or warranty contained in Article 4
being untrue or inaccurate when made; (y) the occurrence of any event or
development that would cause (or could reasonably be expected to cause) any
representation or warranty contained in Article 4 to be untrue or inaccurate on
the Closing Date; and (z) any failure of Parent to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
5.10 Payment of Expenses. Each Party shall pay its own expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby, whether or not the Merger
shall be consummated. The Company shall bear and pay: (a) the fee for filing the
Proxy Statement with the SEC and the costs and expenses associated with printing
the Proxy Statement and complying with any applicable state securities or "blue
sky" laws; and (b) the costs and expenses associated with mailing the Proxy
Statement to the shareholders of the Company, and soliciting the votes of the
shareholders of the Company.
5.11 Indemnification and Insurance.
(a) Parent and the Company agree that all rights to
indemnification now existing in favor of any officers, directors, employees,
controlling shareholders or agents of the Company, as provided in its charters
or bylaws (or similar organizational documents), and any existing
indemnification agreements or arrangements of the Company, shall survive the
Merger and shall continue in full force and effect for a period of not less than
six years from the Effective Time (or such longer period as may be provided in
any existing indemnification agreement between the Company, and any current or
former officer or director thereof); provided, that, in the event any claim or
claims are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims.
(b) From and after the Effective Time, the Surviving Corporation
shall, for a period of six years after the Effective Time, indemnify, defend and
hold harmless each person who is now, or has been at any time prior to the date
of this Agreement or who becomes prior to the Effective Time, an officer,
director, employee, controlling shareholder or agent of the Company
(collectively, the "Indemnified Parties") against all losses, expenses
(including attorneys' fees), claims, damages, liabilities and amounts that are
paid in settlement with the approval of the indemnifying party (which approval
shall not be unreasonably withheld) of, or otherwise in connection with, any
threatened or actual claim, action, suit, proceeding or investigation (a
"Claim"), based in whole or in part on or arising in whole or in part out of the
fact that the Indemnified Party (or the person controlled by the Indemnified
Party) is or was a director, officer, employee, controlling shareholder or agent
of the Company (including a trustee or fiduciary of any Company Employee Benefit
Plan) and pertaining to any matter existing or arising out of actions or
omissions occurring at or prior to the Effective Time (including any Claim
arising out of this Agreement or any of the transactions contemplated hereby),
whether asserted or claimed prior to, at or after the Effective Time, in each
case to the fullest extent permitted under Oklahoma law, and shall pay any
expenses, as incurred, in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
Oklahoma law. In determining whether an Indemnified Party is entitled to
A-34
<PAGE>
indemnification under this Section 5.11, if requested by such Indemnified Party,
such determination shall be made by special, independent counsel selected by the
Surviving Corporation and approved by the Indemnified Party (which approval
shall not be unreasonably withheld), and who has not otherwise performed
services for the Surviving Corporation or any of its Affiliates within the last
three years (other than in connection with such matters). Without limiting the
foregoing, in the event any such Claim is brought against any Indemnified Party
or Parties (whether arising before or after the Effective Time): (i) such
Indemnified Party or Parties may retain the Surviving Corporation's regularly
engaged independent legal counsel or counsel satisfactory to them and reasonably
satisfactory to the Surviving Corporation, and the Surviving Corporation shall
pay all reasonable fees and expenses of such counsel for the Indemnified Party
or Parties as promptly as statements therefor are received; and (ii) the
Surviving Corporation will use all reasonable best efforts to assist in the
vigorous defense of any such matter, provided that the Surviving Corporation
shall not be liable for any settlement effected without its prior written
consent, which consent shall not unreasonably be withheld. In the event of any
Claim, any Indemnified Party wishing to claim indemnification will promptly
notify the Surviving Corporation thereof (provided, that failure to so notify
the Surviving Corporation will not affect the obligations of the Surviving
Corporation except to the extent that the Surviving Corporation shall have been
prejudiced as a result of such failure) and shall deliver to the Surviving
Corporation the undertaking contemplated by Section 1031 of the OGCA, but
without any requirement for the posting of a bond. Without limiting the
foregoing, in the event any such Claim is brought against any of the Indemnified
Parties, such Indemnified Party or Parties may retain only one law firm (plus
one local counsel, if necessary) to represent them with respect to each such
matter unless the use of counsel chosen to represent the Indemnified Parties
would present such counsel with a conflict of interest, or the representation of
all of the Indemnified Parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, in which case such
additional counsel as may be required (as shall be reasonably determined by the
Indemnified Parties and the Surviving Corporation) may be retained by the
Indemnified Parties at the cost and expense of the Surviving Corporation and the
Surviving Corporation shall pay all reasonable fees and expenses of such counsel
for such Indemnified Parties. The Surviving Corporation shall use such counsel
for such Indemnified Parties. The Surviving Corporation shall use all reasonable
best efforts to assist in the vigorous defense of any such Claim; provided, that
the Surviving Corporation shall not be liable for any settlement effected
without its written consent, which consent, however, shall not be unreasonably
withheld. Notwithstanding the foregoing, nothing contained in this Section 5.11
shall be deemed to grant any right to any Indemnified Party which is not
permitted to be granted to an officer, director, employee, controlling
shareholder or agent of the Company under Oklahoma law, assuming for such
purposes that the Surviving Corporation's certificate of incorporation and
bylaws provide for the maximum indemnification permitted by law.
(c) From and after the Effective Time, the Surviving Corporation
shall cause to be maintained in effect for not less than six years from the
Effective Time the current policies of the directors' and officers' liability
insurance maintained by the Company; provided, that: (i) the Surviving
Corporation may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous; (ii) such
substitution shall not result in gaps or lapses in coverage with respect to
matters occurring prior to the Effective Time; and (iii) the Surviving
Corporation shall not be required to pay an annual premium in excess of 200% of
the last annual premium paid by the Company prior to the date hereof and if the
Surviving Corporation is unable to obtain the insurance required by this Section
5.11(c) it shall obtain as much comparable insurance as possible for an annual
premium equal to such maximum amount.
(d) Following the Merger, if the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any other Person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any Person or Persons, then, and in each such
case, proper provision shall be made so that the successors and assigns of the
Surviving Corporation and any of their successors and assigns, assume the
obligations of the Parties and the Surviving Corporation set forth in this
Section 5.11.
(e) This Section 5.11 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Surviving Corporation
and the Indemnified Parties and their respective heirs and representatives (each
A-35
<PAGE>
of whom may enforce the provisions of this Section 5.11) and shall be binding on
the successors and assigns of the Surviving Corporation.
5.12 Shareholder Litigation. The Company shall give Parent the
reasonable opportunity to participate in the defense or settlement of any
shareholder litigation against the Company and/or its directors relating to the
transactions contemplated by this Agreement, and no such settlement shall be
agreed to without Parent's written consent, which shall not be unreasonably
withheld or delayed.
5.13 Opinion of Financial Advisor. A true, correct and complete copy of
the written opinion delivered by Stephens Inc. as set forth in Section 3.33,
which opinion shall be included in the Proxy Statement, has been delivered to
Parent by the Company.
5.14 Resignations of Officers and Directors of the Company. As
requested by Parent, prior to the Closing Date, the Company shall obtain written
resignations from each of its officers and directors under which such persons
shall resign as an officer and/or director of the Company effective as of the
Effective Time.
5.15 Other Agreements. Concurrently with the execution of this
Agreement, the Company is delivering to Parent executed copies of the Stock
Voting Agreements, the Separation Agreements and the Rights Agreement Amendment.
5.16 Option Surrender Agreements. The Company shall use its reasonable
best efforts to cause each holder of a Company Option to execute an Option
Surrender Agreement prior to the Effective Time.
5.17 Financing. Parent shall immediately notify the Company (a) should
any of the Financing Commitments be terminated by any party thereto, (b) should
any party purport to terminate any of the Financing Commitments or (c) should
any other event occur which causes Parent to reasonably believe that it will not
be able to obtain the Financing, (a "Financing Termination Notice").
5.18 Separation Agreements. The Company shall not amend, terminate or
otherwise modify the Separation Agreements without the prior written consent of
Parent.
5.19 Retirement Agreement. Within 30 days after the date hereof, the
Company shall either provide Parent with a copy of the filing originally made
with the Department of Labor for the May 31, 1989 Agreement with William G. Seal
(the "Seal Agreement"), as required by Department of Labor Regulation Section
2520.104-23 or, if no such filing was originally made, the Company shall comply
with the Pension and Welfare Benefits Administration's Delinquent Filer
Voluntary Compliance Program with respect to the Seal Agreement (including, but
not limited to, making all filings and paying all applicable penalties under
such program), and shall provide Parent with a copy of all documents filed in
connection with such program.
5.20 Deferred Compensation Agreements. Within 30 days after the date
hereof, the Company shall either provide Parent with a copy of the filings
originally made with the Department of Labor for the Deferred Compensation
Agreements with O. Strother Simpson for the years 1980 through 1989 (the
"Strother Agreements"), as required by Department of Labor Regulation Section
2520.104-23 or, if no such filings were originally made, the Company shall
comply with the Pension and Welfare Benefits Administration's Delinquent Filer
Voluntary Compliance Program with respect to the Strother Agreements (including,
but not limited to, making all filings and paying all applicable penalties under
such program), and shall provide Parent with a copy of all documents filed in
connection with such program.
A-36
<PAGE>
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each Party to effect the Merger shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions,
any or all of which may be waived in whole or in part by both Parent and the
Company:
(a) Shareholder Approval. The Company Proposal shall have been
duly and validly approved and adopted by a vote of a majority of the outstanding
shares of Company Common Stock.
(b) Other Approvals. All consents, approvals, permits and
authorizations required to be obtained prior to the Effective Time from any
Governmental Authority or other Person in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by the Company, Parent and Merger Sub shall have been made or obtained
(as the case may be), except where the failure to obtain such consents,
approvals, permits and authorizations would not be reasonably likely to result
in a Material Adverse Effect on Parent or the Company or to materially adversely
affect the consummation of the Merger.
(c) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that, prior to
invoking this condition, the invoking Party shall have complied fully with its
obligations under Section 5.7 and, in addition, shall use all reasonable best
efforts to have any such decree, ruling, injunction or order vacated.
6.2 Conditions to Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are subject to the satisfaction of
the following conditions, any or all of which may be waived in whole or in part
by Parent and Merger Sub:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects (provided that any representation or warranty contained
herein that is qualified by a materiality standard or a Material Adverse Effect
qualification shall not be further qualified hereby) as of the Closing Date
(except to the extent such representation or warranty speaks as of an earlier
date), and Parent shall have received a certificate signed by a Responsible
Officer of the Company to such effect.
(b) Performance of Covenants and Agreements by the Company. The
Company shall have performed in all material respects all covenants and
agreements required to be performed by it under this Agreement at or prior to
the Closing Date, and Parent shall have received a certificate signed by a
Responsible Officer of the Company to such effect.
(c) No Material Adverse Effect. Since June 30, 2000, the Company
shall not have suffered or incurred any Material Adverse Effect.
(d) Dissenters' Rights. The aggregate number of shares of
Company Common Stock, which are entitled to vote at the Company Meeting and are
held of record by a Person or Persons who exercise their appraisal right under
the OGCA to dissent from the proposed Merger, shall not exceed five percent (5%)
of the total number of issued and outstanding shares of Company Common Stock
held of record as of the record date for the Company Meeting and entitled to
vote on the proposed Merger at such meeting.
(e) Debt Commitment Condition. The closing conditions set forth
in the penultimate sentence of the fourth paragraph, insofar as they relate to
title of oil and gas interests of the Company and environmental matters with
respect thereto, of the Fleet National Bank commitment letter, dated September
7, 2000, which letter is included in the Debt Commitments, shall have been
fulfilled as provided for in the Debt Commitments.
A-37
<PAGE>
(f) Material Representations. Each of the Material
Representations is true and correct in all respects as of the Closing Date
(except to the extent such representation or warranty speaks as of an earlier
date) and Parent shall have a certificate signed by a Responsible Officer of the
Company to such effect.
(g) Resignations of Officers and Directors of the Company.
Parent shall have received the written resignations contemplated by Section
5.14.
6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct in all material respects (provided that any representation or
warranty contained herein that is qualified by a materiality standard or a
Material Adverse Effect qualification shall not be further qualified hereby) as
of the Closing Date (except to the extent such representation or warranty speaks
as of an earlier date), and the Company shall have received a certificate signed
by a Responsible Officer of Parent to such effect.
(b) Performance of Covenants and Agreements by Parent and Merger
Sub. Parent and Merger Sub shall have performed in all material respects all
covenants and agreements required to be performed by them under this Agreement
at or prior to the Closing Date, and the Company shall have received a
certificate signed by a Responsible Officer of Parent to such effect.
ARTICLE 7
TERMINATION
7.1 Termination Rights. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after approval of the Company Proposal by the shareholders of the Company:
(a) By mutual written consent of Parent and the Company;
(b) By either the Company or Parent if: (i) the Merger has not
been consummated by February 28, 2001 (provided, however, that the right to
terminate this Agreement pursuant to this clause (i) shall not be available to
any Party whose breach of any representation or warranty or failure to perform
any covenant or agreement under this Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date); (ii) any
Governmental Authority shall have issued an order, decree or ruling or taken any
other action permanently restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become final
and nonappealable (provided, however, that the right to terminate this Agreement
pursuant to this clause (ii) shall not be available to any Party until such
Party has used all reasonable best efforts to remove such injunction, order or
decree); or (iii) the Company Proposal shall not have been approved by the
required vote of the Company shareholders at the Company Meeting.
(c) By Parent if: (i) there has been a breach in any material
respect of the representations and warranties made by the Company in Article 3
(provided, however, that any representation or warranty contained therein that
is qualified by a materiality standard or a Material Adverse Effect
qualification shall not be further qualified hereby, and provided, further, that
Parent shall not be entitled to terminate this Agreement pursuant to this clause
(i) unless Parent has given the Company notice of such breach and the Company
has failed to cure such breach within 10 days following such notice, but in any
event not later than February 28, 2001), and the condition described in Section
6.2(a), other than the provision thereof relating to the certificate signed by a
Responsible Officer of the Company, would not be satisfied if the Closing were
to occur on the day on which Parent gives the Company notice of such
A-38
<PAGE>
termination; or (ii) the Company has failed to comply in any material respect
with any of its covenants or agreements contained in this Agreement and such
failure has not been, or cannot be, cured within 10 days after notice and demand
for cure thereof, but in any event not later than February 28, 2001; provided,
however, that there shall not be any cure period with respect to a breach of
Section 5.1;
(d) By the Company if: (i) there has been a breach in any
material respect of the representations and warranties made by Parent and Merger
Sub in Article 4 (provided, however, that any representation or warranty
contained therein that is qualified by a materiality standard or a Material
Adverse Effect qualification shall not be further qualified hereby, and
provided, further, that the Company shall not be entitled to terminate this
Agreement pursuant to this clause (i) unless the Company has given Parent notice
of such breach and Parent has failed to cure such breach within 10 days
following such notice, but in any event not later than February 28, 2001), and
the condition described in Section 6.3(a), other than the provision thereof
relating to the certificate signed by a Responsible Officer of Parent, would not
be satisfied if the Closing were to occur on the day on which the Company gives
Parent notice of such termination; or (ii) Parent or Merger Sub has failed to
comply in any material respect with any of its respective covenants or
agreements contained in this Agreement, and, in either such case, such failure
has not been, or cannot be, cured within 10 days after notice and demand for
cure thereof, but in any event not later than February 28, 2001;
(e) By Parent if (i) the Board of Directors of the Company shall
have failed to recommend adoption of the Company Proposal at the time the Proxy
Statement is first mailed to shareholders of the Company or shall have amended
or withdrawn any such recommendation and such recommendation is not reinstated
in its prior form within two business days after such amendment or withdrawal or
(ii) the Company Meeting does not occur for any reason (other than as a result
of a breach of this Agreement by Parent) prior to February 26, 2001 or is
adjourned beyond such date;
(f) By Parent if from and after June 30, 2000, the Company
should suffer or incur any Material Adverse Effect; or
(g) By the Company upon receipt of a Financing Termination
Notice if Parent is unable to obtain replacement Financing within ten business
days thereafter (but in any event not later than February 24, 2001) on terms
that provide for no greater conditions than those contained in the original
Financing Commitments; provided, however, that such right to terminate this
Agreement must be exercised by the Company within five business days after the
expiration of the above-referenced 10-business-day period.
7.2 Effect of Termination. If this Agreement is terminated by either
the Company or Parent pursuant to the provisions of Section 7.1, this Agreement
shall forthwith become void except for, and there shall be no further obligation
on the part of any party hereto or its respective Affiliates, directors,
officers or shareholders except that, the provisions of Sections 5.2 (but only
to the extent of the confidentiality and indemnification provisions contained
therein), 5.6(c), 5.6(d), 5.8, 5.10, 7.3, Article 8 and the Confidentiality
Agreement shall survive any such termination and shall continue pursuant to
their terms; provided, however, that a termination of this Agreement shall not
relieve any Party hereto from any liability for damages incurred as a result of
a breach by such Party of its representations, warranties, covenants, agreements
or other obligations hereunder occurring prior to such termination; provided
further, that in the event of a termination of this Agreement by the Company
pursuant to Section 7.1(g), Parent and Merger Sub shall be deemed to have
committed a material breach of this Agreement unless the cause of the Financing
Termination Notice and Parent's inability to obtain replacement Financing as
contemplated by Section 7.1(g) is due to a failure to fulfill the condition set
forth in Section 6.2(e).
7.3 Fees and Expenses. If this Agreement is terminated pursuant to
Section 7.1(e) or clause (iii) of Section 7.1(b), the Company shall promptly,
but in no event later than one business day after termination of this Agreement,
pay to Parent an amount equal to $2,000,000 in same day funds and upon making
such payment the Company shall be fully released and discharged from any
liability or obligation resulting from or under this Agreement.
A-39
<PAGE>
ARTICLE 8
MISCELLANEOUS
8.1 Nonsurvival of Representations and Warranties. None of the
representations or warranties contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the consummation of the
Merger.
8.2 Amendment. This Agreement may be amended by the Parties at any time
before or after approval of the Company Proposal by the shareholders of the
Company; provided, however, that, after any such approval, no amendment shall be
made that by law requires further approval by such shareholders without such
further approval. This Agreement may not be amended except by a written
instrument signed by an authorized representative of each of the Parties.
8.3 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and either delivered personally (effective upon
delivery), by facsimile transmission (effective on the next day after
transmission), by recognized overnight delivery service (effective on the next
day after delivery to the service), or by registered or certified mail, postage
prepaid and return receipt requested (effective on the fifth business day after
the date of mailing), at the following addresses or facsimile transmission
numbers (or at such other address(es) or facsimile transmission number(s) for a
Party as shall be specified by like notice):
If to Parent or Merger Sub, to:
Cortez Oil & Gas, Inc.
Parkway Center II
2805 North Dallas Parkway, Suite 100
Plano, Texas 75093
Attention: C. Randall Hill
Telephone: (972) 781-6595
Telecopier: (972) 781-6505
with copies to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: A. Winston Oxley
Telephone: (214) 220-7700
Telecopier: (214) 220-7716
If to the Company, to:
Home-Stake Oil & Gas Company
2800 First Place Tower
15 E. 5th Street
Tulsa, Oklahoma 74103-4311
Attention: Robert C. Simpson
Telephone: (918) 583-0178
Telecopier: (918) 583-0237
A-40
<PAGE>
with a copy to:
Conner & Winters
A Professional Corporation
3700 First Place Tower
15 E. 5th Street
Tulsa, Oklahoma 74103-4344
Attention: Robert J. Melgaard
Telephone: (918) 586-5711
Telecopier: (918) 586-8548
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties, it being understood that all
Parties need not sign the same counterpart.
8.5 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Confidentiality Agreement, each exhibit hereto (including
without limitation each Transaction Document), the Parent Disclosure Schedule
and the Company Disclosure Schedule) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the Parties with respect to the subject matter hereof and thereof; and (b)
except as provided in Article 2 and Section 5.11, is solely for the benefit of
the Parties and their respective successors, legal representatives and assigns
and does not confer on any other Person any rights or remedies hereunder.
8.7 Applicable Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Oklahoma regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
8.8 No Remedy in Certain Circumstances. Each Party agrees that, should
any court or other competent authority hold any provision of this Agreement or
part hereof to be null, void or unenforceable, or order any Party to take any
action inconsistent herewith or not to take an action consistent herewith or
required hereby, the validity, legality and enforceability of the remaining
provisions and obligations contained or set forth herein shall not in any way be
affected or impaired thereby, unless the foregoing inconsistent action or the
failure to take any action constitutes a material breach of this Agreement or
makes this Agreement impossible to perform, in which case this Agreement shall
terminate pursuant to Article 7.
8.9 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the Parties (whether by
operation of law or otherwise) without the prior written consent of the other
Parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the Parties and their respective
successors and assigns.
8.10 Waivers. At any time prior to the Effective Time, the Parties may,
to the extent legally allowed (a) extend the time for the performance of any of
the obligations or other acts of the other Parties, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, and (c) waive performance of any of the covenants or
agreements, or satisfaction of any of the conditions, contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only if set forth in a written instrument signed by an authorized representative
A-41
<PAGE>
of such Party. Except as provided in this Agreement, no action taken pursuant to
this Agreement, including any investigation by or on behalf of any Party, shall
be deemed to constitute a waiver by the Party taking such action of compliance
with any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any Party of a breach of any provision hereof shall not
operate or be construed as a waiver of any prior or subsequent breach of the
same or any other provisions hereof.
8.11 Confidentiality Agreement. The Confidentiality Agreement shall
remain in full force and effect following the execution of this Agreement;
provided, however, that any standstill provisions contained therein are hereby
waived to the extent necessary for the Parties to consummate the Merger in
accordance with the terms of this Agreement.
8.12 No Recourse Against Others. Each of the following is herein
referred to as a "Parent Affiliate": (a) any direct or indirect holder of any
equity interests or securities in Parent (whether limited or general partners,
members, shareholders, or otherwise), (b) any Affiliate of Parent, and (c) any
director, officer, employee, representative or agent of (i) the Parent of Merger
Sub, (ii) any Affiliate of Parent or Merger Sub, or (iii) any such holder of
equity interests or securities referred to in clause (a) above. Except to the
extent that a Parent Affiliate is an express signatory party hereto, no Parent
Affiliate shall have any liability or obligation of any nature whatsoever in
connection with or under this Agreement or the transactions contemplated hereby,
and the Company hereby waives and releases all claims of any such liability and
obligation.
8.13 Incorporation. Exhibits and Schedules referred to herein are
attached hereto and by this reference incorporated herein for all purposes.
8.14 Specific Performance. The parties recognize that in the event the
Company should refuse to perform under the provisions of this Agreement,
monetary damages alone will not be adequate. Parent and Merger Sub shall
therefore be entitled, in addition to any other remedies which may be available,
including money damages, to obtain specific performance of the terms of this
Agreement. In the event of any action to enforce this Agreement specifically,
the Company hereby waives the defense that there is an adequate remedy at law.
8.15 Section 1090.3. The Parties acknowledge and represent that the
board of directors of each Party has approved the terms of this Agreement and
the other Transaction Documents and the consummation of the transactions
contemplated herein and therein and that such approval is sufficient to render
the restrictions on business combinations set forth in Section 1090.3 of the
OGCA inapplicable to the transactions contemplated by the Transaction Documents.
A-42
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives, on the date first written
above.
CORTEZ OIL & GAS, INC.
By: /s/ C. Randall Hill
---------------------------------------------
Name: C. Randall Hill
Title: Chief Executive Officer and President
CORTEZ ACQUISITION COMPANY
By: /s/ C. Randall Hill
---------------------------------------------
Name: C. Randall Hill
Title: President
HOME-STAKE OIL & GAS COMPANY
By: /s/ Robert C. Simpson
---------------------------------------------
Name: Robert C. Simpson
Title: Chief Executive Officer and President
A-43
<PAGE>
APPENDIX B
[Stephens Inc. Letterhead]
September 27, 2000
Board of Directors
Home-Stake Oil & Gas Company
15 E 5th Street, Suite 2800
Tulsa, OK 74103-4311
Gentlemen:
We have acted as your financial advisor in connection with the proposed
merger of Home-Stake Oil & Gas Company (the "Company") and a merger subsidiary
of Cortez Oil & Gas, Inc. (the "Transaction") pursuant to which the shareholders
of the Company would receive cash consideration of $11.00 per share of the
Company's common stock (the "Common Stock"). The terms and conditions of the
Transaction are more fully set forth in the draft of the Agreement and Plan of
Merger dated September 25, 2000.
You have requested our opinion as to the fairness to the shareholders
of the Company from a financial point of view of the consideration to be
received by the shareholders in the Transaction.
In connection with rendering our opinion we have:
(i) analyzed certain publicly available financial statements and
reports regarding the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data including the Company's December
31, 1999 reserve engineering report prepared by management;
(iii) reviewed with management the results of the Company's recent
exploration activities;
(iv) reviewed the reported prices and trading activity for the
Common Stock;
(v) compared the financial performance of the Company and the
prices and trading activity of the Common Stock with that of
certain other comparable companies and their securities;
(vi) reviewed the financial terms, to the extent publicly
available, of certain comparable transactions;
(vii) reviewed a draft of the Agreement and Plan of Merger, dated
September 25, 2000 and related documents;
(viii) discussed with management of the Company the operations of and
future business prospects for the Company;
(ix) assisted in your deliberations regarding the material terms of
the Transaction; and
(x) performed such other analyses and provided such other services
as we have deemed appropriate.
We have relied on the accuracy and completeness of the information and
financial data provided to us by the Company, and our opinion is based upon such
information. We have inquired into the reliability of such information and
financial data only to the limited extent necessary to provide a reasonable
basis for our opinion, recognizing that we are rendering only an informed
B-1
<PAGE>
opinion and not an appraisal or certification of value. With respect to the
financial projections and the Company's December 31, 1999 reserve engineering
report prepared by management of the Company, we have assumed that they have
been reasonably prepared on bases reflecting the Company's best estimates and
judgments then available as to the future financial performance of the Company.
As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. We are familiar with the Company and previously
have provided investment banking services to it. In the ordinary course of
business, Stephens Inc. and its affiliates at any time may hold long or short
positions, and may trade or otherwise effect transactions as principal or for
the accounts of customers, in the equity securities of the Company. Stephens is
receiving a fee and reimbursement of its expenses in connection with our work as
financial advisor to the Company, most of which is due upon consummation of this
transaction.
Based on the foregoing and our general experience as investment
bankers, and subject to the qualifications stated herein, we are of the opinion
on the date hereof that the consideration to be received by the shareholders of
the Company in the Transaction is fair to them from a financial point of view.
This opinion and a summary discussion of our underlying analyses and
role as your financial advisor may be included in communications to the
Company's shareholders provided that we approve of such disclosures prior to
publication.
Very truly yours,
/s/ Stephens Inc.
STEPHENS INC.
B-2
<PAGE>
APPENDIX C
TEXT OF SECTION 1091 OF THE OKLAHOMA GENERAL CORPORATION ACT
CONCERNING APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
ss. 1091. Appraisal Rights
APPRAISAL RIGHTS
A. Any shareholder of a corporation of this state who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection D of this section with respect to the shares, who continuously holds
the shares through the effective date of the merger or consolidation, who has
otherwise complied with the provisions of subsection D of this section and who
has neither voted in favor of the merger or consolidation nor consented thereto
in writing pursuant to the provisions of Section 1073 of this title shall be
entitled to an appraisal by the district court of the fair value of the shares
of stock under the circumstances described in subsections B and C of this
section. As used in this section, the word "shareholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and "depository receipt" means an instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
The provisions of this subsection shall be effective only with respect to
mergers or consolidations consummated pursuant to an agreement of merger or
consolidation entered into after November 1, 1988.
B. 1. Except as otherwise provided for in this subsection, appraisal
rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation, or of
the acquired corporation in a share acquisition, to be effected
pursuant to the provisions of Section 1081, other than a merger
effected pursuant to subsection G of Section 1081, and Sections 1082,
1086, 1087, 1090.1 or 1090.2 of this title.
2. a. No appraisal rights under this section shall be
available for the shares of any class or series of stock which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at
the meeting of shareholders to act upon the agreement of merger or
consolidation, were either:
(1) listed on a national securities exchange or
designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc.; or
(2) held of record by more than two thousand holders.
No appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not
require for its approval the vote of the shareholders of the surviving
corporation as provided in subsection G of Section 1081 of this title.
b. In addition, no appraisal rights shall be available for any
shares of stock, or depository receipts in respect thereof, of the
constituent corporation surviving a merger if the merger did not
require for its approval the vote of the shareholders of the surviving
corporation as provided for in subsection F of Section 1081 of this
title.
C-1
<PAGE>
3. Notwithstanding the provisions of paragraph 2 of this
subsection, appraisal rights provided for in this section shall be
available for the shares of any class or series of stock of a
constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to the
provisions of Sections 1081, 1082, 1086, 1087, 1090.1 or 1090.2 of this
title to accept for the stock anything except:
a. shares of stock of the corporation surviving or resulting
from the merger or consolidation or depository receipts thereof, or
b. shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than two thousand holders, or
c. cash in lieu of fractional shares or fractional depository
receipts described in subparagraphs a and b of this paragraph, or
d. any combination of the shares of stock, depository
receipts, and cash in lieu of the fractional shares or depository
receipts described in subparagraphs a, b, and c of this paragraph.
4. In the event all of the stock of a subsidiary Oklahoma
corporation party to a merger effected pursuant to the provisions of
Section 1083 of this title is not owned by the parent corporation
immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Oklahoma corporation.
C. Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections D and E
of this section, shall apply as nearly as is practicable.
D. Appraisal rights shall be perfected as follows:
1. If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of shareholders, the corporation, not less than twenty
(20) days prior to the meeting, shall notify each of its shareholders
entitled to appraisal rights that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall
include in the notice a copy of this section. Each shareholder electing
to demand the appraisal of the shares of the shareholder shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of the shares of the
shareholder. The demand will be sufficient if it reasonably informs the
corporation of the identity of the shareholder and that the shareholder
intends thereby to demand the appraisal of the shares of the
shareholder. A proxy or vote against the merger or consolidation shall
not constitute such a demand. A shareholder electing to take such
action must do so by a separate written demand as herein provided.
Within ten (10) days after the effective date of the merger or
consolidation, the surviving or resulting corporation shall notify each
shareholder of each constituent corporation who has complied with the
provisions of this subsection and has not voted in favor of or
consented to the merger or consolidation as of the date that the merger
or consolidation has become effective; or
C-2
<PAGE>
2. If the merger or consolidation is approved pursuant to the
provisions of Section 1073 or 1083 of this title, each constituent
corporation, either before the effective date of the merger or
consolidation or within ten (10) days thereafter, shall notify each of
the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the
merger or consolidation and that appraisal rights are available for any
or all of the shares of the class or series of stock of the constituent
corporation, and shall include in such notice a copy of this section;
provided, if the notice is given on or after the effective date of the
merger or consolidation, the notice shall be given by the surviving or
resulting corporation to all the holders of any class or series of
stock of a constituent corporation that are entitled to appraisal
rights. The notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify the shareholders of the
effective date of the merger or consolidation. Any shareholder entitled
to appraisal rights may, within twenty (20) days after the date of
mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of the holder's shares. The demand
will be sufficient if it reasonably informs the corporation of the
identity of the shareholder and that the shareholder intends to demand
the appraisal of the holder's shares. If the notice does not notify
shareholders of the effective date of the merger or consolidation
either:
a. each constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of the constituent
corporation that are entitled to appraisal rights of the effective date
of the merger or consolidation, or
b. the surviving or resulting corporation shall send a second
notice to all holders on or within ten (10) days after the effective
date of the merger or consolidation; provided, however, that if the
second notice is sent more than twenty (20) days following the mailing
of the first notice, the second notice need only be sent to each
shareholder who is entitled to appraisal rights and who has demanded
appraisal of the holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer
agent of the corporation that is required to give either notice that
the notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining
the shareholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more
than ten (10) days prior to the date the notice is given; provided, if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be the effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
E. Within one hundred twenty (120) days after the effective date of the
merger or consolidation, the surviving or resulting corporation or any
shareholder who has complied with the provisions of subsections A and D of this
section and who is otherwise entitled to appraisal rights, may file a petition
in district court demanding a determination of the value of the stock of all
such shareholders; provided, however, at any time within sixty (60) days after
the effective date of the merger or consolidation, any shareholder shall have
the right to withdraw the demand of the shareholder for appraisal and to accept
the terms offered upon the merger or consolidation. Within one hundred twenty
(120) days after the effective date of the merger or consolidation, any
shareholder who has complied with the requirements of subsections A and D of
this section, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of the shares. The written statement shall
be mailed to the shareholder within ten (10) days after the shareholder's
written request for a statement is received by the surviving or resulting
corporation or within ten (10) days after expiration of the period for delivery
of demands for appraisal pursuant to the provisions of subsection D of this
section, whichever is later.
F. Upon the filing of any such petition by a shareholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which,
within twenty (20) days after service, shall file, in the office of the court
clerk of the district court in which the petition was filed, a duly verified
list containing the names and addresses of all shareholders who have demanded
C-3
<PAGE>
payment for their shares and with whom agreements regarding the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such duly verified list. The court clerk, if so ordered
by the court, shall give notice of the time and place fixed for the hearing on
the petition by registered or certified mail to the surviving or resulting
corporation and to the shareholders shown on the list at the addresses therein
stated. Notice shall also be given by one or more publications at least one (1)
week before the day of the hearing, in a newspaper of general circulation
published in the City of Oklahoma City, Oklahoma, or other publication as the
court deems advisable. The forms of the notices by mail and by publication shall
be approved by the court, and the costs thereof shall be borne by the surviving
or resulting corporation.
G. At the hearing on the petition, the court shall determine the
shareholders who have complied with the provisions of this section and who have
become entitled to appraisal rights. The court may require the shareholders who
have demanded an appraisal of their shares and who hold stock represented by
certificates to submit their certificates of stock to the court clerk for
notation thereon of the pendency of the appraisal proceedings; and if any
shareholder fails to comply with this direction, the court may dismiss the
proceedings as to that shareholder.
H. After determining the shareholders entitled to an appraisal, the
court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining the fair value, the
court shall take into account all relevant factors. In determining the fair rate
of interest, the court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any shareholder entitled to participate
in the appraisal proceeding, the court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the shareholder entitled to an appraisal. Any
shareholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to the provisions of subsection F of this section and who
has submitted the certificates of stock of the shareholder to the court clerk,
if required, may participate fully in all proceedings until it is finally
determined that the shareholder is not entitled to appraisal rights pursuant to
the provisions of this section.
I. The court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
shareholders entitled thereto. Interest may be simple or compound, as the court
may direct. Payment shall be made to each shareholder, in the case of holders of
uncertificated stock immediately, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing the stock. The court's decree may be enforced as other
decrees in the district court may be enforced, whether the surviving or
resulting corporation be a corporation of this state or of any other state.
J. The costs of the proceeding may be determined by the court and taxed
upon the parties as the court deems equitable in the circumstances. Upon
application of a shareholder, the court may order all or a portion of the
expenses incurred by any shareholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
K. From and after the effective date of the merger or consolidation, no
shareholder who has demanded appraisal rights as provided for in subsection D of
this section shall be entitled to vote the stock for any purpose or to receive
payment of dividends or other distributions on the stock, except dividends or
other distributions payable to shareholders of record at a date which is prior
to the effective date of the merger or consolidation; provided, however, that if
no petition for an appraisal shall be filed within the time provided for in
subsection E of this section, or if the shareholder shall deliver to the
surviving or resulting corporation a written withdrawal of the shareholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
C-4
<PAGE>
within sixty (60) days after the effective date of the merger or consolidation
as provided for in subsection E of this section or thereafter with the written
approval of the corporation, then the right of the shareholder to an appraisal
shall cease; provided further, no appraisal proceeding in the district court
shall be dismissed as to any shareholder without the approval of the court, and
approval may be conditioned upon terms as the court deems just.
L. The shares of the surviving or resulting corporation into which the
shares of any objecting shareholders would have been converted had they assented
to the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-5
<PAGE>
Preliminary Copy
HOME-STAKE OIL & GAS COMPANY
15 East 5th Street, Suite 2800
Tulsa, Oklahoma 74103
Proxy for Special Meeting of Shareholders to be held _________, 2000.
This proxy is solicited by the board of directors of
Home-Stake Oil & Gas Company.
The undersigned hereby appoints Robert C. Simpson and Chris K.
Corcoran, and each of them, proxies or proxy with full power of substitution and
revocation as to each of them, to represent the undersigned and to act and vote
all of the shares of common stock of Home-Stake Oil & Gas Company the
undersigned is entitled to vote at the Special Meeting of Shareholders of
Home-Stake Oil & Gas Company to be held on the ____ day of __________, 2000, at
9:00 a.m., local time, at the offices of Home-Stake at 15 East 5th Street, Suite
2800, Tulsa, Oklahoma 74103, on the following matters and in their discretion on
any other matters which may come before the meeting or any adjournments or
postponements thereof. Receipt of the proxy statement dated ___________, 2000 is
acknowledged.
PLEASE MARK, SIGN AND DATE THE PROXY ON THE OTHER SIDE
AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(continued on other side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED Please mark
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED. your vote as
IN THE ABSENCE OF SUCH DIRECTION, THIS PROXY WILL BE indicated in
VOTED "FOR" ITEM 1. this example |X|
This proxy is solicited by the board of directors of Home-Stake Oil & Gas
Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
1. To approve and adopt the Agreement and Plan of Merger dated as of October
3, 2000, among Cortez Oil & Gas, Inc., Cortez Acquisition Company and
Home-Stake Oil & Gas Company relating to the merger of Cortez Acquisition
Company, a wholly-owned subsidiary of Cortez, with and into Home-Stake.
|_| FOR |_| AGAINST |_| ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting and at any and
all adjournments or postponements thereof.
---------------------------------------------------
Signature
---------------------------------------------------
Signature if held jointly
Dated:
---------------------------------------------
Please sign exactly as name appears herein, date and
return promptly. When shares are held by joint
tenants, both must sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please
sign in full corporate name by duly authorized
officer and give title of officer. If a partnership,
please sign in partnership name by authorized person
and give title or capacity of person signing.
<PAGE>
