-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A+lTLKxOt3xmb/lH8M9M7fjvsvhMhGk+Z5gATRgfNvWcKxdT/aBXaehMf/hEwIZy mh/vsp/z0HTW/L8YMC3kdQ== 0000899243-03-000171.txt : 20030204 0000899243-03-000171.hdr.sgml : 20030204 20030204170422 ACCESSION NUMBER: 0000899243-03-000171 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030202 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3TEC ENERGY CORP CENTRAL INDEX KEY: 0000903267 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 631081013 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14745 FILM NUMBER: 03539120 BUSINESS ADDRESS: STREET 1: 700 MILAM STREET STREET 2: SUITE 1100 CITY: HOUSTON STATE: TX ZIP: 77002-2 BUSINESS PHONE: 7138217100 FORMER COMPANY: FORMER CONFORMED NAME: MIDDLE BAY OIL CO INC DATE OF NAME CHANGE: 19930504 8-K 1 d8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: FEBRUARY 4, 2003 (Date of earliest event reported) FEBRUARY 2, 2003 3TEC ENERGY CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 001-14745 63-1081013 (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) Identification No.) 700 Milam Street, Suite 1100, Houston, Texas 77002 (Address of principal executive offices and zip code) (713) 821-7100 Registrant's telephone number, including area code ITEM 5 - OTHER EVENTS 3TEC Energy Corporation ("3TEC") announced February 3, 2003, that it has entered into a definitive agreement pursuant to which Plains Exploration & Production Company ("PXP") will acquire 3TEC for a combination of cash and stock. 3TEC stockholders will receive $8.50 in cash and 0.85 shares of PXP's common stock for each share of 3TEC common stock, subject to certain adjustments based on PXP's share price prior to closing of the transaction. The transaction is expected to be closed during the second quarter of 2003. The Agreement and Plan of Merger and related Voting Agreements, Registration Rights Agreement and the February 3, 2003 press release are filed herewith as Exhibits 10.1, 10.2, 10.3, 10.4 and 99.1 respectively, and are incorporated herein by reference. ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibits. The following exhibits are filed herewith: 10.1 Agreement and Plan of Merger dated February 2, 2003, by and among Plains Exploration & Production Company, PXP Gulf Coast Inc. and 3TEC Energy Corporation. 10.2 Voting Agreement dated as of February 2, 2003, by and among Plains Exploration & Production Company, 3TEC Energy Corporation, EnCap Energy Acquisition III-B, Inc., EnCap Energy Capital Fund III, L.P., BOCP Energy Partners, L.P., ECIC Corporation, Floyd C. Wilson, Stephen W. Herod, and R.A. Walker. 10.3 Voting Agreement dated as of February 2, 2003, by and among Plains Exploration & Production Company, 3TEC Energy Corporation, EnCap Energy Capital Fund III-B, L.P., EnCap Energy Capital Fund III, L.P., BOCP Energy Partners, L.P., Energy Capital Investment Company PLC, Sable Management, L.P., and James C. Flores. 10.4 Registration Rights Agreement dated February 2, 2003, by and among Plains Exploration & Production Company, EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., ECIC Corporation and EnCap Investments, L.L.C. 99.1 Press Release issued by PXP on February 3, 2003. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 3TEC Energy Corporation (Registrant) Date: February 4, 2003 By: /s/Floyd C. Wilson ------------------------ Floyd C. Wilson Chief Executive Officer INDEX TO EXHIBITS 10.1 Agreement and Plan of Merger dated February 2, 2003, by and among Plains Exploration & Production Company, PXP Gulf Coast Inc. and 3TEC Energy Corporation. 10.2 Voting Agreement dated as of February 2, 2003, by and among Plains Exploration & Production Company, 3TEC Energy Corporation, EnCap Energy Acquisition III-B, Inc., EnCap Energy Capital Fund III, L.P., BOCP Energy Partners, L.P., ECIC Corporation, Floyd C. Wilson, Stephen W. Herod, and R.A. Walker. 10.3 Voting Agreement dated as of February 2, 2003, by and among Plains Exploration & Production Company, 3TEC Energy Corporation, EnCap Energy Capital Fund III-B, L.P., EnCap Energy Capital Fund III, L.P., BOCP Energy Partners, L.P., Energy Capital Investment Company PLC, Sable Management, L.P., and James C. Flores. 10.4 Registration Rights Agreement dated February 2, 2003, by and among Plains Exploration & Production Company, EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., ECIC Corporation and EnCap Investments, L.L.C. 99.1 Press Release dated February 3, 2003. EX-10.1 3 dex101.txt AGREEMENT AND PLAN OF MERGER Exhibit 10.1 AGREEMENT AND PLAN OF MERGER By and Among PLAINS EXPLORATION & PRODUCTION COMPANY, PXP GULF COAST INC. and 3TEC ENERGY CORPORATION Dated as of February 2, 2003 TABLE OF CONTENTS ARTICLE I THE MERGER......................................................... 1 1.1 The Merger........................................................ 1 1.2 Effective Time of the Merger...................................... 1 1.3 Tax Treatment..................................................... 2 ARTICLE II THE SURVIVING CORPORATION......................................... 2 2.1 Certificate of Incorporation...................................... 2 2.2 Bylaws............................................................ 2 2.3 Directors and Officers............................................ 2 ARTICLE III CONVERSION OF SHARES............................................. 2 3.1 Conversion of Capital Stock....................................... 2 3.2 Surrender and Payment............................................. 5 3.3 Stock Options; Warrants; Restricted Stock......................... 6 3.4 No Fractional Shares.............................................. 7 3.5 Dissenter's Rights................................................ 7 3.6 Closing........................................................... 7 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TARGET.......................... 8 4.1 Organization and Qualification.................................... 8 4.2 Capitalization.................................................... 8 4.3 Authority......................................................... 9 4.4 Consents and Approvals; No Violation.............................. 9 4.5 Target SEC Reports................................................ 10 4.6 Financial Statements.............................................. 11 4.7 Absence of Undisclosed Liabilities; Liabilities as of Year End.... 11 4.8 Absence of Certain Changes........................................ 11 4.9 Taxes............................................................. 11 4.10 Litigation........................................................ 13 4.11 Employee Benefit Plans; ERISA..................................... 13 4.12 Environmental Liability........................................... 15 4.13 Compliance with Applicable Laws................................... 16 4.14 Insurance......................................................... 16 4.15 Labor Matters; Employees.......................................... 16 4.16 Reserve Reports................................................... 17 4.17 Permits........................................................... 18 4.18 Material Contracts................................................ 18 4.19 Required Stockholder Vote or Consent.............................. 18 4.20 Proxy/Prospectus; Registration Statement.......................... 19 4.21 Intellectual Property............................................. 19 4.22 Hedging........................................................... 19 4.23 Brokers........................................................... 19 4.24 Tax-Free Reorganization........................................... 20 4.25 Fairness Opinion.................................................. 23 4.26 Takeover Laws..................................................... 23
i ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............ 23 5.1 Organization and Qualification.................................... 23 5.2 Capitalization.................................................... 24 5.3 Authority......................................................... 25 5.4 Consents and Approvals; No Violation.............................. 25 5.5 Parent SEC Reports................................................ 26 5.6 Parent Financial Statements....................................... 26 5.7 Absence of Undisclosed Liabilities................................ 27 5.8 Absence of Certain Changes........................................ 27 5.9 Taxes............................................................. 27 5.10 Litigation........................................................ 28 5.11 Employee Benefit Plans; ERISA..................................... 29 5.12 Environmental Liability........................................... 30 5.13 Compliance with Laws and Parent Material Contracts................ 31 5.14 Insurance......................................................... 32 5.15 Labor Matters; Employees.......................................... 32 5.16 Reserve Reports................................................... 33 5.17 Permits........................................................... 33 5.18 Required Stockholder Vote or Consent.............................. 33 5.19 Proxy/Prospectus; Registration Statement.......................... 33 5.20 Intellectual Property............................................. 34 5.21 Hedging........................................................... 34 5.22 Brokers........................................................... 34 5.23 Tax Matters....................................................... 34 ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER............................ 38 6.1 Conduct of Business by Target Pending the Merger.................. 38 6.2 Conduct of Business by Parent Pending the Merger.................. 40 ARTICLE VII ADDITIONAL AGREEMENTS............................................ 42 7.1 Access and Information............................................ 42 7.2 Acquisition Proposals............................................. 42 7.3 Directors' and Officers' Indemnification and Insurance............ 43 7.4 Further Assurances................................................ 44 7.5 Expenses.......................................................... 45 7.6 Cooperation....................................................... 45 7.7 Publicity......................................................... 45 7.8 Additional Actions................................................ 45 7.9 Filings........................................................... 46 7.10 Consents.......................................................... 46 7.11 Employee Matters; Benefit Plans................................... 46 7.12 Board, Committees and Executive Officers.......................... 46 7.13 Stockholders' Meetings............................................ 46 7.14 Preparation of the Proxy/Prospectus and Registration Statement.... 47 7.15 Stock Exchange Listing............................................ 48 7.16 Notice of Certain Events.......................................... 48
ii 7.17 Site Inspections.................................................. 49 7.18 Affiliate Agreements; Tax Treatment............................... 49 7.19 Stockholder Litigation............................................ 50 7.20 Certain Parent Board Approvals.................................... 50 7.21 Optional Redemption or Liquidation of Target D Preferred Shares... 50 ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER........................ 50 8.1 Conditions to the Obligation of Each Party........................ 50 8.2 Conditions to the Obligations of Parent........................... 51 8.3 Conditions to the Obligations of Target........................... 52 ARTICLE IX SURVIVAL.......................................................... 53 9.1 Survival of Representations and Warranties........................ 53 9.2 Survival of Covenants and Agreements.............................. 53 ARTICLE X TERMINATION, AMENDMENT AND WAIVER.................................. 53 10.1 Termination....................................................... 53 10.2 Effect of Termination............................................. 54 ARTICLE XI MISCELLANEOUS..................................................... 55 11.1 Notices........................................................... 55 11.2 Severability...................................................... 57 11.3 Assignment........................................................ 57 11.4 Interpretation.................................................... 57 11.5 Counterparts...................................................... 57 11.6 Entire Agreement.................................................. 57 11.7 Governing Law..................................................... 57 11.8 Submission to Jurisdiction........................................ 57 11.9 Attorneys' Fees................................................... 57 11.10 No Third Party Beneficiaries...................................... 57 11.11 Disclosure Schedules.............................................. 57 11.12 Amendments and Supplements........................................ 58 11.13 Extensions, Waivers, Etc.......................................... 58
iii INDEX OF DEFINED TERMS Term Section Additional Cash 3.1(b)(i) Affiliated Group 4.24(y)(ii) Agreement Preamble Ancillary Agreements 4.3 Assessment 7.17 Audit 4.9(f) Cash Consideration 3.1(b)(i) Closing 3.6 Closing Date 3.6 Code Preamble Common Conversion Consideration 3.1(b)(i) Common Stock Certificate 3.1(b)(i) Common Stock Merger Consideration 3.1(b)(i) Confidentiality Agreements 7.1 Contract Employees 4.11(e) Customary Post-Closing Consents 4.4(b) D&O Insurance 7.3(c) de minimis Shares 3.1(b)(i) DGCL 1.1 Director Nominees 7.12 Dissenting Shares 3.5 Dissenting Stockholder 3.5 Effective Time 1.2 Enforceability Exception 4.3 Environmental Laws 4.12(a) ERISA 4.11(a) Exchange Act 4.4(b) Exchange Agent 3.2(a) Exchange Fund 3.2(a) Exchange Instructions 3.2(b) Exchange Ratio 3.1(b)(i) Expense Cap 10.2(b)(i) Expenses 7.5(b) GAAP 4.6 Governmental Authority 3.2(c) Hazardous Substances 4.12(b) Hydrocarbons 4.16(a) Indemnified Liabilities 7.3(a) Indemnified Party 7.3(a) Inspected Party 7.17 Inspecting Party 7.17 Intellectual Property 4.21 Liens 4.4(e) Market Price 3.1(b)(iii) Merger Preamble Merger Consideration 3.1(a) Merger Sub Preamble Minimum Market Price 3.1(b)(iii) Oil and Gas Interests 4.16(a) Parent Preamble Parent Benefit Plans 5.11(a) Parent Common Shares 3.1(b)(i)(y) Parent Disclosure Schedule 5.1(a), 5.2(b) Parent Engagement Letters 5.22 Parent ERISA Affiliate 5.11(a) Parent Incentive Plan 7.13(b) Parent Material Adverse Effect 5.1(c) Parent Material Contract 5.13 Parent Parties Preamble Parent Reserve Report 5.16(a) Parent SEC Reports 5.5 Parent Share Issuance Approval 5.18 Parent Special Meeting 7.13(b) Parent Stockholders' Approval 7.13(b) Parent Tax Certificate 8.3(c) PBGC 4.11(b), 5.11(b) PCBs 4.12(e) Permits 4.17 Person 3.2(c) Preferred Conversion Consideration 3.1(c) Preferred Stock Certificate 3.1(c) Preferred Stock Merger Consideration 3.1(c) proceeding 7.3(a) Proxy/Prospectus 4.20 Registration Statement 4.20 Related Person 4.24 SEC 4.5 Securities Act 4.4(b) Severance Package Table 4.11(e) Stock Certificates 3.1(c) Stock Consideration 3.1(b)(i) Subsidiary 4.1(c) Surviving Corporation 1.1 Target Preamble Target Acquisition Proposal 7.2 Target B Preferred Shares 4.2 Target Benefit Plans 4.11(a) Target Breach 10.1(d) Target Common Shares 3.1(a) Target D Preferred Shares 3.1(c) Target Disclosure Schedule 4.1(a) Target Employee Agreement 4.11(a) Target Employees 4.11(e) Target Engagement Letter 4.23 Target ERISA Affiliate 4.11(a) Target Material Adverse Effect 4.1(c) Target Material Contracts 4.18(a) Target Reserve Report 4.16(a) Target Restricted Stock 3.3(c) Target SEC Reports 4.5 Target Severance Policy 4.11(e) Target Special Meeting 7.13(a) iv Term Section Target Stock Options 3.3(a)(i) Target Stockholders' Approval 4.19 Target Superior Proposal 10.1(h) Target Tax Certificate 8.2(c) Target Wararnts 4.24(d) Tax Authority 4.9(f) Tax Returns 4.9(f) Taxes 4.9(f) Termination Date 10.1(b) $3.00 Warrant Consideration 3.3(b) Termination Fee 10.2(b)(i) Transactions 3.6 Voting Agreements Preamble WARN Act 4.15(b) Exhibits 7.13(b) Parent Incentive Plan 7.18 Affiliate Agreement 8.2(c) Target Tax Certificate 8.3(c) Parent and Merger Sub Tax Certificate v AGREEMENT AND PLAN OF MERGER This Agreement and Plan of Merger (this "Agreement") dated February 2, 2003, by and among Plains Exploration & Production Company, a Delaware corporation ("Parent"), PXP Gulf Coast Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub," and, together with Parent, the "Parent Parties") and 3TEC Energy Corporation, a Delaware corporation ("Target"). WHEREAS, the respective Boards of Directors of the Parent Parties and Target deem it advisable and in the best interests of their respective corporations and stockholders that Target merge with and into Merger Sub (the "Merger") upon the terms and subject to the conditions set forth herein, and such Boards of Directors have approved the Merger; and WHEREAS, concurrently with the execution and delivery of this Agreement, (i) with the approval of Target's Board of Directors, Parent has entered into voting agreements with each of EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., ECIC Corporation, Floyd C. Wilson, R. A. Walker, and Stephen W. Herod under which such parties have among other things agreed to support the Merger upon the terms and conditions set forth therein, and (ii) with the approval of Parent's Board of Directors, Target has entered into voting agreements with each of EnCap Energy Capital Fund III, L.P., EnCap Energy Capital Fund III-B, L.P., BOCP Energy Partners, L.P., Energy Capital Investment Company PLC, Sable Management, L.P., and James C. Flores, under which such parties have among other things agreed to support the Merger upon the terms and conditions set forth therein (collectively, the "Voting Agreements"); and WHEREAS, for federal income tax purposes, it is intended that the Merger will qualify as a reorganization under the provisions of Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"); NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements contained herein, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1 The Merger. Upon the terms and subject to the conditions hereof, at the Effective Time Target shall merge with and into Merger Sub and the separate corporate existence of Target shall thereupon cease and Merger Sub shall be the surviving corporation in the Merger (sometimes referred to herein as the "Surviving Corporation") as a wholly-owned subsidiary of Parent. The Merger shall have the effects set forth in Section 259 of the Delaware General Corporation Law (the "DGCL"), including the Surviving Corporation's succession to and assumption of all rights and obligations of Merger Sub and Target 1.2 Effective Time of the Merger. The Merger shall become effective (the "Effective Time") upon the later of (i) the date of filing of a properly executed Certificate of Merger relating to the Merger with the Secretary of State of Delaware in accordance with the DGCL, and (ii) at such later time as the parties shall agree and set forth in such Certificate of Merger. The 1 filing of the Certificate of Merger referred to above shall be made as soon as practicable on the Closing Date set forth in Section 3.6. 1.3 Tax Treatment. It is intended that the Merger shall constitute a reorganization under Section 368(a) of the Code. ARTICLE II THE SURVIVING CORPORATION 2.1 Certificate of Incorporation. The Certificate of Incorporation of Merger Sub in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation at and after the Effective Time until thereafter amended in accordance with the terms thereof and the DGCL. 2.2 Bylaws. The bylaws of Merger Sub as in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation at and after the Effective Time, and thereafter may be amended in accordance with their terms and as provided by the Surviving Corporation's Certificate of Incorporation and bylaws and the DGCL. 2.3 Directors and Officers. At and after the Effective Time, the directors and officers of Merger Sub shall be the directors and officer of the Surviving Corporation until their respective successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and bylaws and the DGCL. ARTICLE III CONVERSION OF SHARES 3.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holders of any capital stock described below: (a) All shares of Common Stock of Target, par value $.02 ("Target Common Shares"), that are held in Target's treasury shall be canceled and cease to exist and no cash, Parent capital stock or other consideration shall be delivered in exchange therefor. (b) Conversion of Target Common Shares. (i) Subject to Sections 3.4 and 3.5, each issued and outstanding Target Common Share (other than Target Common Shares treated in accordance with Section 3.1(a) or Dissenting Shares) shall be converted into the right to receive (x) $8.50 in cash plus, if applicable, the Additional Cash (collectively the "Cash Consideration") and (y) the number of shares of common stock, par value $.01 per share, of Parent (the "Parent Common Shares") equal to the Exchange Ratio (the "Stock Consideration" and, together with the Cash Consideration, the "Common Conversion Consideration"). All such Target Common Shares, when so converted, shall be retired, shall cease to be outstanding and shall automatically 2 be cancelled, and the holder of a certificate ("Common Stock Certificate") that, immediately prior to the Effective Time represented such Target Common Shares shall cease to have any rights with respect thereto, except the right to receive, upon the surrender of such Common Stock Certificate in accordance with Section 3.2: (A) the Common Conversion Consideration, (B) certain dividends and other distributions under Section 3.1(f), and (C) cash in lieu of fractional Parent Common Shares under Section 3.4 (the "de minimis Shares"), in each case without interest (collectively, the "Common Stock Merger Consideration"). Notwithstanding the foregoing, if between the date hereof and the Effective Time the Parent Common Shares or Target Common Shares are changed into a different number of shares or a different class, because of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Exchange Ratio and, with respect to the changes in the outstanding Target Common Shares, the Cash Consideration, shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares. (ii) If the Market Price is less than the Minimum Market Price, Parent may either terminate this Agreement under Section 10.1(i) or pay the Additional Cash under Section 3.1(b)(i). (iii) Additional Definitions "Additional Cash" means an amount in cash equal to the product of (i) the Minimum Market Price minus the Market Price and (ii) the Exchange Ratio. "Exchange Ratio" means 0.85 provided that if the Market Price of the Parent Common Shares is: . greater than $12.35, then the Exchange Ratio shall equal the quotient of (A) $10.50 divided by (B) the Market Price. . less than $7.65, then the Exchange Ratio shall equal the quotient of (A) $6.50 divided by (B) the Market Price. If the Market Price, is less than the Minimum Market Price the Market Price in the preceding sentence shall be deemed to be the Minimum Market Price. "Market Price" means the average of the closing prices of a Parent Common Share on the New York Stock Exchange, as reported in The Wall Street Journal, for the 20 consecutive trading days immediately preceding the third trading day before the Closing. "Minimum Market Price" means $6.25. (c) Each share of Series D Preferred Stock of Target, par value $.02 per share (the "Target D Preferred Shares"), issued and outstanding immediately prior to the Effective Time, other than those Target D Preferred Shares held by a Dissenting Stockholder, shall be converted into the right to receive the amount of cash that would be required to redeem such 3 share pursuant to the Certificate of Designation filed with the Secretary of State of Delaware with respect thereto as of the Effective Time (the "Preferred Conversion Consideration"). All such Target D Preferred Shares, when so converted, shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and the holder of a certificate ("Preferred Stock Certificate" and, together with the Common Stock Certificates, the "Stock Certificates") that, immediately prior to the Effective Time, represented outstanding Target D Preferred Stock shall cease to have any rights with respect thereto, except the right to receive, upon the surrender of such Preferred Stock Certificate, the Preferred Conversion Consideration without interest (collectively, the "Preferred Stock Merger Consideration," and, together with the Common Stock Merger Consideration, the "Merger Consideration"). (d) The Merger shall not affect any common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time, which will remain outstanding and which will represent all of the issued and outstanding capital stock of the Surviving Corporation. (e) The Merger shall not affect any Parent Common Share issued and outstanding immediately prior to the Effective Time. (f) No dividends or other distributions declared or made after the Effective Time with a record date after the Effective Time shall be paid to the holder of any un-surrendered Common Stock Certificate with respect to the applicable Common Stock Merger Consideration represented thereby until the holder of record of such Common Stock Certificate has surrendered such Common Stock Certificate in accordance with Section 3.2. Subject to the effect of applicable laws (including escheat and abandoned property laws), following surrender of any such Common Stock Certificate, the record holder of the certificate or certificates representing the Common Stock Merger Consideration issued in exchange therefor shall be paid without interest, (i) the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to Common Stock Merger Consideration, and (ii) if the payment date for any dividend or distribution payable with respect to Common Stock Merger Consideration has not occurred prior to the surrender of such Common Stock Certificate, at the appropriate payment date therefor, the amount of dividends or other distributions with a record date after the Effective Time but prior to the surrender of such Common Stock Certificate and a payment date subsequent to the surrender of such Common Stock Certificate. (g) All Merger Consideration issued upon the surrender of Stock Certificates in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such Stock Certificates and the Target Common Shares or Target D Preferred Shares formerly represented thereby, and from and after the Effective Time there shall be no further registration of transfers effected on the stock transfer books of the Surviving Corporation of Target Common Shares, or Target D Preferred Shares which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Stock Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article III. 4 3.2 Surrender and Payment. (a) Parent shall authorize one or more transfer agent(s) reasonably acceptable to Target to act as Exchange Agent hereunder (the "Exchange Agent") with respect to the Merger. At or prior to the Effective Time, Parent shall deposit with the Exchange Agent for the benefit of the holders of Target Common Shares and Target D Preferred Shares, for exchange in accordance with this Section 3.2 through the Exchange Agent, the aggregate amount of Merger Consideration payable in connection with the Merger (collectively, the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable instructions, deliver the applicable Merger Consideration in exchange for surrendered Stock Certificates pursuant to Section 3.1 out of the Exchange Fund. Except as contemplated by Section 3.2(d), the Exchange Fund shall not be used for any other purpose. (b) Promptly after the Effective Time, Parent shall cause the Exchange Agent to send to each holder of record of Stock Certificates a letter of transmittal for use in such exchange (which shall specify that the delivery shall be effected, and risk of loss and title with respect to the Stock Certificates shall pass, only upon proper delivery of the Stock Certificates to the Exchange Agent, and which shall be in a form reasonably acceptable to Target), and instructions for use in effecting the surrender of Stock Certificates for payment therefor in accordance herewith (together, the "Exchange Instructions"). (c) If any portion of the Merger Consideration is to be paid to a Person other than the registered holder of Target Common Shares or Target D Preferred Shares, as applicable, represented by the Stock Certificate(s) surrendered in exchange therefor, no such issuance or payment shall be made unless (i) the Stock Certificate(s) so surrendered have been properly endorsed or otherwise be in proper form for transfer and (ii) the Person requesting such issuance has paid to the Exchange Agent any transfer or other taxes required as a result of such issuance to a Person other than the registered holder or establish to the Exchange Agent's satisfaction that such tax has been paid or is not applicable. For this Agreement, "Person" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including any governmental or regulatory authority or agency (a "Governmental Authority"). (d) Any portion of the Exchange Fund that remains unclaimed by the holders of Target Common Shares or Target D Preferred Shares one year after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged such holder's Stock Certificates in accordance with this Section 3.2 prior to that time shall thereafter look only to Parent, as a general creditor thereof, to exchange such Stock Certificates or to pay amounts to which such holder is entitled pursuant to Section 3.1. If outstanding Stock Certificates are not surrendered prior to six years after the Effective Time (or, in any particular case, prior to such earlier date on which any Merger Consideration issuable or payable upon the surrender of such Stock Certificates would otherwise escheat to or become the property of any governmental unit or agency), the Merger Consideration issuable or payable upon the surrender of such Stock Certificates shall, to the extent permitted by applicable law, become the property of Parent, free and clear of all claims or interest of any Person previously entitled thereto. Notwithstanding the foregoing, none of Parent, Target or the Surviving Corporation shall be liable to any holder of 5 Stock Certificates for any amount paid, or Merger Consideration delivered, to a public official pursuant to applicable abandoned property, escheat or similar laws. (e) If any Stock Certificate is lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Stock Certificate is lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as Parent may direct as indemnity against any claim that may be made against it with respect to such Stock Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Stock Certificate the Merger Consideration in respect thereof pursuant to this Agreement. 3.3 Stock Options; Warrants; Restricted Stock. (a) Target Options. (i) Prior to the Effective Time, Target shall cause all stock options ("Target Stock Options") issued pursuant to the Target Benefit Plans listed on Section 4.11(a)(1) of the Target Disclosure Schedule to be vested and shall cause such holders to exercise such Target Stock Options prior to the Effective Time for consideration equal to that number of Target Common Shares equal to the quotient of (X) the difference between (1) the product of (I) $17.00 times (II) the number of Target Common Shares issuable upon exercise of such Target Stock Option minus (2) the aggregate exercise price of such Stock Option divided by (Y) $17.00, and if such Target Stock Options are not exercised prior to the Effective Time, such options shall terminate as of the Effective Time. (ii) Target shall use its reasonable best efforts to cause its Board of Directors or any committee thereof responsible for the administration of Target's option plans to take any and all action necessary to effectuate the matters described in this Section 3.3(a) on or before the Effective Time. (b) Target Warrants. Target shall use its reasonable best efforts to cause each warrant to purchase Target Common Shares for $3.00 per share listed on Section 3.3(b)(i) of the Target Disclosure Schedule to be automatically exchanged for consideration equal to that Common Stock Merger Consideration that would have been received by the holder of such warrant had such warrant been exercised prior to the Effective Time and as a result of such exercise such holder received Target Common shares equal to the quotient of (X) the difference between (1) the product of (I) $17.00 times (II) the number of Target Common Shares issuable upon exercise of such warrant minus (2) the aggregate exercise price of such warrant divided by (Y) $17.00 (the "$3.00 Warrant Consideration"). (c) Restricted Stock. At the Effective Time, all remaining restrictions with respect to the Target Restricted Stock shall expire and the Target Restricted Stock shall be treated as Target Common Shares in accordance with Section 3.1(b). "Target Restricted Stock" means the shares of Target restricted stock issued pursuant to the Target Benefit Plans. (d) Taxes and Interest. Any amounts payable pursuant to this Section 3.3 shall be subject to any required withholding of taxes and shall be paid without interest. 6 3.4 No Fractional Shares. No de minimis Shares shall be issued in the Merger and fractional share interests shall not entitle the owner thereof to vote or to any rights of a stockholder of Parent. All holders of de minimis Shares shall be entitled to receive, in lieu thereof, an amount in cash equal to such fraction times twice the Cash Consideration (but one times the Additional Cash). 3.5 Dissenter's Rights. Notwithstanding anything in this agreement to the contrary, Target Common Shares and Target D Preferred Shares, if any, issued and outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger and who has delivered a written demand for appraisal for such shares in accordance with Section 262 the DGCL (a "Dissenting Stockholder") shall not be converted into the right to receive the Common Stock Merger Consideration or the Preferred Stock Merger Consideration, as applicable, as provided in Section 3.1, unless and until such holder fails to perfect or effectively withdraws or otherwise loses such holder's right to appraisal under the DGCL. A Dissenting Stockholder may receive payment of the fair value of the Target Common Shares or the Target D Preferred Shares, as applicable, issued and outstanding immediately prior to the Effective Time and held by such Dissenting Stockholder ("Dissenting Shares") in accordance with the provisions of the DGCL, provided that such Dissenting Stockholder complies with Section 262 of the DGCL. At the Effective Time, all Dissenting Shares shall be cancelled and cease to exist and shall represent only the right to receive the fair value thereof in accordance with the DGCL. If, after the Effective Time, any Dissenting Stockholder fails to perfect or effectively withdraws or otherwise loses such Dissenting Stockholder's right to appraisal, such Dissenting Stockholder's Dissenting Shares shall thereupon be treated as if they had been converted, as of the Effective Time, into the right to receive the Common Stock Merger Consideration or the Preferred Stock Merger Consideration, as applicable. Target shall give Parent (a) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served under the DGCL, and (b) the opportunity to participate in and direct all negotiations, proceedings or settlements with respect to demands for appraisal under the DGCL. Target shall not voluntarily make any payment with respect to any appraisal demands for appraisal and shall not, except with Parent's prior written consent, settle or offer to settle any such demands. 3.6 Closing. The closing (the "Closing") of the transactions contemplated by this Agreement (the "Transactions") shall take place at 10:00 a.m., local time, on the business day (the "Closing Date") on which all of the conditions set forth in Article VIII are satisfied or waived, at the offices of Akin Gump Strauss Hauer & Feld LLP, 1900 Pennzoil Place, South Tower, 711 Louisiana Street, Houston, Texas 77002, or at such other date and time as Parent and Target shall agree. 7 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TARGET Target represents and warrants to the Parent Parties as follows: 4.1 Organization and Qualification. (a) Target is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business as a foreign corporation and is in good standing in the jurisdictions set forth in Section 4.1(a) of the disclosure letter delivered by Target to Parent contemporaneously with the execution hereof (the "Target Disclosure Schedule"), which include each jurisdiction in which the character of Target's properties or the nature of its business makes such qualification necessary, except in jurisdictions, if any, where the failure to be so qualified would not result in a Target Material Adverse Effect (as defined below). Target has all requisite corporate power and authority to own, use or lease its properties and to carry on its business as it is now being conducted. Target has made available to Parent a complete and correct copy of its certificate of incorporation and bylaws, each as amended to date, and Target's certificate of incorporation and bylaws as so delivered are in full force and effect. Target is not in default in any respect in the performance, observation or fulfillment of any provision of its certificate of incorporation or bylaws. (b) Target has no Subsidiaries and has had no Subsidiaries since August 6, 2002. (c) For this Agreement, (i) a "Target Material Adverse Effect" means any event, circumstance, condition, development or occurrence causing, resulting in or having (or with the passage of time likely to cause, result in or have) a material adverse effect on the financial condition, business, assets, properties, prospects or results of operations of Target; provided that in no event shall any of the following be deemed to constitute or be taken into account in determining a Target Material Adverse Effect: any event, circumstance, change or effect that results from (A) changes affecting the economy generally, (B) changes in the market price of oil or natural gas, (C) the public announcement or pending nature of the Transactions, (D) compliance with the terms of this Agreement, or (E) change in the price of the Target Common Shares or the Parent Common Shares and (ii) "Subsidiary" means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which (x) at least a majority of the securities or other interests having by their terms 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 beneficially owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries, or (y) such party or any Subsidiary of such party is a general partner of a partnership or a manager of a limited liability company. 4.2 Capitalization. The authorized capital stock of Target consists of 60,000,000 Target Common Shares and 20,000,000 shares of preferred stock, par value $.02 per share, of which 266,667 shares have been designated Series B Preferred Stock (the "Target B Preferred Shares"), and 725,167 shares have been designated as Target D Preferred Shares. As of the date 8 hereof, (i) 16,780,776 (which includes 62,500 restricted shares for which restrictions have not lapsed and which will be cancelled at the Effective Time) Target Common Shares were issued and outstanding, (ii) no Target B Preferred Shares were issued and outstanding, (iii) 613,919 Target D Preferred Shares were issued and outstanding, (iv) stock options to acquire 3,358,181 Target Common Shares were outstanding under all stock option plans and agreements of Target, and (v) warrants to acquire 1,515,000 Target Common Shares were outstanding under all warrant agreements of Target. All of the outstanding Target Common Shares and Target D Preferred Shares are validly issued, fully paid and nonassessable, and free of preemptive rights. Except as set forth above, and other than this Agreement, there are no outstanding subscriptions, options, rights, warrants, convertible securities, stock appreciation rights, phantom equity, or other agreements or commitments (including "rights plans" or "poison pills") obligating Target to issue, transfer, sell, redeem, repurchase or otherwise acquire any shares of its capital stock of any class. Except as contemplated by the Voting Agreement, there are no agreements, arrangements or other understandings with respect to the right to vote any shares of capital stock of Target. 4.3 Authority. Target has full corporate power and authority to execute and deliver this Agreement and any ancillary agreements to which Target is or will be a party (the "Ancillary Agreements") and, subject to obtaining the Target Stockholders' Approval, to consummate the Transactions. The execution, delivery and performance of this Agreement and the Ancillary Agreements to which Target is or will be a party and the consummation of the Transactions have been duly and validly authorized by Target's Board of Directors, and no other corporate proceedings on the part of Target are necessary to authorize this Agreement and the Ancillary Agreements to which Target is or will be a party or to consummate the Transactions, other than the Target Stockholders' Approval. This Agreement has been, and the Ancillary Agreements to which Target is or will be a party are, or upon execution will be, duly and validly executed and delivered by Target and, assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, constitutes, or upon execution will constitute, valid and binding obligations of Target enforceable against Target in accordance with their respective terms, except as such enforceability may be subject to the effects of bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors and of general principles of equity (the "Enforceability Exception"). 4.4 Consents and Approvals; No Violation. The execution and delivery of this Agreement, the consummation of the Transactions and the performance by Target of its obligations hereunder will not: (a) subject to receipt of the Target Stockholders' Approval, conflict with any provision of Target's certificate of incorporation or bylaws, as amended; (b) subject to obtaining the Target Stockholders' Approval and filing of the Certificate of Merger with the Secretary of State of Delaware, require any consent, waiver, approval, order, authorization or permit of, or registration, filing with or notification to, (i) any Governmental Authority, except for applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934 (the "Exchange Act"), state laws relating to takeovers, if applicable, state securities or blue sky laws, except as set forth in Section 4.4(b) of the Target Disclosure Schedule and except for approvals that are ministerial in nature and are customarily obtained from Governmental Authorities after the Effective Time 9 in connection with transactions of the same nature as are contemplated hereby ("Customary Post-Closing Consents") or (ii) except as set forth in Section 4.4(b) of the Target Disclosure Schedule, any third party other than a Governmental Authority, other than such non-Governmental Authority third party consents, waivers, approvals, orders, authorizations and permits that would not (i) result in a Target Material Adverse Effect, (ii) materially impair the ability of Target, to perform its obligations under this Agreement or any Ancillary Agreement or (iii) prevent the consummation of any of the Transactions; (c) except as set forth in Section 4.4(c) of the Target Disclosure Schedule, result in any violation of or the breach of or constitute a default (with notice or lapse of time or both) under, or give rise to any right of termination, cancellation or acceleration or guaranteed payments or a loss of a material benefit under, any of the terms, conditions or provisions of any note, lease, mortgage, license, agreement or other instrument or obligation to which Target or is a party or by which Target or any of its properties or assets may be bound, except for such violations, breaches, defaults, or rights of termination, cancellation or acceleration, or losses as to which requisite waivers or consents have been obtained or which, individually or in the aggregate, would not (i) result in a Target Material Adverse Effect, (ii) materially impair the ability of Target to perform its obligations under this Agreement or any Ancillary Agreement or (iii) prevent the consummation of any of the Transactions; (d) except as set forth in Section 4.4(d) of the Target Disclosure Schedule, violate the provisions of any order, writ, injunction, judgment, decree, statute, rule or regulation applicable to Target; (e) except as set forth in Section 4.4(e) of the Target Disclosure Schedule, result in the creation of any liens, mortgages, pledges, security interests, encumbrances, claims or charges of any kind (collectively, "Liens") upon any shares of capital stock or material properties or assets of Target under any agreement or instrument to which Target is a party or by which Target or any of its properties or assets is bound; or (f) except as set forth in Section 4.4(f) of the Target Disclosure Schedule or Section 3.5, result in any holder of any securities of Target being entitled to appraisal, dissenters' or similar rights. 4.5 Target SEC Reports. Except as set forth in Section 4.5 of the Target Disclosure Schedule, Target has filed with the Securities and Exchange Commission (the "SEC") each form, registration statement, report, schedule, proxy or information statement and other document (including exhibits and amendments thereto), including its Annual Reports to Stockholders incorporated by reference in certain of such reports, required to be filed by it or its predecessors with the SEC since January 1, 1999 under the Securities Act or the Exchange Act (collectively, the "Target SEC Reports"). As of the respective dates the Target SEC Reports were filed or, if any Target SEC Reports were amended, as of the date such amendment was filed, each Target SEC Report, including any financial statements or schedules included therein, (a) complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the applicable rules and regulations promulgated thereunder, and (b) did not contain any 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 10 light of the circumstances under which they were made, not misleading. No event since the date of the last Target SEC Report has occurred that would require Target to file a Current Report on Form 8-K other than the execution of this Agreement. 4.6 Financial Statements. Each of the audited consolidated financial statements and unaudited consolidated interim financial statements of Target (including any related notes and schedules) included (or incorporated by reference) in its Annual Reports on Form 10-KSB for each of the three fiscal years ended December 31, 1999, 2000 and 2001 and its Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, June 30 and September 30, 2002 have been prepared from, and are in accordance with, the books and records of Target and its consolidated Subsidiaries, comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated in the notes thereto and subject, in the case of quarterly financial statements, to normal and recurring year-end adjustments) and fairly present, in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of Target and its Subsidiaries as of the date thereof and the consolidated results of operations and cash flows (and changes in financial position, if any) of Target and its Subsidiaries for the periods presented therein (subject to normal year-end adjustments and the absence of financial footnotes in the case of any unaudited interim financial statements). 4.7 Absence of Undisclosed Liabilities; Liabilities as of Year End. Except (a) as set forth on Section 4.7 of the Target Disclosure Schedule (b) as specifically disclosed in the Target SEC Reports filed and publicly available prior to the date hereof and (c) for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since December 31, 2001, Target has not incurred any liabilities or obligations of any nature (contingent or otherwise) that would have a Target Material Adverse Effect. As of December 31, 2002, Target's long term debt did not exceed $99 million. 4.8 Absence of Certain Changes. Except as disclosed in the Target SEC Reports filed and publicly available prior to the date hereof, as set forth in Section 4.8 of the Target Disclosure Schedule or as contemplated by this Agreement, since December 31, 2001 (a) Target has conducted its business only in the ordinary course of business consistent with past practices, (b) there has not been any change or development, or combination of changes or developments that, individually or in the aggregate, would have a Target Material Adverse Effect, (c) except with respect to the Target D Preferred Shares, there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of Target, or any repurchase, redemption or other acquisition by Target of any outstanding shares of capital stock or other securities of, or other ownership interests in, Target, (d) there has not been any amendment of any term of any outstanding security of Target, and (e) there has not been any change in any method of accounting or accounting practice by Target, except for any such change required because of a concurrent change in GAAP. 4.9 Taxes. Except as otherwise disclosed in Section 4.9 of the Target Disclosure Schedule and for matters that would have no adverse effect on Target: 11 (a) Target has timely filed (or have had timely filed on their behalf) or will file or cause to be timely filed, all material Tax Returns (as defined below) required by applicable law to be filed by any of them prior to or as of the Closing Date. As of the time of filing, the foregoing Tax Returns correctly reflected the material facts regarding the income, business, assets, operations, activities, status, or other matters of Target or any other information required to be shown thereon. An extension of time within which to file a Tax Return that has not been filed has not been requested or granted. (b) Target has paid (or has had paid on its behalf), or where payment is not yet due, has established (or has had established on its behalf and for its sole benefit and recourse), or will establish or cause to be established on or before the Closing Date, an adequate accrual for the payment of all material Taxes (as defined below) due with respect to any period ending prior to or as of the Closing Date. (c) No Audit (as defined below) by a Tax Authority (as defined below) is pending or to the knowledge of Target, threatened, with respect to any Tax Returns filed by, or Taxes due from, Target. No issue has been raised by any Tax Authority in any Audit of Target that if raised with respect to any other period not so audited could be expected to result in a material proposed deficiency for any period not so audited. No material deficiency or adjustment for any Taxes has been, proposed, asserted, assessed or to the knowledge of Target, threatened, against Target. There are no liens for Taxes upon the assets of Target, except liens for current Taxes not yet delinquent. (d) Target has neither given or been requested to give any waiver of statutes of limitations relating to the payment of Taxes or have executed powers of attorney with respect to Tax matters, which will be outstanding as of the Closing Date. (e) Prior to the date hereof, Target has disclosed and provided or made available true and complete copies to Parent of, all material Tax sharing, Tax indemnity, or similar agreements to which Target is a party to, is bound by, or has any obligation or liability for Taxes. (f) In this Agreement, (i) "Audit" means any audit, assessment of Taxes, other examination by any Tax Authority, proceeding or appeal of such proceeding relating to Taxes; (ii) "Taxes" means all Federal, state, local and foreign taxes, and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax, or penalties applicable thereto; (iii) "Tax Authority" means the Internal Revenue Service and any other domestic or foreign Governmental Authority responsible for the administration of any Taxes; and (iv) "Tax Returns" means all Federal, state, local and foreign tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax Return relating to Taxes. (g) Except for the group of which Target is currently a member, Target has never been a member of an affiliated group of corporations, within the meaning of Section 1504 of the Code. 12 (h) Target has not agreed to make nor is it required to make any adjustment under Section 481(a) of the Code by reason of change in accounting method or otherwise. 4.10 Litigation. Except as disclosed in the Target SEC Reports filed and publicly available prior to the date hereof or Section 4.10 of the Target Disclosure Schedule and for matters that would not have a Target Material Adverse Effect, there is no suit, claim, action, proceeding or investigation pending or, to Target's knowledge, threatened against or directly affecting Target or any of the directors or officers of Target in their capacity as such, nor is there any reasonable basis therefor that could reasonably be expected to have a Target Material Adverse Effect, if adversely determined. Neither Target nor any officer, director or employee of Target has been permanently or temporarily enjoined by any order, judgment or decree of any court or any other Governmental Authority from engaging in or continuing any conduct or practice in connection with the business, assets or properties of Target nor, to the knowledge of Target, is Target or any officer, director or employee of Target under investigation by any Governmental Authority. Except as disclosed in the Target SEC Reports filed and publicly available prior to the date hereof or Section 4.10 of the Target Disclosure Schedule, there is no order, judgment or decree of any court or other tribunal or other agency extant enjoining or requiring Target to take any action of any kind with respect to its business, assets or properties. Notwithstanding the foregoing, no representation or warranty in this Section 4.10 is made with respect to Environmental Laws, which are covered exclusively by the provisions set forth in Section 4.12. 4.11 Employee Benefit Plans; ERISA. (a) Section 4.11(a)(1) of the Target Disclosure Schedule contains a true and complete list of the individual or group employee benefit plans or arrangements of any type (including plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), sponsored, maintained or contributed to by Target or any trade or business, whether or not incorporated, which together with Target would be deemed a "single employer" within the meaning of Section 414(b), (c) or (m) of the Code or Section 4001(b)(1) of ERISA (a "Target ERISA Affiliate") within six years prior to the Effective Time ("Target Benefit Plans"), and Section 4.11(a)(2) of the Target Disclosure Schedule lists each individual employment, severance or similar agreement with respect to which Target or any Target ERISA Affiliate has any current or future obligation or liability other than the Target Severance Policy (as defined below) ("Target Employee Agreement"). (b) Except as set forth in Section 4.11(b) of the Target Disclosure Schedule, with respect to each Target Benefit Plan: (i) if intended to qualify under Section 401(a) or 401(k) of the Code, such plan satisfies the requirements of such sections, has received a favorable determination letter from the Internal Revenue Service with respect to its qualification, and its related trust has been determined to be exempt from tax under Section 501(a) of the Code and, to the knowledge of Target, nothing has occurred since the date of such letter to adversely affect such qualification or exemption; (ii) each such plan has been administered in substantial compliance with its terms and applicable law, except for any noncompliance with respect to any such plan that could not reasonably be expected to result in a Target Material Adverse Effect; (iii) neither Target nor any Target ERISA Affiliate has engaged in, and Target and each Target ERISA Affiliate do not have any knowledge of any Person that has engaged in, any transaction 13 or acted or failed to act in any manner that would subject Target or any Target ERISA Affiliate to any liability for a breach of fiduciary duty under ERISA that could reasonably be expected to result in a Target Material Adverse Effect; (iv) no disputes are pending or, to the knowledge of Target or any Target ERISA Affiliate, threatened; (v) neither Target nor any Target ERISA Affiliate has engaged in, and Target and each Target ERISA Affiliate do not have any knowledge of any Person that has engaged in, any transaction in violation of Section 406(a) or (b) of ERISA or Section 4975 of the Code for which no exemption exists under Section 408 of ERISA or Section 4975(c) of the Code or Section 4975(d) of the Code that could reasonably be expected to result in a Target Material Adverse Effect; (vi) there have been no "reportable events" within the meaning of Section 4043 of ERISA for which the 30 day notice requirement of ERISA has not been waived by the Pension Benefit Guaranty Corporation (the "PBGC"); (vii) all contributions due have been made on a timely basis (within, where applicable, the time limit established under Section 302 of ERISA or Code Section 412); (viii) no notice of intent to terminate such plan has been given under Section 4041 of ERISA and no proceeding has been instituted under Section 4042 of ERISA to terminate such plan; and (ix) except for defined benefit plans (if applicable), such plan may be terminated on a prospective basis without any continuing liability for benefits other than benefits accrued to the date of such termination. All contributions made or required to be made under any Target Benefit Plan meet the requirements for deductibility under the Code, and all contributions which are required and which have not been made have been properly recorded on the books of Target or a Target ERISA Affiliate. (c) No Target Benefit Plan is a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning of Section 413(c) of the Code). No event has occurred with respect to Target or a Target ERISA Affiliate in connection with which Target could be subject to any liability, lien or encumbrance with respect to any Target Benefit Plan or any employee benefit plan described in Section 3(3) of ERISA maintained, sponsored or contributed to by a Target ERISA Affiliate under ERISA or the Code, except for regular contributions and benefit payments in the ordinary course of plan business. (d) Except as set forth in Section 4.11(d) of the Target Disclosure Schedule, no present or former employees of Target are covered by any Target Employee Agreements or plans that provide or will provide severance pay, post-termination health or life insurance benefits (except as required pursuant to Section 4980(B) of the Code) or any similar benefits, and the consummation of the Transactions shall not cause any payments or benefits to any employee to be either subject to an excise tax or non-deductible to Target under Sections 4999 and 280G of the Code, respectively. (e) Attached as Section 4.11(e) of the Target Disclosure Schedule is a current list of Target's employees (the "Target Employees"), a copy of Target's severance policy (the "Target Severance Policy"), a severance package table (the "Severance Package Table") which lists the maximum amount of all severance pay that may be paid to Target Employees, and a list of Target Employees with written employment agreements, written letter agreements, agreements covered by resolution of the Target Board of Directors addressing specific employees, or other agreements set forth in Section 4.11(a)(2) of the Target Disclosure Schedule ("Contract Employees"). 14 4.12 Environmental Liability. Except as set forth in Section 4.12 of the Target Disclosure Schedule or as could not reasonably be expected to result in liabilities that have a Target Material Adverse Effect: (a) The businesses of Target has been and are operated in material compliance with all applicable federal, state and local statutes, ordinances, restrictions, licenses, rules, orders, regulations, permit conditions, injunctive obligations, standard, and legal requirements relating to the protection of the environment and human health, including the common law and the Federal Clean Water Act, Safe Drinking Water Act, Resource Conservation & Recovery Act, Clean Air Act, Outer Continental Shelf Lands Act, Comprehensive Environmental Response, Compensation and Liability Act, and Emergency Planning and Community Right to Know Act, each as amended and currently in effect (together, "Environmental Laws"). (b) Target has not caused or allowed the generation, treatment, manufacture, processing, distribution, use, storage, discharge, release, disposal, transport or handling of any chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum, petroleum products or any substance regulated under any Environmental Law (together, "Hazardous Substances"), except in material compliance with all Environmental Laws, and, to Target's knowledge, no generation, treatment, manufacture, processing, distribution, use, storage, discharge, release, disposal, transport or handling of any Hazardous Substances has occurred at any property or facility owned, leased or operated by Target except in material compliance with all Environmental Laws. (c) Target has not received any written notice from any Governmental Authority or third party or, to the knowledge of Target, any other communication alleging or concerning any material violation by Target of, or responsibility or liability of Target under, any Environmental Law. There are no pending, or to the knowledge of Target, threatened, claims, suits, actions, proceedings or investigations with respect to the businesses or operations of Target alleging or concerning any material violation of, or responsibility or liability under, any Environmental Law, nor does Target have any knowledge of any fact or condition that could give rise to such a claim, suit, action, proceeding or investigation. (d) Target is in possession of and is in compliance with all material approvals, permits, licenses, registrations and similar authorizations from all Governmental Authorities under all Environmental Laws required for the operation of the businesses of Target; there are no pending or, to the knowledge of Target, threatened, actions, proceedings or investigations alleging violations of or seeking to modify, revoke or deny renewal of any of such approvals, permits, licenses, registrations and authorizations; and Target does not have knowledge of any fact or condition that is reasonably likely to give rise to any action, proceeding or investigation regarding the violation of or seeking to modify, revoke or deny renewal of any of such approvals, permits, licenses, registrations and authorizations. (e) Without in any way limiting the generality of the foregoing, (i) to Target's knowledge, all offsite locations where Target has transported, released, discharged, stored, disposed or arranged for the disposal of Hazardous Substances are licensed and operating as required by law and (ii) no polychlorinated biphenyls ("PCBs"), PCB-containing items, 15 asbestos-containing materials, or radioactive materials are used or stored at any property owned, leased or operated by Target except in material compliance with Environmental Laws. (f) No claims have been asserted or, to Target's knowledge, threatened to be asserted against Target for any personal injury (including wrongful death) or property damage (real or personal) arising out of alleged exposure or otherwise related to Hazardous Substances used, handled, generated, transported or disposed by Target. 4.13 Compliance with Applicable Laws. Target holds all material approvals, licenses, permits, registrations and similar type authorizations necessary for the lawful conduct of its business, as now conducted, and such business is being, and Target has not received any notice from any Person that any such business has been or is being, conducted in violation of any law, ordinance or regulation, including any law, ordinance or regulation relating to occupational health and safety, except for possible violations which either individually or in the aggregate have not resulted and would not result in a Target Material Adverse Effect; provided, however, notwithstanding the foregoing, no representation or warranty in this Section 4.13 is made with respect to Environmental Laws, which are covered exclusively in Section 4.12. 4.14 Insurance. Section 4.14 of the Target Disclosure Schedule lists each insurance policy relating to Target currently in effect. Target has made available to Parent a true, complete and correct copy of each such policy or the binder therefor. With respect to each such insurance policy or binder none of Target or any other party to the policy is in breach or default thereunder (including with respect to the payment of premiums or the giving of notices), and Target does not know of any occurrence or any event which (with notice or the lapse of time or both) would constitute such a breach or default or permit termination, modification or acceleration under the policy, except for such breaches or defaults which, individually or in the aggregate, would not result in a Target Material Adverse Effect. Section 4.14 of the Target Disclosure Schedule describes any self-insurance arrangements affecting Target. 4.15 Labor Matters; Employees. (a) Except as set forth in Section 4.15 of the Target Disclosure Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or lockout actually pending or, to the knowledge of Target, threatened against or affecting Target and, during the past five years, there has not been any such action, (ii) Target is not a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Target, (iii) none of the employees of Target are represented by any labor organization and Target does not have any knowledge of any current union organizing activities among the employees of Target nor does any question concerning representation exist concerning such employees, (iv) Target has at all times been in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and is not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable law, ordinance or regulation, (v) there is no unfair labor practice charge or complaint against Target pending or, to the knowledge of Target, threatened before the National Labor Relations Board or any similar state or foreign agency, (vi) there is no grievance or arbitration proceeding arising out of any collective bargaining agreement or other 16 grievance procedure relating to Target, (vii) neither the Occupational Safety and Health Administration nor any other federal or state agency has threatened to file any citation, and there are no pending citations, relating to Target, and (viii) there is no employee or governmental claim or investigation, including any charges to the Equal Employment Opportunity Commission or state employment practice agency, investigations regarding Fair Labor Standards Act compliance, audits by the Office of Federal Contractor Compliance Programs, Workers' Compensation claims, sexual harassment complaints or demand letters or threatened claims. (b) Since the enactment of the Worker Adjustment and Retraining Notification Act of 1988 ("WARN Act"), Target has not effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of Target, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of Target, nor has Target been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law, in each case that could reasonably be expected to have a Target Material Adverse Effect. 4.16 Reserve Reports. (a) All information (excluding assumptions and estimates, but including the statement of the percentage of reserves from the oil and gas wells and other interests evaluated therein to which Target is entitled and the percentage of the costs and expenses related to such wells or interests to be borne by Target) supplied to Ryder Scott Company, L.P. by or on behalf of Target that was material to such firm's estimates of proved oil and gas reserves attributable to the Oil and Gas Interests (as hereinafter defined) of Target in connection with the preparation of the proved oil and gas reserve reports concerning the Oil and Gas Interests of Target as of December 31, 2002 and prepared by such engineering firm (the "Target Reserve Report") was (at the time supplied or as modified or amended prior to the issuance of the Target Reserve Report) to Target's knowledge accurate in all material respects and Target has no knowledge of any material errors in such information that existed at the time of such issuance. For this Agreement "Oil and Gas Interests" means 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 working, leasehold and mineral interests and operating rights and royalties, overriding royalties, production payments, net profit interests and other non-working interests and non-operating interests; all interests in rights with respect to oil, condensate, gas, casinghead gas and other liquid or gaseous hydrocarbons (collectively, "Hydrocarbons") and other minerals or revenues therefrom, all contracts in connection therewith and claims and rights thereto (including all 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; all easements, rights of way, licenses, permits, leases, and other interests associated with, appurtenant to, or necessary for the operation of any of the foregoing; and all interests in equipment and machinery (including wells, well equipment and machinery), oil and gas production, gathering, transmission, 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 17 other tangible personal property and fixtures associated with, appurtenant to, or necessary for the operation of any of the foregoing. (b) Set forth in Section 4.16(b) of the Target Disclosure Schedule is a list of all material Oil and Gas Interests that were included in the Target Reserve Report that have been disposed of prior to the date hereof. 4.17 Permits. Immediately prior to the Effective Time and except for Customary Post-Closing Consents, Target holds all of the permits, licenses, certificates, consents, approvals, entitlements, plans, surveys, relocation plans, environmental impact reports and other authorizations of Governmental Authorities ("Permits") required or necessary to construct, own, operate, use and/or maintain its properties and conduct its operations as presently conducted, except for such Permits, the lack of which, individually or in the aggregate, would not have a Target Material Adverse Effect; provided, however, that notwithstanding the foregoing, no representation or warranty in this Section 4.17 is made with respect to Permits issued pursuant to Environmental Laws, which are covered exclusively in Section 4.12. 4.18 Material Contracts. (a) Set forth in Section 4.18(a) of the Target Disclosure Schedule or the Target SEC Reports is a list of each contract, lease, indenture, agreement, arrangement or understanding to which Target is subject that is currently in effect and is of a type that would be required to be included as an exhibit to a Form S-1 Registration Statement pursuant to the rules and regulations of the SEC if such a registration statement were filed by Target (collectively, the "Target Material Contracts"). (b) Except as set forth in Section 4.18(a) or 4.18(b) of the Target Disclosure Schedule or the Target SEC Reports, the Oil and Gas Interests of Target are not subject to (i) any instrument or agreement evidencing or related to indebtedness for borrowed money, whether directly or indirectly, or (ii) any agreement not entered into in the ordinary course of business in which the amount involved is in excess of $1,000,000. In addition, (A) all Target Material Contracts the valid and legally binding obligations of Target, and to the knowledge of Target, each of the other parties thereto and are enforceable in accordance with their respective terms; (B) Target is not in material breach or default with respect to, and to the knowledge of Target, no other party to any Target Material Contract is in material breach or default with respect to, its obligations thereunder, including with respect to payments or otherwise; (C) no party to any Target Material Contract has given notice of any action to terminate, cancel, rescind or procure a judicial reformation thereof; and (D) except as set forth in the Target SEC reports no Target Material Contract contains any provision that prevents Target from owning, managing and operating the Oil and Gas Interests of Target in accordance with historical practices. 4.19 Required Stockholder Vote or Consent. The only votes or written consents of the holders of any class or series of Target's capital stock necessary to consummate the Transactions are (i) the adoption of this Agreement by the holders of a majority of the votes entitled to be cast by holders of Target Common Shares and (ii) the adoption of the Agreement by the holders of a majority of the votes entitled to be cast by holders of Target D Preferred Shares if such shares are outstanding at the time of such meeting (collectively the "Target Stockholders' Approval"). 18 4.20 Proxy/Prospectus; Registration Statement. None of the information to be supplied by Target for inclusion in (a) the joint proxy statement relating to the Target Special Meeting and the Parent Special Meeting (in each case, as defined below) (also constituting the prospectus in respect of Parent Common Shares into which Target Common Shares will be converted) (the "Proxy/Prospectus"), to be filed by Target and Parent with the SEC, and any amendments or supplements thereto, or (b) the Registration Statement on Form S-4 (the "Registration Statement") to be filed by Parent with the SEC in connection with the Merger, and any amendments or supplements thereto, will, at the respective times such documents are filed, and, in the case of the Proxy/Prospectus, at the time the Proxy/Prospectus or any amendment or supplement thereto is first mailed to the Target stockholders, at the time of the Target Special Meeting and the Parent Special Meeting and at the Effective Time, and, in the case of the Registration Statement, when it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be made therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 4.21 Intellectual Property. Target owns, or licenses or otherwise has the right to use, all patents, patent rights, trademarks, rights, trade names, trade name rights, service marks, service mark rights, copyrights, technology, know-how, processes and other proprietary intellectual property rights and computer programs ("Intellectual Property") currently used in the conduct of the business of Target, except where the failure to so own or otherwise have the right to use such Intellectual Property would not, individually or in the aggregate, have a Target Material Adverse Effect. No Person has notified Target that its use of such Intellectual Property infringes on the rights of any Person, subject to such claims and infringements as do not, individually or in the aggregate, give rise to any liability on the part of Target that could have a Target Material Adverse Effect, and, to Target's knowledge, no Person is infringing on any right of Target with respect to any such Intellectual Property. No claims are pending or, to Target's knowledge, threatened that Target is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. 4.22 Hedging. Section 4.22 of the Target Disclosure Schedule sets forth for the periods shown obligations of Target for the delivery of Hydrocarbons attributable to any of the properties of Target in the future on account of prepayment, advance payment, take-or-pay or similar obligations without then or thereafter being entitled to receive full value therefor. Except as set forth in Section 4.22 of the Target Disclosure Schedule, as of the date hereof, Target is not bound by futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons, or securities. 4.23 Brokers. No broker, finder or investment banker (other than Credit Suisse First Boston LLC or Bear Stearns, the fees and expenses of which will be paid by Target) is entitled to any brokerage, finder's fee or other fee or commission payable by Target in connection with the Transactions based upon arrangements made by and on behalf of Target. True and correct copies of all agreements and engagement letters currently in effect with Credit Suisse First Boston LLC or Bear Stearns (the "Target Engagement Letters") have been provided to Parent. 19 4.24 Tax-Free Reorganization. Neither Target nor, to the knowledge of Target, any of its affiliates has taken or agreed to take any action that would prevent the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code. Without limiting the generality of the foregoing: (a) The Merger will be carried out strictly in accordance with this Agreement and the Ancillary Agreement, and there are no other written or oral agreements regarding the Merger other than those expressly referred to in this Agreement. (b) The fair market value of Parent Common Shares and cash received by each holder of Target Common Shares in connection with the Merger will be approximately equal to the fair market value of the shares of Target Common Shares surrendered in the exchange. (c) To the best knowledge of Target, neither Parent nor Merger Sub nor any Related Person (defined below) has any plan or intention to redeem or otherwise reacquire, directly or indirectly, any Parent Common Shares to be issued in the Merger. (d) To the best knowledge of Target, the aggregate fair market value, determined at the Effective Time, of the Parent Common Shares to be received in the Merger will not be less than forty percent (40%) of the value, determined at the Effective Time, of Target Common Shares and any warrants to purchase Target Common Shares ("Target Warrants") outstanding immediately before the Effective Time. For this purpose, it is assumed that the fair market value of the outstanding Target Common Shares and Target Warrants will equal the fair market value of the aggregate Merger Consideration. (e) Prior to the Effective Time and in connection with or anticipation of the Merger, (i) none of the Target Common Shares will be redeemed, (ii) no extraordinary distribution will be made with respect to Target Common Shares, and (iii) none of the Target Common Shares will be acquired by Target or any Related Person. (f) Target will redeem its outstanding Series D Preferred Stock immediately before the Merger solely with Target's funds. Parent will provide no funds to Target, directly or indirectly, for Target to redeem such Series D Preferred Stock or for Target to repay debt incurred to redeem such stock. (g) The only capital stock of Target issued and outstanding is Target Common Stock and Series D Preferred Stock. (h) Target and Target stockholders will each pay their respective expenses, if any, incurred in connection with the Merger. (i) Any compensation paid to the Target stockholders who enter (or have entered) into employment, consulting or noncompetitive contracts, if any, with Parent, Merger Sub, or the Surviving Corporation (a) will be for services actually rendered or to be rendered, (b) will be commensurate with amounts paid to third parties bargaining at arm's length for similar services, and (c) will not represent consideration for the surrender of the Target Common Shares in the Merger. 20 (j) No debt of Target is guaranteed by any Target stockholder. (k) Target owns no stock of Parent. (l) Merger Sub will acquire at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the gross assets held by Target immediately prior to the Merger. For purposes of this representation, amounts paid by Target to dissenters, amounts paid by Target to stockholders who receive cash or other property, Target assets used to pay its reorganization expenses, and all redemptions and distributions (including the redemption of the Series D Preferred Stock, but excluding regular, normal dividends) made by Target immediately preceding the transfer, will be included in assets of Target held immediately prior to the Merger. (m) No assets of Target have been sold, transferred or otherwise disposed of which would prevent Parent from continuing the historic business of Target or from using a significant portion of Target's historic business assets in a business following the Merger. Target intends to continue its historic business or use a significant portion of its historic business assets in a business. (n) Target is not an investment company as defined in Section 368(a)(2)(F) of the Code. An investment company is (a) a regulated investment company; (b) a real estate investment trust; or (c) a corporation (i) fifty percent (50%) or more of the value of whose total assets are stock and securities, and (ii) eighty percent (80%) or more of the value of whose total assets are held for investment. For this purpose, "total assets" shall not include cash and cash items (including receivables) and government securities. (o) The fair market value of the assets of Target transferred to Merger Sub in the Merger will equal or exceed the sum of the liabilities assumed or paid by Parent or Merger Sub, plus the amount of liabilities, if any, to which the transferred assets are subject. (p) The total adjusted basis of the assets of Target transferred to Merger Sub in the Merger will equal or exceed the sum of the liabilities assumed or paid by Parent or Merger Sub, plus the amount of liabilities, if any, to which the transferred assets are subject. (q) Target is not under the jurisdiction of a court in a title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. (r) There is no intercorporate indebtedness existing between Parent and Target, or between Merger Sub and Target, that was or will be issued, acquired, or settled at a discount in connection with the Merger. (s) Target has substantial non-tax business purposes and reasons for the Merger, and the terms of the Merger are the product of arm's length negotiations. (t) Target will not take, and Target is not aware of any plan or intention of any of the Target stockholders to take, any position on any federal, state or local income or franchise tax return, or take any other tax reporting position, that is inconsistent with the 21 treatment of the Merger as a reorganization within the meaning of Section 368(a) of the Code, unless otherwise required by a "determination" (as defined in Code Section 1313(a)(1)). (u) No stock or securities of Target, or to the knowledge of Target, no stock or securities of Parent, will be issued to any Target stockholder for services rendered to or for the benefit of Parent, Merger Sub, or Target in connection with the Merger. (v) No stock or securities of Parent or of Target will be issued to any Target stockholder for any indebtedness owed to any Target stockholder in connection with the Merger. (w) The liabilities of Target to be assumed or paid by Parent and Merger Sub and the liabilities to which the transferred assets of Target are subject were incurred by Target in the ordinary course of its business. (x) No assets were transferred to Target, nor did Target assume any liabilities, in anticipation of the Merger. (y) The undersigned officer is authorized to make all of the certifications and representations set forth herein. For purposes of this section, a "Related Person" with respect to either Parent or Merger Sub shall mean (i) a corporation that, immediately before or immediately after a purchase, exchange, redemption, or other acquisition of Parent Common Stock, is a member of an Affiliated Group (as defined herein) of which Parent (or any successor corporation) is a member, or (ii) a corporation in which Parent (or any successor corporation), owns, or which owns with respect to Parent (or any successor corporation), directly or indirectly, immediately before or immediately after such purchase, exchange, redemption, or other acquisition, at least 50% of the total combined voting power of all classes of stock entitled to vote or at least 50% of the total value of shares of all classes of stock, taking into account for purposes of this clause (ii) any stock owned by 5% or greater stockholders of Parent (or any successor) or such corporation, a proportionate share of the stock owned by entities in which Parent (or any successor) or such corporation owns an interest, and any stock which may be acquired pursuant to the exercise of options. For purposes of this section, "Affiliated Group" shall mean one or more chains of corporations connected through stock ownership with a common parent corporation, but only if (x) the common parent owns directly stock that possesses at least 80% of the total voting power, and has a value at least equal to 80% of the total value, of the stock in at least one of the other corporations, and (y) stock possessing at least 80% of the total voting power, and having a value at least equal to 80% of the total value, of the stock in each corporation (except the common parent) is owned directly by one or more of the other corporations. 22 For purposes of the preceding sentence, "stock" does not include any stock that (a) is not entitled to vote, (b) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, (c) has redemption and liquidation rights that do not exceed the issue price of such stock (except for a reasonable redemption or liquidation premium), and (d) is not convertible into another class of stock. 4.25 Fairness Opinion. Target's Board of Directors has received a written opinion from each of Credit Suisse First Boston LLC and Bear Stearns to the effect that, as of the date of such opinions, the Common Conversion Consideration is fair, from a financial point of view, to the holders of the Target Common Shares. True and complete copies of such opinion have been given to Parent. 4.26 Takeover Laws. Target and Target's Board of Directors have each taken all actions necessary to be taken such that no restrictive provision of any "moratorium," "control share acquisition," "fair price," "interested shareholder," "affiliate transaction," "business combination," or other similar anti-takeover statutes, laws or regulations of any state, including the State of Delaware and Section 203 of the DGCL, or any applicable anti-takeover provision in the certificate of incorporation or bylaws of the Target, is, or at the Effective Time will be, applicable to Target, Parent, Merger Sub, Target Common Shares or Target D Preferred Shares, the Voting Agreements, this Agreement or the Transactions. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Parent and Merger Sub hereby jointly and severally represent and warrant to Target as follows: 5.1 Organization and Qualification. (a) Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business as a foreign corporation and is in good standing in the jurisdictions set forth in Section 5.1(a) of the disclosure letter delivered by Parent to Target contemporaneously with the execution hereof (the "Parent Disclosure Schedule"), which include each jurisdiction in which the character of Parent's or Merger Sub's properties or the nature of its business makes such qualification necessary, except in jurisdictions, if any, where the failure to be so qualified would not result in a Parent Material Adverse Effect (as defined below). Each Parent Party has all requisite corporate power and authority to own, use or lease its properties and to carry on its business as it is now being conducted. Each Parent Party has made available to Target a complete and correct copy of its certificate of incorporation and bylaws, each as amended to date, and Parent's and Merger Sub's certificate of incorporation and bylaws as so delivered are in full force and effect. Neither Parent nor Merger Sub is in default in any respect in the performance, observation or fulfillment of any provision of its certificate of incorporation or bylaws. Merger Sub is a direct, wholly owned subsidiary of Parent formed solely for the purpose of effecting the Merger and has conducted no activity and has incurred no liability or obligation other than as contemplated by this Agreement. 23 (b) Section 5.1(b) of the Parent Disclosure Schedule lists the name and jurisdiction of organization of each Subsidiary of Parent (other than Merger Sub) and the jurisdictions in which each such Subsidiary is qualified or holds licenses to do business as a foreign corporation or other organization as of the date hereof. Each of Parent's Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business as a foreign corporation and is in good standing in the jurisdictions listed in Section 5.1(b) of the Parent Disclosure Schedule, which includes each jurisdiction in which the character of such Subsidiary's properties or the nature of its business makes such qualification necessary, except in jurisdictions, if any, where the failure to be so qualified would not result in a Parent Material Adverse Effect. Each of Parent's Subsidiaries has the requisite corporate power and authority to own, use or lease its properties and to carry on its business as it is now being conducted and as it is now proposed to be conducted. Parent has made available to Target a complete and correct copy of the certificate of incorporation and bylaws (or similar organizational documents) of each of Parent's Subsidiaries, each as amended to date, and the certificate of incorporation and bylaws (or similar organizational documents) as so delivered are in full force and effect. No Subsidiary of Parent is in default in any respect in the performance, observation or fulfillment of any provision of its certificate of incorporation or bylaws (or similar organizational documents). Other than Parent's Subsidiaries, Parent does not beneficially own or control, directly or indirectly, 5% or more of any class of equity or similar securities of any corporation or other organization, whether incorporated or unincorporated. (c) For this Agreement, a "Parent Material Adverse Effect" means any event, circumstance, condition, development or occurrence causing, resulting in or having (or with the passage of time likely to cause, result in or have) a material adverse effect on the financial condition, business, assets, properties, prospects or results of operations of Parent and its Subsidiaries, taken as a whole; provided that, in no event shall any of the following be deemed to constitute or be taken into account in determining a Parent Material Adverse Effect: any event, circumstance, change or effect that results from (i) changes affecting the economy generally, (ii) changes in the market price of oil or natural gas, (iii) the public announcement or pending nature of the Transactions, (iv) compliance with the terms of this Agreement, or (v) change in the price of the Target Common Shares or the Parent Common Shares. 5.2 Capitalization. (a) The authorized capital stock of Parent consists of 100,000,000 Parent Common Shares, and 5,000,000 shares of preferred stock of Parent, par value $.01 per share. As of the date hereof, Parent has (i) 24,224,448 Parent Common Shares issued and outstanding, (ii) no Parent Common Shares in treasury, (iii) no shares of preferred stock outstanding (iv) no outstanding stock options to acquire Parent Common Shares under any stock option plans or agreements of Parent, and (v) no more than 4,023,834 stock appreciation rights of Parent. All the outstanding Parent Common Shares are validly issued, fully paid and nonassessable, and free of preemptive rights. Except as set forth above, and other than this Agreement, there are no outstanding subscriptions, options, rights, warrants, convertible securities, stock appreciation rights, phantom equity, or other agreements or commitments (including "rights plans" or "poison pills") obligating Parent to issue, transfer, sell, redeem, repurchase or otherwise acquire any shares of its capital stock of any class. Except as contemplated by the Voting Agreement, there 24 are no agreements, arrangements or other understandings with respect to the right to vote any shares of capital stock of Parent. (b) Except as set forth in Section 5.2(b) Parent Disclosure Letter, Parent is, directly or indirectly, the record and beneficial owner of all of the outstanding shares of capital stock of each Parent Subsidiary, there are no irrevocable proxies with respect to any such shares, and no equity securities of any Parent Subsidiary are or may become required to be issued because of any options, warrants, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable or exercisable for, shares of any capital stock of any Parent Subsidiary, and there are no contracts, commitments, understandings or arrangements by which Parent or any Parent Subsidiary is or may be bound to issue additional shares of capital stock of any Parent Subsidiary or securities convertible into or exchangeable or exercisable for any such shares. Except as set forth in Section 5.2(b) to the Parent Disclosure Schedule, all of such shares so owned by Parent are validly issued, fully paid and nonassessable and are owned by it free and clear of all Liens. 5.3 Authority. Each of Parent and, solely with respect to this Agreement, Merger Sub, has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is or will be a party and, subject to obtaining the Parent Share Issuance Approval to consummate the Transactions. The execution, delivery and performance of this Agreement and the Ancillary Agreements to which it is or will be a party and the consummation of the Transactions have been duly and validly authorized by each Parent Party's Board of Directors, and no other corporate proceedings on the part of either Parent Party are necessary to authorize this Agreement or the Ancillary Agreements to which any of them are or will be a party or to consummate the Transactions, other than the Parent Share Issuance Approval. This Agreement has been, and the Ancillary Agreements to which Parent or Merger Sub is or will be a party are, or upon execution will be, duly and validly executed and delivered by each Parent Party and, assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, constitutes or upon execution will constitute, valid and binding obligations of each Parent Party enforceable against such Persons in accordance with their respective terms, except for the Enforceability Exception. 5.4 Consents and Approvals; No Violation. The execution and delivery of this Agreement, the consummation of the Transactions and the performance by each Parent Party of its obligations hereunder will not: (a) subject to obtaining the Parent Share Issuance Approval, conflict with any provision of the certificate of incorporation or bylaws, as amended, of Parent or the certificates of incorporation or bylaws (or other similar organizational documents) of any of its Subsidiaries; (b) subject to obtaining the Parent Share Issuance Approval and the filing of the Certificate of Merger with the Secretary of State of Delaware, require any consent, waiver, approval, order, authorization or permit of, or registration, filing with or notification to, (i) any Governmental Authority, except for applicable requirements of the Securities Act, the Exchange Act, state laws relating to takeovers, if applicable, state securities or blue sky laws, and Customary Post-Closing Consents or (ii) except as set forth in Section 5.4(b) of the Parent Disclosure Schedule, any third party other than a Governmental Authority, other than such non- 25 Governmental Authority third party consents, waivers, approvals, orders, authorizations and permits that would not (i) result in a Parent Material Adverse Effect, (ii) materially impair the ability of Parent or any of its Subsidiaries to perform its obligations under this Agreement or any Ancillary Agreement or (iii) prevent the consummation of any of the Transactions; (c) except as set forth in Section 5.4(c) of the Parent Disclosure Schedule, result in any violation of or the breach of or constitute a default (with notice or lapse of time or both) under, or give rise to any right of termination, cancellation or acceleration or guaranteed payments or a loss of a material benefit under, any of the terms, conditions or provisions of any note, lease, mortgage, license, agreement or other instrument or obligation to which Parent or any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries or any of their respective properties or assets may be bound, except for such violations, breaches, defaults, or rights of termination, cancellation or acceleration, or losses as to which requisite waivers or consents have been obtained or which, individually or in the aggregate, would not (i) result in a Parent Material Adverse Effect, (ii) materially impair the ability of Parent or any of its Subsidiaries to perform its obligations under this Agreement or any Ancillary Agreement or (iii) prevent the consummation of any of the Transactions; (d) violate the provisions of any order, writ, injunction, judgment, decree, statute, rule or regulation applicable to Parent or any of its Subsidiaries; (e) result in the creation of any Lien upon any material properties or assets or on any shares of capital stock of Parent or its Subsidiaries (other than Target and its Subsidiaries after the Effective Time) under any agreement or instrument to which Parent or any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries or any of their properties or assets is bound; or (f) result in any holder of any securities of Parent being entitled to appraisal, dissenters' or similar rights. 5.5 Parent SEC Reports. Parent has filed with the SEC each form, registration statement, report, schedule, proxy or information statement and other document (including exhibits and amendments thereto), filed with the SEC since November 8, 2002 under the Securities Act or the Exchange Act (collectively, the "Parent SEC Reports"). As of the respective dates such Parent SEC Reports were filed or, if any such Parent SEC Reports were amended, as of the date such amendment was filed, each Parent SEC Report, including any financial statements or schedules included therein, (a) complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the applicable rules and regulations promulgated thereunder, and (b) did not contain any 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 were made, not misleading. No event since the date of the last Parent SEC Report has occurred that would require Parent to file a Current Report on Form 8-K other than the execution of this Agreement. 5.6 Parent Financial Statements. Each of the audited consolidated financial statements and unaudited consolidated interim financial statements of Parent (including any 26 related notes and schedules) included (or incorporated by reference) in its Report on Form 10 made effective on December 6, 2002 have been prepared from, and are in accordance with, the books and records of Parent and its consolidated Subsidiaries, comply in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis (except as may be indicated in the notes thereto and subject, in the case of quarterly financial statements, to normal and recurring year-end adjustments) and fairly present, in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of Parent and its Subsidiaries as of the date thereof and the consolidated results of operations and cash flows (and changes in financial position, if any) of Parent and its Subsidiaries for the periods presented therein (subject to normal year-end adjustments and the absence of financial footnotes in the case of any unaudited interim financial statements). 5.7 Absence of Undisclosed Liabilities. As of the date hereof, except (a) as specifically disclosed in the Parent SEC Reports filed and publicly available prior to the date hereof and (b) for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since December 31, 2001, neither Parent nor any of its Subsidiaries has incurred any liabilities or obligations of any nature (contingent or otherwise) that would have a Parent Material Adverse Effect. 5.8 Absence of Certain Changes. Except as disclosed in the Parent SEC Reports filed and publicly available prior to the date hereof, as set forth in Section 5.8 of the Parent Disclosure Schedule or as contemplated by this Agreement, since December 31, 2001 (a) Parent and its Subsidiaries have conducted their respective businesses only in the ordinary course of business consistent with past practices, (b) there has not been any change or development, or combination of changes or developments that, individually or in the aggregate, would have a Parent Material Adverse Effect, (c) there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of Parent, or any repurchase, redemption or other acquisition by Parent or any of its Subsidiaries of any outstanding shares of capital stock or other securities of, or other ownership interests in, Parent or any of its Subsidiaries, (d) there has not been any amendment of any term of any outstanding security of Parent or any of its Subsidiaries, and (e) there has not been any change in any method of accounting or accounting practice by Parent or any of its Subsidiaries, except for any such change required because of a concurrent change in GAAP or to conform a Subsidiary's accounting policies and practices to those of Parent. 5.9 Taxes. Except as otherwise disclosed in Section 5.9 of the Parent Disclosure Schedule and for matters that would not have a Parent Material Adverse Effect: (a) Parent and each of its Subsidiaries have timely filed (or have had timely filed on their behalf) or will file or cause to be timely filed, all material Tax Returns required by applicable law to be filed by any of them prior to or as of the Closing Date. As of the time of filing, the foregoing Tax Returns correctly reflected the facts regarding the income, business, assets, operations, activities, status, or other matters of Parent or any other information required to be shown thereon. An extension of time within which to file a Tax Return that has not been filed has not been requested or granted. 27 (b) Parent and each of its Subsidiaries have paid (or have had paid on their behalf), or where payment is not yet due, have established (or have had established on their behalf and for their sole benefit and recourse), or will establish or cause to be established on or before the Closing Date, an adequate accrual for the payment of all material Taxes (as defined below) due with respect to any period ending prior to or as of the Closing Date. (c) No Audit by a Tax Authority is pending or, to the knowledge of Parent, threatened with respect to any Tax Returns filed by, or Taxes due from, Parent or any Subsidiary. No issue has been raised by any Tax Authority in any Audit of Parent or any of its Subsidiaries that if raised with respect to any other period not so audited could be expected to result in a material proposed deficiency for any period not so audited. No material deficiency or adjustment for any Taxes has been proposed, asserted, assessed, or, to the knowledge of Parent, threatened against Parent or any of its Subsidiaries. There are no liens for Taxes upon the assets of Parent or any of its Subsidiaries, except liens for current Taxes not yet delinquent. (d) Neither Parent nor any of its Subsidiaries has given or been requested to give any waiver of statutes of limitations relating to the payment of Taxes or have executed powers of attorney with respect to Tax matters, which will be outstanding as of the Closing Date. (e) Prior to the date hereof, Parent and its Subsidiaries have disclosed, and provided or made available true and complete copies to Target of, all material Tax sharing, Tax indemnity, or similar agreements to which Parent or any of its Subsidiaries are a party to, is bound by, or has any obligation or liability for Taxes. (f) Neither Parent nor any of its Subsidiaries has given or been requested to give any waiver of statutes of limitations relating to the payment of Taxes or have executed powers of attorney with respect to Tax matters, which will be outstanding as of the Closing Date. (g) Prior to the date hereof, Parent and its Subsidiaries have disclosed, and provided or made available true and complete copies to Target of, all material Tax sharing, Tax indemnity, or similar agreements to which Parent or any of its Subsidiaries are a party to, is bound by, or has any obligation or liability for Taxes. (h) Except as set forth in Section 5.9(h) of the Parent Disclosure Schedule, and except for the group of which Parent is currently a member and any group affiliated with Plains Resources Inc., Parent has never been a member of an affiliated group of corporations, within the meaning of Section 1504 of the Code. (i) Parent has not agreed to make nor is it required to make any adjustment under Section 481(a) of the Code by reason of change in accounting method or otherwise. (j) After consultation with counsel, Parent is aware of no facts which would prevent its counsel from rendering the opinion set forth in Section 8.1(f) 5.10 Litigation. Except as disclosed in the Parent SEC Reports filed and publicly available prior to the date hereof or Section 5.10 of the Parent Disclosure Schedule and for matters that would not have a Parent Material Adverse Effect, there is no suit, claim, action, proceeding or investigation pending or, to Parent's knowledge, threatened against or directly 28 affecting Parent, any Subsidiaries of Parent or any of the directors or officers of Parent or any of its Subsidiaries in their capacity as such, nor is there any reasonable basis therefor that could reasonably be expected to have a Parent Material Adverse Effect, if adversely determined. Neither Parent nor any of its Subsidiaries, nor any officer, director or employee of Parent or any of its Subsidiaries, has been permanently or temporarily enjoined by any order, judgment or decree of any court or any other Governmental Authority from engaging in or continuing any conduct or practice in connection with the business, assets or properties of Parent or such Subsidiary, nor, to the knowledge of Parent, is Parent, any Subsidiary or any officer, director or employee of Parent or its Subsidiaries under investigation by any Governmental Authority. Except as disclosed in the Parent SEC Reports filed and publicly available prior to the date hereof or Section 5.10 of the Parent Disclosure Schedule, there is no order, judgment or decree of any court or other tribunal or other agency extant enjoining or requiring Parent or any of its Subsidiaries to take any action of any kind with respect to its business, assets or properties. Notwithstanding the foregoing, no representation or warranty in this Section 5.10 is made with respect to Environmental Laws, which are covered exclusively by the provisions set forth in Section 5.12. 5.11 Employee Benefit Plans; ERISA. (a) Section 5.11(a)(1) of the Parent Disclosure Schedule contains a true and complete list of the individual or group employee benefit plans or arrangements of any type (including plans described in Section 3(3) of ERISA), sponsored, maintained or contributed to by Parent or any trade or business, whether or not incorporated, which together with Parent would be deemed a "single employer" within the meaning of Section 414(b), (c) or (m) of the Code or Section 4001(b)(1) of ERISA (a "Parent ERISA Affiliate") within six years prior to the Effective Time ("Parent Benefit Plans"), and Schedule 5.11(a)(2) of the Parent Disclosure Schedule lists each individual employment, severance or similar agreement with respect to which Parent or any Parent ERISA Affiliate has any current or future obligation or liability. (b) With respect to each Parent Benefit Plan: (i) if intended to qualify under Section 401(a) or 401(k) of the Code, such plan satisfies the requirements of such sections, has received a favorable determination letter from the Internal Revenue Service with respect to its qualification, and its related trust has been determined to be exempt from tax under Section 501(a) of the Code and, to the knowledge of Parent, nothing has occurred since the date of such letter to adversely affect such qualification or exemption; (ii) each such plan has been administered in substantial compliance with its terms and applicable law, except for any noncompliance with respect to any such plan that could not reasonably be expected to result in a Parent Material Adverse Effect; (iii) neither Parent nor any Parent ERISA Affiliate has engaged in, and Parent and each Parent ERISA Affiliate do not have any knowledge of any Person that has engaged in, any transaction or acted or failed to act in any manner that would subject Parent or any Parent ERISA Affiliate to any liability for a breach of fiduciary duty under ERISA that could reasonably be expected to result in a Parent Material Adverse Effect; (iv) no disputes are pending or, to the knowledge of Parent or any Parent ERISA Affiliate, threatened; (v) neither Parent nor any Parent ERISA Affiliate has engaged in, and Parent and each Parent ERISA Affiliate do not have any knowledge of any Person that has engaged in, any transaction in violation of Section 406(a) or (b) of ERISA or Section 4975 of the Code for which no exemption exists under Section 408 of ERISA or Section 4975(c) of the Code or Section 4975(d) of the 29 Code that could reasonably be expected to result in a Parent Material Adverse Effect; (vi) there have been no "reportable events" within the meaning of Section 4043 of ERISA for which the 30 day notice requirement of ERISA has not been waived by the Pension Benefit Guaranty Corporation (the "PBGC"); (vii) all contributions due have been made on a timely basis (within, where applicable, the time limit established under Section 302 of ERISA or Code Section 412); (viii) no notice of intent to terminate such plan has been given under Section 4041 of ERISA and no proceeding has been instituted under Section 4042 of ERISA to terminate such plan; and (ix) except for defined benefit plans (if applicable), such plan may be terminated on a prospective basis without any continuing liability for benefits other than benefits accrued to the date of such termination. All contributions made or required to be made under any Parent Benefit Plan meet the requirements for deductibility under the Code, and all contributions which are required and which have not been made have been properly recorded on the books of Parent or a Parent ERISA Affiliate. (c) No Parent Benefit Plan is a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning of Section 413(c) of the Code). No event has occurred with respect to Parent or a Parent ERISA Affiliate in connection with which Parent could be subject to any liability, lien or encumbrance with respect to any Parent Benefit Plan or any employee benefit plan described in Section 3(3) of ERISA maintained, sponsored or contributed to by a Parent ERISA Affiliate under ERISA or the Code, except for regular contributions and benefit payments in the ordinary course of plan business. (d) Except as set forth in Section 5.11(d) of the Parent Disclosure Schedule, no present or former employees of Parent or any of its Subsidiaries are covered by any employee agreements or plans that provide or will provide severance pay, post-termination health or life insurance benefits (except as required pursuant to Section 4980(B) of the Code) or any similar benefits, and the consummation of the Transactions shall not cause any payments or benefits to any employee to be either subject to an excise tax or non-deductible to Parent under Sections 4999 and 280G of the Code, respectively. 5.12 Environmental Liability. Except as set forth in Section 5.12 of the Parent Disclosure Schedule or as could not reasonably be expected to result in liabilities that have a Parent Material Adverse Effect: (a) The businesses of Parent and its Subsidiaries have been and are operated in material compliance with all Environmental Laws. (b) Neither Parent nor any of its Subsidiaries has caused or allowed the generation, treatment, manufacture, processing, distribution, use, storage, discharge, release, disposal, transport or handling of any Hazardous Substances, except in material compliance with all Environmental Laws, and, to Parent's knowledge, no generation, treatment, manufacture, processing, distribution, use, storage, discharge, release, disposal, transport or handling of any Hazardous Substances has occurred at any property or facility owned, leased or operated by Parent for any of its Subsidiaries except in material compliance with all Environmental Laws. 30 (c) Neither Parent nor any of its Subsidiaries has received any written notice from any Governmental Authority or third party or, to the knowledge of Parent, any other communication alleging or concerning any material violation by Parent or any of its Subsidiaries of, or responsibility or liability of Parent or any of its Subsidiaries under, any Environmental Law. There are no pending, or to the knowledge of Parent, threatened, claims, suits, actions, proceedings or investigations with respect to the businesses or operations of Parent or any of its Subsidiaries alleging or concerning any material violation of, or responsibility or liability under, any Environmental Law, nor does Parent have any knowledge of any fact or condition that could give rise to such a claim, suit, action, proceeding or investigation. (d) Parent and its Subsidiaries are in possession of and are in compliance with all material approvals, permits, licenses, registrations and similar authorizations from all Governmental Authorities under all Environmental Laws required for the operation of the businesses of Parent and its Subsidiaries; there are no pending or, to the knowledge of Parent, threatened, actions, proceedings or investigations alleging violations of or seeking to modify, revoke or deny renewal of any of such approvals, permits, licenses, registrations and authorizations; and Parent does not have knowledge of any fact or condition that is reasonably likely to give rise to any action, proceeding or investigation regarding the violation of or seeking to modify, revoke or deny renewal of any of such approvals, permits, licenses, registrations and authorizations. (e) Without in any way limiting the generality of the foregoing, (i) to Parent's knowledge, all offsite locations where Parent or any of its Subsidiaries has transported, released, discharged, stored, disposed or arranged for the disposal of Hazardous Substances are licensed and operating as required by law and (ii) no PCBs, PCB-containing items, asbestos-containing materials, or radioactive materials are used or stored at any property owned, leased or operated by Parent or any of its Subsidiaries except in material compliance with Environmental Laws. (f) No claims have been asserted or, to Parent's knowledge, threatened to be asserted against Parent or its Subsidiaries for any personal injury (including wrongful death) or property damage (real or personal) arising out of alleged exposure or otherwise related to Hazardous Substances used, handled, generated, transported or disposed by Parent or its Subsidiaries. 5.13 Compliance with Laws and Parent Material Contracts. Neither Parent nor any of its Subsidiaries is in violation of, or in default 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 of incorporation, bylaws, or other governing document, (b) any applicable law, rule, regulation, order, writ, decree or judgment of any Governmental Authority, or (c) any Parent Material Contract, 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 Parent Material Adverse Effect. No investigation or review by any Governmental Authority with respect to Parent is pending or, to the knowledge of Parent, threatened, other than those the outcome of which would not, individually or in the aggregate, have a Parent Material Adverse Effect. To the knowledge of Parent, no party to any Parent Material Contract is in material breach of the terms, provisions and conditions of such Parent Material Contract. "Parent Material Contract" means any written or oral agreements, contracts, commitments or understandings to which Parent is a party, by which Parent is directly 31 or indirectly bound, or to which any asset of Parent may be subject, involving total value or consideration in excess of $1,000,000. 5.14 Insurance. Section 5.14 of the Parent Disclosure Schedule lists each insurance policy relating to Parent or its Subsidiaries currently in effect. Parent has made available to Target a true, complete and correct copy of each such policy or the binder therefor. With respect to each such insurance policy or binder none of Parent, any of its Subsidiaries or any other party to the policy is in breach or default thereunder (including with respect to the payment of premiums or the giving of notices), and Parent does not know of any occurrence or any event which (with notice or the lapse of time or both) would constitute such a breach or default or permit termination, modification or acceleration under the policy, except for such breaches or defaults which, individually or in the aggregate, would not result in a Parent Material Adverse Effect. Section 5.14 of the Parent Disclosure Schedule describes any self-insurance arrangements affecting Parent or its Subsidiaries. 5.15 Labor Matters; Employees. (a) Except as set forth in Section 5.15 of the Parent Disclosure Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or lockout actually pending or, to the knowledge of Parent, threatened against or affecting Parent or any of its Subsidiaries and, during the past five years, there has not been any such action, (ii) none of Parent or any of its Subsidiaries is a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Parent or any of its Subsidiaries, (iii) none of the employees of Parent or any of its Subsidiaries are represented by any labor organization and none of Parent or any of its Subsidiaries have any knowledge of any current union organizing activities among the employees of Parent or any of its Subsidiaries nor does any question concerning representation exist concerning such employees, (iv) Parent and its Subsidiaries have each at all times been in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and are not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable law, ordinance or regulation, (v) there is no unfair labor practice charge or complaint against any of Parent or any of its Subsidiaries pending or, to the knowledge of Parent, threatened before the National Labor Relations Board or any similar state or foreign agency, (vi) there is no grievance or arbitration proceeding arising out of any collective bargaining agreement or other grievance procedure relating to Parent or any of its Subsidiaries, (vii) neither the Occupational Safety and Health Administration nor any other federal or state agency has threatened to file any citation, and there are no pending citations, relating to Parent or any of its Subsidiaries, and (viii) there is no employee or governmental claim or investigation, including any charges to the Equal Employment Opportunity Commission or state employment practice agency, investigations regarding Fair Labor Standards Act compliance, audits by the Office of Federal Contractor Compliance Programs, Workers' Compensation claims, sexual harassment complaints or demand letters or threatened claims. (b) Since the enactment of the WARN Act, none of Parent or any of its Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or 32 facility of any of Parent or any of its Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of Parent or any of its Subsidiaries, nor has Parent or any of its Subsidiaries been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law, in each case that could reasonably be expected to have a Parent Material Adverse Effect. 5.16 Reserve Reports. (a) All information (excluding assumptions and estimates but including the statement of the percentage of reserves from the oil and gas wells and other interests evaluated therein to which Parent is entitled and the percentage of the costs and expenses related to such wells or interests to be borne by Parent) supplied to Ryder Scott Company, L.P. and Netherland, Sewell & Associates, Inc. by or on behalf of Parent that was material to such firm's estimates of proved oil and gas reserves attributable to the Oil and Gas Interests (as hereinafter defined) of Parent in connection with the preparation of the proved oil and gas reserve reports concerning the Oil and Gas Interests of Parent as of December 31, 2002 and prepared by such engineering firm (the "Parent Reserve Report") was (at the time supplied or as modified or amended prior to the issuance of the Parent Reserve Report) to Parent's knowledge accurate in all material respects and Parent has no knowledge of any material errors in such information that existed at the time of such issuance. (b) Set forth in Section 5.16(b) of the Parent Disclosure Schedule is a list of all material Oil and Gas Interests that were included in the Parent Reserve Report that have been disposed of prior to the date hereof. 5.17 Permits. Immediately prior to the Effective Time and except for Customary Post Closing Consents, Parent and its Subsidiaries hold all of the Permits required or necessary to construct, own, operate, use and/or maintain its properties and conduct its operations as presently conducted, except for such Permits, the lack of which, individually or in the aggregate, would not have a Parent Material Adverse Effect; provided, however, that notwithstanding the foregoing, no representation or warranty in this Section 5.17 is made with respect to Permits issued pursuant to Environmental Laws, which are covered exclusively in Section 5.12. 5.18 Required Stockholder Vote or Consent. The only vote or written consent of the holders of any class or series of Parent's capital stock that shall be necessary to consummate the Transactions is the approval by a majority of the voting power of the Parent Common Shares of the issuance of Parent Common Shares to the holders of Target Common Shares as a result of the Transactions (the "Parent Share Issuance Approval"). 5.19 Proxy/Prospectus; Registration Statement. None of the information to be supplied by Parent for inclusion in (a) the Proxy/Prospectus to be filed by Target and Parent with the SEC, and any amendments or supplements thereto, or (b) the Registration Statement to be filed by Parent with the SEC in connection with the Merger, and any amendments or supplements thereto, will, at the respective times such documents are filed, and, in the case of the Proxy/Prospectus, at the time the Proxy/Prospectus or any amendment or supplement thereto is first mailed to the Target and Parent stockholders, at the time of the Target Special Meeting and the Parent Special Meeting and at the Effective Time, and, in the case of the Registration 33 Statement, when it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be made therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 5.20 Intellectual Property. Parent or its Subsidiaries own, or are licensed or otherwise have the right to use, all Intellectual Property currently used in the conduct of the business of Parent and its Subsidiaries, except where the failure to so own or otherwise have the right to use such Intellectual Property would not, individually or in the aggregate, have a Parent Material Adverse Effect. No Person has notified either Parent or any of its Subsidiaries that their use of the Intellectual Property infringes on the rights of any Person, subject to such claims and infringements as do not, individually or in the aggregate, give rise to any liability on the part of Parent and its Subsidiaries that could have a Parent Material Adverse Effect, and, to Parent's knowledge, no Person is infringing on any right of Parent or any of its Subsidiaries with respect to any such Intellectual Property. No claims are pending or, to Parent's knowledge, threatened that Parent or any of its Subsidiaries is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. 5.21 Hedging. Section 5.21 of the Parent Disclosure Schedule sets forth for the periods shown obligations of Parent and each of its Subsidiaries for the delivery of Hydrocarbons attributable to any of the properties of Parent or any of its Subsidiaries in the future on account of prepayment, advance payment, take-or-pay or similar obligations without then or thereafter being entitled to receive full value therefor. Except as set forth in Section 5.21 of the Parent Disclosure Schedule, as of the date hereof, neither Parent nor any of its Subsidiaries is bound by futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons, or securities. 5.22 Brokers. No broker, finder or investment banker (other than Lehman Brothers Inc. the fees and expenses of which will be paid by Parent) is entitled to any brokerage, finder's fee or other fee or commission payable by Parent or any of its Subsidiaries in connection with the Transactions based upon arrangements made by and on behalf of Parent or any of its Subsidiaries. True and correct copies of all agreements and engagement letters currently in effect with Lehman Brothers Inc. (the "Parent Engagement Letters") have been provided to Target. 5.23 Tax Matters. Neither Parent nor, to the knowledge of Parent, any of its affiliates has taken or agreed to take any action that would prevent the Merger from constituting a reorganization within the meaning of Section 368(a) of the Code. Without limiting the generality of the foregoing: (a) The Merger will be carried out strictly in accordance with this Agreement and the Ancillary Agreements, and there are no other written or oral agreements relating to the Merger other than those expressly referred to in this Agreement. (b) In connection with the Merger, no Target Common Shares will be acquired by Parent or a Related Person for consideration other than Parent Common Shares, 34 except for the Cash Consideration, payments to the dissenting stockholders, if any, and any cash received in lieu of fractional share interests in Parent Common Shares. (c) The fair market value of Parent Common Shares and cash received by each holder of Target Common Shares in connection with the Merger will be approximately equal to the fair market value of the Target Common Shares surrendered in the exchange. (d) Parent will provide no funds to Target, directly or indirectly, for Target to redeem its Series D Preferred Stock or for Target to repay debt incurred to redeem such stock. (e) Neither Parent nor Merger Sub (nor any Related Person as defined in Attachment A) has any plan or intention to redeem or otherwise reacquire, directly or indirectly, any Parent Common Shares to be issued in the Merger. (f) Parent has no stock repurchase program and has no current plan or intention to adopt such a plan. (g) To the best knowledge of Parent, the aggregate fair market value, determined at the Effective Time, of the Parent Common Shares to be received in the Merger will not be less than forty percent (40%) of the value, determined at the Effective Time, of the Target Common Shares and Target Warrants outstanding immediately before the Effective Time. For this purpose, it is assumed that the fair market value of the outstanding Target Common Shares and Target Warrants will equal the fair market value of the aggregate Merger Consideration. (h) Neither Parent nor any Related Person owns, nor has it owned during the past five years, any shares of stock of the Target. Neither Parent nor any Related Person has caused any other person to acquire stock of the Target on behalf of Parent or a Related Person, and will not directly or indirectly acquire any stock of the Target in connection with the Merger, except as described in the Merger Agreement. (i) Parent has not, directly or indirectly, transferred any cash or property to the Target (or any entity controlled directly or indirectly by the Target) for less than full and adequate consideration and has not made any loan to the Target (or any entity controlled directly or indirectly by the Target) in anticipation of the Merger. (j) There is no intercompany indebtedness existing between Parent and Target, or between Merger Sub and Target, that was or will be issued, acquired, or settled at a discount in connection with the Merger. (k) Parent will pay its own expenses incurred in connection with or as part of the Merger or related transactions. Parent has not paid and will not pay, directly or indirectly, any expenses (including transfer taxes) incurred by any holder of Target Common Shares in connection with or as part of the Merger or any related transactions. Parent has not agreed to assume, nor will it directly or indirectly assume, any expense or other liability, whether fixed or contingent, of any holder of Target Common Shares. 35 (l) Any compensation paid to the holders of Target Common Shares who enter (or have entered) into employment, consulting or noncompetitive contracts, if any, with Parent, Merger Sub, or the Surviving Corporation (a) will be for services actually rendered or to be rendered, (b) will be commensurate with amounts paid to third parties bargaining at arm's length for similar services, and (c) will not represent consideration for the surrender of the Target Common Shares in the Merger. (m) Merger Sub is wholly and directly owned by Parent and has been newly formed solely to consummate the Merger. Prior to the Effective Time, Merger Sub will have no assets other than cash to satisfy capital requirements under state law and has not, and will not, conduct any business activities or other operations of any kind other than the issuance of its stock to Parent or as otherwise expressly required by the Merger Agreement. (n) At the Effective Time of the Merger, Merger Sub will not have or issue any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire any stock in Merger Sub. (o) Merger Sub will acquire at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the gross assets held by Target immediately prior to the Merger. For purposes of this representation, amounts paid by Target to dissenters, amounts paid by Target to stockholders who receive cash or other property, Target assets used to pay its reorganization expenses, and all redemptions and distributions (including the redemption of the Series D Preferred Stock, but excluding regular, normal dividends) made by Target immediately preceding the transfer, will be included in assets of Target held immediately prior to the Merger. (p) Following the Merger, the Surviving Corporation will continue the historic business of Target or use a significant portion of its assets in a business, within the meaning of Treas. Reg.(S)1.368-1(d). (q) Parent has no plan or intention to liquidate the Surviving Corporation following the Merger; to merge the Surviving Corporation with another corporation; to sell or otherwise dispose of the stock of Merger Sub; or to sell or otherwise dispose of any of the assets of Target except for dispositions made in the ordinary course of business or transfers or successive transfers to one or more corporations controlled (within the meaning of Section 368(c) of the Code) in each case by the transferor corporation. (r) Following the Merger, Parent has no plan or intention to cause the Surviving Corporation to issue additional shares of its stock that would result in Parent owning stock possessing less than eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote or less than eighty percent (80%) of the total number of shares of all other classes of stock of the Surviving Corporation. (s) Parent is paying no consideration for the Target stock other than the Merger Consideration. 36 (t) To the best knowledge of Parent, any Target liabilities assumed or paid by Parent or Merger Sub and the liabilities to which the transferred assets of the Target are subject were incurred by the Target in the ordinary course of its business. (u) Neither Parent nor Merger Sub is an investment company within the meaning of Sections 368(a)(2)(F) of the Code. An investment company is (1) a regulated investment company; (2) a real estate investment trust; or (3) a corporation (i) fifty percent (50%) or more of the value of whose total assets are stock and securities, and (ii) eighty percent (80%) or more of the value of whose total assets are held for investment. For this purpose, "total assets" shall not include cash and cash items (including receivables) and government securities. (v) Parent has substantial non-tax business purposes and reasons for the Merger, and the terms of the Merger are the product of arm's length negotiations. (w) Neither Parent nor the Surviving Corporation will take any position on any federal, state or local income or franchise tax return, or take any other tax reporting position that is inconsistent with the treatment of the Merger as a reorganization within the meaning of Section 368(a) of the Code, unless otherwise required by a "determination" (as defined in Code Section 1313(a)(1)). (x) No stock or securities of Parent will be issued to any Target stockholder for services rendered to or for the benefit of Parent, Merger Sub, or the Target in connection with the Merger. (y) To the best knowledge of Parent, no stock or securities of the Target will be issued to any Target stockholder for services rendered to or for the benefit of Parent, Merger Sub, or the Target in connection with the Merger. (z) No stock or securities of Parent will be issued for any indebtedness owed to any Target stockholder in connection with the Merger. (aa) To the best knowledge of Parent, no stock or securities of the Target will be issued for any indebtedness owed to any Target stockholder in connection with the Merger. (bb) No stock of Merger Sub will be issued in connection with the Merger. (cc) Rights received by the Parent stockholders pursuant to Parent's [Poison Pill Agreement] are not separately tradeable, are contingent, are non-exercisable, are subject to redemption if they become exercisable, and have no ascertainable fair market value. (dd) The undersigned officer is authorized to make all of the certifications and representations set forth herein. 37 ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER 6.1 Conduct of Business by Target Pending the Merger. From the date hereof until the Effective Time, except as Parent otherwise agrees in writing, as set forth in the Target Disclosure Schedule, or as otherwise contemplated by this Agreement, Target shall conduct its business in the ordinary course consistent with past practice and shall use all reasonable efforts to preserve intact its business organizations and relationships with third parties and to keep available the services of its present officers and key employees, subject to the terms of this Agreement. Except as otherwise provided in this Agreement, and without limiting the generality of the foregoing, from the date hereof until the Effective Time, without Parent's written consent (which consent shall not be unreasonably withheld): (a) Target shall not adopt or propose any change to its certificate of incorporation or bylaws (or similar organizational documents); (b) Target shall not (i) declare, set aside or pay any dividend or other distribution with respect to any shares of capital stock of Target (except for accumulated dividends on the Target D Preferred Shares) or (ii) except as contemplated in Article III or Section 7.21, repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other securities of, or other ownership interests in Target; (c) Target shall not merge or consolidate with any other Person or acquire assets of any other Person for aggregate consideration in excess of $1,000,000, or enter a new line of business or commence business operations in any country in which Target is not operating as of the date hereof; (d) Except as set forth in Section 6.1(d) of the Target Disclosure Schedule, Target shall not sell, lease, license or otherwise surrender, relinquish or dispose of any assets or properties with an aggregate fair market value exceeding $1,000,000 (other than sales of Hydrocarbons in the ordinary course of business); (e) Target shall not settle any material Audit, make or change any material Tax election or file any material amended Tax Return except as set forth in Section 4.9 of the Target Disclosure Schedule; (f) Except as otherwise permitted by this Agreement, Target shall not issue any securities (whether through the issuance or granting of options, warrants, rights or otherwise and except pursuant to existing obligations disclosed in the Target SEC Reports filed and publicly available prior to the date hereof or the Target Disclosure Schedule), enter into any amendment of any term of any outstanding security of Target, incur any indebtedness except trade debt in the ordinary course of business and debt pursuant to existing credit facilities or arrangements (except as set forth in Section 6.1(f) of the Target Disclosure Schedule), fail to make any required contribution to any Target Benefit Plan, increase compensation, bonus (except for compensation or bonuses as set forth in Section 6.1(f) of the Target Disclosure Schedule) or other benefits payable to (except for payments pursuant to 401(k) plans), or modify 38 or amend any employment agreements or severance agreements with, any executive officer or former employee or enter into any settlement or consent with respect to any pending litigation other than settlements in the ordinary course of business; (g) Target shall not change any method of accounting or accounting practice by Target except for any such change required by GAAP; (h) Target shall not take any action that would give rise to a claim under the WARN Act or any similar state law or regulation because of a "plant closing" or "mass layoff" (each as defined in the WARN Act); (i) Target shall not amend or otherwise change the terms of the Target Engagement Letters, except to the extent that any such amendment or change would result in terms more favorable to Target; (j) Except as set forth in Section 6.1(j) of the Target Disclosure Schedule, Target shall not become bound or obligated to participate in any operation, or consent to participate in any operation, with respect to any Oil and Gas Interests that will individually cost in excess of $1,000,000 unless the operation is a currently existing obligation of Target or necessary to extend, preserve or maintain an Oil and Gas Interest; (k) Target shall timely meet its royalty payment obligations in connection with its oil and gas leases. (l) Target shall not (i) enter into any futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons or securities, other than in the ordinary course of business in accordance with Target's current policies or (ii) enter into any fixed price commodity sales agreements with a duration of more than three months; (m) Target shall not (i) adopt, amend (other than amendments that reduce the amounts payable by Target, or amendments required by law to preserve the qualified status of a Target Benefit Plan or otherwise comply with ERISA, the Code or other applicable law) or assume an obligation to contribute to any employee benefit plan or arrangement of any type or collective bargaining agreement or enter into any employment, severance or similar contract with any Person (including contracts with management of Target that might require that payments be made upon consummation of the Transactions) or amend any such existing contracts to increase any amounts payable thereunder or benefits provided thereunder, (ii) engage in any transaction (either acting alone or in conjunction with any Target Benefit Plan or trust created thereunder) in connection with which Target could be subjected (directly or indirectly) to either a civil penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code, (iii) terminate any Target Benefit Plan in a manner, or take any other action with respect to any Target Benefit Plan, that could result in the liability of Target to any person, (iv) take any action that could adversely affect the qualification of any Target Benefit Plan or its compliance with the applicable requirements of ERISA, (v) fail to make full payment when due of all amounts which, under the provisions of any Target Benefit Plan, any agreement relating thereto or applicable law, Target is required to pay as contributions 39 thereto or (vi) fail to file, on a timely basis, all reports and forms required by federal regulations with respect to any Target Benefit Plan; (n) Target shall not (i) approve an increase in salary for any Target Employees or (ii) without Parent's prior written consent (which consent shall not be unreasonably withheld), terminate any Target Employee entitled to any severance payment upon such termination; (o) Target shall not organize or acquire any Person that could become a Subsidiary; (p) Target shall not enter into any commitment or agreement to license or purchase seismic data that will cost in excess of $1,000,000, other than pursuant to agreements or commitments existing on the date hereof; and (q) Target shall not agree or commit to do any of the foregoing. 6.2 Conduct of Business by Parent Pending the Merger. From the date hereof until the Effective Time, except as Target otherwise agrees in writing, as set forth in the Parent Disclosure Schedule, or as otherwise contemplated by this Agreement, Parent shall conduct its business in the ordinary course consistent with past practice and shall use all reasonable efforts to preserve intact its business organizations and relationships with third parties and to keep available the services of its present officers and key employees, subject to the terms of this Agreement. Except as otherwise provided in this Agreement, and without limiting the generality of the foregoing, from the date hereof until the Effective Time, without Target's written consent (which consent shall not be unreasonably withheld): (a) Parent shall not adopt or propose any change to its certificate of incorporation or bylaws that would alter the terms of the Parent Common Shares; (b) Except as set forth in Section 6.2(b) to the Parent Disclosure Schedule, Parent shall not, and shall not permit any of its Subsidiaries to (i) declare, set aside or pay any dividend or other distribution with respect to any shares of capital stock of Parent or its subsidiaries (except for intercompany dividends from direct or indirect wholly owned subsidiaries, (ii) repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other securities of, or other ownership interests in, Parent or any of its Subsidiaries, other than intercompany acquisitions of stock, or (iii) provide any funds to Target, directly or indirectly, for Target to redeem the Target Series D Preferred Shares, or for Target to repay debt incurred to redeem such shares; (c) Parent shall not, and shall not permit any of its Subsidiaries to, merge or consolidate with any other Person or acquire assets of any other Person for aggregate consideration in excess of $5,000,000, or enter a new line of business or commence business operations in any country in which Parent is not operating as of the date hereof; (d) Except as set forth in Section 6.2(d) of the Parent Disclosure Schedule, Parent shall not, and shall not permit any of its Subsidiaries to, sell, lease, license or otherwise surrender, relinquish or dispose of any assets or properties (other than among Parent and its 40 direct and indirect wholly owned Subsidiaries) with an aggregate fair market value exceeding $5,000,000 (other than sales of Hydrocarbons in the ordinary course of business); (e) Except as otherwise permitted by this Agreement, Parent shall not (i) issue equity securities for consideration in excess of $5,000,000 in the aggregate, or (ii) incur any indebtedness except trade debt in the ordinary course of business, debt pursuant to existing credit facilities or arrangements, debt incurred to pay the Cash Consideration and the Preferred Stock Merger Consideration, and other debt, which other debt shall not exceed $5,000,000 in the aggregate; (f) Parent shall not change any method of accounting or accounting practice by Parent or any of its Subsidiaries, except for any such change required by GAAP; (g) Parent shall not amend or otherwise change the terms of the Parent Engagement Letter, except to the extent that any such amendment or change would result in terms more favorable to Parent; (h) Parent shall not adopt a plan of complete or partial liquidation, dissolution, or reorganization; (i) Except as set forth in Section 6.2(i) of the Parent Disclosure Schedule, Parent shall not become bound or obligated to participate in any operation, or consent to participate in any operation, with respect to any Oil and Gas Interests that will individually cost in excess of $5,000,000 unless the operation is a currently existing obligation of Parent or necessary to extend, preserve or maintain an Oil and Gas Interest; (j) Parent shall not (i) enter into any futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons or securities, other than in the ordinary course of business in accordance with Parent's current policies or (ii) enter into any fixed price commodity sales agreements with a duration of more than three months; (k) Parent shall not (i) adopt, amend (other than the adoption of the Parent Incentive Plan (as defined), and amendments that reduce the amounts payable by Parent, or amendments required by law to preserve the qualified status of a Parent Benefit Plan or otherwise comply with ERISA, the Code or other applicable law) or assume an obligation to contribute to any employee benefit plan or arrangement of any type or collective bargaining agreement or enter into any employment, severance or similar contract with any Person or amend any such existing contracts to increase any amounts payable thereunder or benefits provided thereunder, (ii) engage in any transaction (either acting alone or in conjunction with any Parent Benefit Plan or trust created thereunder) in connection with which Parent could be subjected (directly or indirectly) to either a civil penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code, (iii) terminate any Parent Benefit Plan in a manner, or take any other action with respect to any Parent Benefit Plan, that could result in the liability of Parent to any person, (iv) take any action that could adversely affect the qualification of any Parent Benefit Plan or its compliance with the applicable requirements of ERISA, (v) fail to make full payment when due of all amounts which, 41 under the provisions of any Parent Benefit Plan, any agreement relating thereto or applicable law, Parent is required to pay as contributions thereto or (vi) fail to file, on a timely basis, all reports and forms required by federal regulations with respect to any Parent Benefit Plan; provided, however, that Parent may issue stock options, stock appreciation rights, and bonuses in the ordinary course of business; (l) Parent shall not enter into any commitment or agreement to license or purchase seismic data that will cost in excess of $5,000,000, other than pursuant to agreements or commitments existing on the date hereof; and (m) Parent shall not, and shall not permit any of its Subsidiaries to, agree or commit to do any of the foregoing. ARTICLE VII ADDITIONAL AGREEMENTS 7.1 Access and Information. The parties shall each afford to the other and to the other's financial advisors, legal counsel, accountants, consultants, financing sources, and other authorized representatives access during normal business hours throughout the period prior to the Effective Time to all of its books, records, properties, contracts, leases, plants and personnel and, during such period, each shall furnish promptly to the other (a) a copy of each report, schedule and other document filed or received by it pursuant to the requirements of federal or state securities laws, and (b) all other information as such other party reasonably may request, provided that no investigation pursuant to this Section 7.1 shall affect any representations or warranties made herein or the conditions to the obligations of the respective parties to consummate the Merger. Each party shall hold in confidence all nonpublic information until such time as such information is otherwise publicly available and, if this Agreement is terminated, each party will deliver to the other all documents, work papers and other materials (including copies) obtained by such party or on its behalf from the other party as a result of this Agreement or in connection herewith, whether so obtained before or after the execution hereof. Notwithstanding the foregoing, the Confidentiality Agreements dated January 10, 2003 and January 20, 2003 between Parent and Target (the "Confidentiality Agreements") shall survive the execution and delivery of this Agreement. 7.2 Acquisition Proposals. From the date hereof until the termination of this Agreement, Target shall not, and shall cause its officers, directors, employees or other agents not to, directly or indirectly, (a) take any action to solicit, initiate or encourage any Target Acquisition Proposal or (b) engage in discussions or negotiations with, or disclose any nonpublic information relating to Target or afford access to its books or records to any Person that may be considering making, or has made, a Target Acquisition Proposal. Nothing contained in this Section 7.2 shall prohibit Target and its Board of Directors from (i) taking and disclosing a position with respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) under the Exchange Act, or (ii) prior to obtaining the Target Stockholders' Approval, furnishing information, including nonpublic information to, or entering into negotiations with, any Person that has indicated its willingness to 42 make an unsolicited bona fide Target Acquisition Proposal if, and only to the extent that (with respect to this Section 7.2 F only): (A) such unsolicited bona fide proposal relating to a Target Acquisition Proposal is made by a third party that Target's Board of Directors determines in good faith has the good faith intent to proceed with negotiations to consider, and the financial and legal capability to consummate, such Target Acquisition Proposal, (B) Target's Board of Directors determines in good faith after consultation with its independent legal counsel and financial advisor (taking into account among other things the legal, financial, regulatory and other aspects of the proposal, the Person making the proposal, the likelihood of consummation and the time to complete such transaction) that such Target Acquisition Proposal is a Target Superior Proposal, (C) contemporaneously with furnishing such information to, or entering into discussions with, such Person, Target enters into a customary confidentiality agreement with such Person, (D) contemporaneously with furnishing such information to, or entering into discussions or negotiations with, such Person, Target provides written notice to Parent to the effect that it is furnishing information to, or entering into discussions or negotiations with, such Person, (E) such Target Acquisition Proposal is not subject to any financing contingencies, and (F) Target uses all reasonable efforts to keep Parent informed in all material respects of the status and terms of any such negotiations or discussions (including the identity of the Person with whom such negotiations or discussions are being held) and provides Parent copies of such written proposals and any amendments or revisions thereto or correspondence related thereto; provided, that Parent agrees to execute a confidentiality agreement, in form reasonably acceptable to it, with respect to any such information delivered to Parent pursuant to this clause (G), which confidentiality agreement shall be subject to Parent's disclosure obligations arising under applicable law or securities exchange regulations. The term "Target Acquisition Proposal" means any offer or proposal for, or any indication of interest in, a merger, acquisition, consolidation or other business combination directly or indirectly involving Target or the acquisition of a substantial equity interest in, or a substantial portion of the assets of, Target, other than the Transactions. 7.3 Directors' and Officers' Indemnification and Insurance. 43 (a) For six years after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer or director of Target and its Subsidiaries (each an "Indemnified Party"), who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, or investigative (a "proceeding") against all losses, damages, liabilities, fees and expenses (including reasonable fees and disbursements of counsel and experts and judgments, fines, losses, claims, liabilities and amounts paid in settlement (provided that any such settlement is effected with the prior written consent of Parent, which will not be unreasonably withheld)) actually and reasonably incurred by the Indemnified Party because the Indemnified Party is or was a director or officer of Target or any of its Subsidiaries pertaining to any act or omission existing or occurring at or prior to the Effective Time including any act or omission relating to this Agreement or the Transactions (the "Indemnified Liabilities") to the full extent permitted under Delaware law or the Surviving Corporation's certificate of incorporation and bylaws. If an Indemnified Party makes or asserts any claim for Indemnified Liabilities, any determination required to be made with respect to whether an Indemnified Party's conduct complies with the standards set forth under the DGCL shall be made by independent counsel mutually acceptable to the Surviving Corporation and the Indemnified Party; and provided, further, that nothing herein shall impair any rights or obligations of any Indemnified Party. If any claim or claims are brought against any Indemnified Party (whether arising before or after the Effective Time), such Indemnified Party may select counsel for the defense of such claim, which counsel shall be reasonably acceptable to Target (if selected before the Effective Time) and the Surviving Corporation (if selected after the Effective Time). (b) The Surviving Corporation shall promptly advance all reasonable out-of-pocket expenses of each Indemnified Party in connection with any such action or proceeding described above, as such expenses are incurred, to the fullest extent permitted by the DGCL, subject to the receipt by the Surviving Corporation of an undertaking by or on behalf of such Indemnified Party to repay such amount if it shall ultimately be determined that such Indemnified Party is not entitled to be indemnified by the Surviving Corporation. (c) The Surviving Corporation shall maintain Target's existing officers' and directors' liability insurance policy ("D&O Insurance") for a period of at least six years after the Effective Time, but only to the extent related to actions or omissions prior to the Effective Time; provided, that the Surviving Corporation may substitute therefor policies of substantially similar coverage and amounts containing terms no less advantageous to such former directors or officers. 7.4 Further Assurances. Each party shall use all reasonable efforts to obtain all consents and approvals and to do all other things necessary for the consummation of the Transactions. The parties shall take such further action to deliver or cause to be delivered to each other at the Closing and at such other times thereafter as shall be reasonably agreed by such parties such additional agreements or instruments as any of them may reasonably request for the purpose of carrying out this Agreement and the Transactions. The parties shall afford each other access to all information, documents, records and personnel who may be necessary for any party to comply with laws or regulations (including the filing and payment of taxes and handling tax audits), to fulfill its obligations with respect to indemnification hereunder or to defend itself 44 against suits or claims of others. Parent and Target shall duly preserve all files, records or any similar items of Parent or Target received or obtained as a result of the Transactions with the same care and for the same period of time as it would preserve its own similar assets. 7.5 Expenses. (a) Except as provided in Sections 10.2(b) and 7.17, each party shall bear solely and entirely, all Expenses (as defined below) that they incur; provided, however, that if this Agreement is terminated for any reason, then the allocable share of the Parent Parties and Target for all Expenses (including any fees and expenses of accountants, experts, and consultants, but excluding the fees and expenses of legal counsel and investment bankers) related to preparing, printing, filing and mailing the Registration Statement, the Proxy/Prospectus and all SEC and other regulatory filing fees incurred in connection with the Registration Statement, and Proxy/Prospectus shall be allocated one-half each. (b) "Expenses" as used in this Agreement shall include all reasonable out-of-pocket expenses (including all reasonable fees and expenses of outside counsel, accountants, financing sources, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by a party or on its behalf in connection with or related to the due diligence, authorization, preparation, negotiation, execution and performance of this Agreement, the preparation, printing, filing and mailing of the Registration Statement and the Proxy/Prospectus, the solicitation of stockholder approvals, and all other matters related to the consummation of the Transactions (subject to reasonable documentation). 7.6 Cooperation. Subject to compliance with applicable law, from the date hereof until the Effective Time, each party shall confer on a regular and frequent basis with one or more representatives of the other parties to report operational matters of materiality and the general status of ongoing operations and shall promptly provide the other party or its counsel with copies of all filings made by such party with any Governmental Authority in connection with this Agreement and the Transactions. 7.7 Publicity. Neither Target, Parent nor any of their respective affiliates shall issue or cause the publication of any press release or other announcement with respect to the Transactions without the prior consultation of the other party, except as may be required by law or by any listing agreement with a national securities exchange, and each party shall use reasonable efforts to provide copies of such release or other announcement to the other party hereto, and give due consideration to such comments as each such other party may have, prior to such release or other announcement. 7.8 Additional Actions. Subject to the terms and conditions of this Agreement, each party agrees to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, or to remove any injunctions or other impediments or delays, to consummate and make effective the Transactions, subject, however, to the Target Stockholders' Approval and the Parent Share Issuance Approval. 45 7.9 Filings. Each party shall make all filings such party is required to make in connection herewith or desirable to achieve the purposes contemplated hereby, and shall cooperate as needed with respect to any such filing by any other party. 7.10 Consents. Each of Parent and Target shall use all reasonable efforts to obtain all consents necessary or advisable in connection with its obligations hereunder. 7.11 Employee Matters; Benefit Plans. (a) On or prior to the Effective Time, Target shall pay the severance pay as indicated on the Severance Package Table to the Target Employees. (b) Notwithstanding Section 7.11(a), Target shall not pay such severance pay to any Target Employee (other than a Contract Employee) to whom severance pay would not be payable under the Target Severance Policy. (c) With respect to any Target Employee who is not paid severance pay on or prior to the Effective Time, all the terms and provisions of the Severance Policy and the Contract Employees' employment agreements shall continue in full force and effect. 7.12 Parent Board of Directors. Prior to the mailing to stockholders of the Proxy/Prospectus, (i) the nominating committee of Target's Board of Directors shall select two individuals reasonably acceptable to Parent (the "Director Nominees") for nomination as directors of Parent. Parent shall use its best efforts to cause the Director Nominees to be elected as members of Parent's Board of Directors by Parent's existing Board of Directors simultaneous with Closing, subject to applicable law. Each Director Nominee shall serve as a director for a term expiring at Parent's next annual meeting of stockholders following the Effective Time and until his successor is elected and qualified, provided that Parent shall use its best efforts to cause its Board to re-nominate him as a director for election at the following annual meeting at the discretion of Parent's Board of Directors. If at any time prior to the Effective Time, any Director Nominee shall be unable or elects not to serve as a director at the Effective Time, then Target's Board of Directors shall nominate another individual who is reasonably acceptable to Parent. Parent shall take such action, including amending its bylaws, as required to cause the number of directors constituting Parent's Board of Directors immediately after the Effective Time to be increased from four to six members (as applicable). 7.13 Stockholders' Meetings. (a) Target shall, as promptly as reasonably practicable after the date hereof (i) take all steps reasonably necessary to call, give notice of, convene and hold a special meeting of its stockholders (the "Target Special Meeting") for the purpose of securing the Target Stockholders' Approval, (ii) distribute to its stockholders the Proxy/Prospectus in accordance with applicable federal and state law and its certificate of incorporation and bylaws, which Proxy/Prospectus shall contain the recommendation of the Target Board of Directors that its stockholders approve this Agreement, and (iii) use all reasonable efforts to solicit from its stockholders proxies in favor of approval of this Agreement and to secure the Target Stockholders' Approval, and (iv) cooperate and consult with Parent with respect to each of the foregoing matters; provided, that nothing contained in this Section 7.13(a) shall prohibit the 46 Target Board of Directors from failing to make or from withdrawing or modifying its recommendation to the Target stockholders hereunder if such Board of Directors, after consultation with independent legal counsel, determines in good faith that such action is necessary for Target's Board of Directors to comply with its fiduciary duties under applicable law. (b) Parent shall, as promptly as reasonably practicable after the date hereof (i) take all steps reasonably necessary to call, give notice of, convene and hold a special meeting of its stockholders (the "Parent Special Meeting") for the purpose of (A) securing the Parent Share Issuance Approval and (B) securing the approval by the holders of a majority of the Parent Common Shares represented in person or by proxy and voting with respect thereto of the Parent 2003 Incentive Plan having the terms contemplated by Exhibit 7.13(b) (the "Parent Incentive Plan" and, together with the Parent Share Issuance Approval, the "Parent Stockholders' Approval"), (ii) distribute to its stockholders the Proxy/Prospectus in accordance with applicable federal and state law and its certificate of incorporation and bylaws, which Proxy/Prospectus shall contain the recommendation of the Parent Board of Directors that its stockholders approve this Agreement, (iii) use all reasonable efforts to solicit from its stockholders proxies to secure the Parent Stockholders' Approval, and (iv) cooperate and consult with Target with respect to each of the foregoing matters; provided, that nothing contained in this Section 7.13(b) shall prohibit the Parent Board of Directors from failing to make or from withdrawing or modifying its recommendation to the Parent stockholders hereunder if Parent's Board of Directors, after consultation with and in consultation with independent legal counsel, determines in good faith that such action is necessary for such Board of Directors to comply with its fiduciary duties under applicable law. (c) If a Target Superior Proposal is received and Target accepts such Target Superior Proposal and thereby terminates this Agreement under Section 10.1(h), then, unless Parent terminates this Agreement under Section 10.1(h), prior to the termination of this Agreement taking effect under Section 10.1(h), Target shall be obligated to comply with Section 7.13(a) and the other terms of this Agreement, including by holding the Target Special Meeting. If the Target Stockholders' Approval is not secured at such meeting, then at such time this Agreement shall be deemed to be terminated by Target under Section 10.1(h), Target shall pay to Parent the Termination Fee and the Expenses of Target up to the Expense Cap as provided in Section 10.2. Target acknowledges and agrees that Parent would be damaged irreparably if any provision of this Section 7.13(c) is not performed in accordance with its specific terms or is otherwise breached. Accordingly, Target agrees that Parent will be entitled to an injunction or injunctions to prevent breaches of this Section 7.13(c) and to enforce specifically this Agreement and its terms and provisions in any action or proceeding instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter, in addition to any other remedy to which Parent may be entitled, at law or in equity. 7.14 Preparation of the Proxy/Prospectus and Registration Statement. (a) Parent and Target shall promptly prepare and file with the SEC a preliminary version of the Proxy/Prospectus and will use all reasonable efforts to respond to the comments of the SEC in connection therewith and to furnish all information required to prepare the definitive Proxy/Prospectus. At any time from (and including) the initial filing with the SEC 47 of the Proxy/Prospectus, Parent shall file with the SEC the Registration Statement containing the Proxy/Prospectus so long as Parent shall have provided to Target a copy of the Registration Statement containing the Proxy/Prospectus at least ten days prior to any filing thereof and any supplement or amendment at least two days prior to any filing thereof. Subject to the foregoing sentence, Parent and Target shall jointly determine the date that the Registration Statement is filed with the SEC. Parent and Target shall use all reasonable efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. Parent shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified or filing a general consent to service of process in any jurisdiction) required to be taken under any applicable state securities laws in connection with the issuance of Parent Common Shares in the Merger and Target shall furnish all information concerning Target and the holders of shares of Target capital stock as may be reasonably requested in connection with any such action. Promptly after the effectiveness of the Registration Statement, Parent and Target shall cause the Proxy/Prospectus to be mailed to their respective stockholders, and if necessary, after the definitive Proxy/Prospectus has been mailed, promptly circulate amended, supplemented or supplemental proxy materials and, if required in connection therewith, re-solicit proxies or written consents, as applicable. Parent shall advise Target and Target shall advise Parent, as applicable, promptly after it receives notice thereof, of the time when the Registration Statement becomes effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Parent Common Shares for offering or sale in any jurisdiction, or any request by the SEC for amendment of the Proxy/Prospectus or the Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information. (b) Following receipt by PricewaterhouseCoopers LLP, Parent's independent auditors, of an appropriate request from Target pursuant to SAS No. 72, Parent shall use all reasonable efforts to cause to be delivered to Target a letter of PricewaterhouseCoopers LLP, dated a date within two business days before the effective date of the Registration Statement, and addressed to Target, in form and substance reasonably satisfactory to Target and customary in scope and substance for "cold comfort" letters delivered by independent public accountants in connection with registration statements and proxy statements similar to the Proxy/Prospectus. (c) Following receipt by KPMG LLP, Target's independent auditors, of an appropriate request from Parent pursuant to SAS No. 72, Target shall use all reasonable efforts to cause to be delivered to Parent a letter of KPMG LLP, dated a date within two business days before the effective date of the Registration Statement, and addressed to Parent, in form and substance satisfactory to Parent and customary in scope and substance for "cold comfort" letters delivered by independent public accountants in connection with registration statements and proxy statements similar to the Proxy/Prospectus. 7.15 Stock Exchange Listing. Parent shall use all reasonable efforts to cause the Parent Common Shares to be issued in the Merger to be approved for listing on the New York Stock Exchange at or prior to the Effective Time, subject to official notice of issuance. 7.16 Notice of Certain Events. Each party shall promptly as reasonably practicable notify the other parties of: 48 (a) any notice or other communication from any Person alleging that the consent of such Person (or other Person) is or may be required in connection with the Transactions; (b) any notice or other communication from any Governmental Authority in connection with the Transactions; (c) any actions, suits, claims, investigations or proceedings commenced or, to the best of its knowledge, threatened against, relating to or involving or otherwise affecting it or any of its Subsidiaries which, if pending on the date hereof, would have been required to have been disclosed pursuant to Sections 4.10, 4.12, 5.10 or 5.12, or which relate to the consummation of the Transactions; (d) any notice of, or other communication relating to, a default or event that, with notice or lapse of time or both, would become a default, received by it or any of its Subsidiaries subsequent to the date hereof, under any material agreement; and (e) any Target Material Adverse Effect or Parent Material Adverse Effect or the occurrence of any event which is reasonably likely to result in a Target Material Adverse Effect or a Parent Material Adverse Effect, as the case may be. 7.17 Site Inspections. Subject to compliance with applicable law, from the date hereof until the Effective Time, each party may undertake (at that party's sole cost and expense) an environmental and operational assessment or assessments (an "Assessment") of the other party's operations, business and/or properties that are the subject of this Agreement. An Assessment may include a review of permits, files and records including, but not limited to, environmental investigations, audits, assessments, studies, testing and management plans and systems, as well as visual and physical inspections and testing. Before conducting an Assessment, the party intending to conduct such Assessment (the "Inspecting Party") shall confer with the party whose operations, business or property is the subject of such Assessment (the "Inspected Party") regarding the nature, scope and scheduling of such Assessment, and shall comply with such conditions as the Inspected Party may reasonably impose to avoid interference with the Inspected Party's operations or business. The Inspected Party shall cooperate in good faith with the Inspecting Party's effort to conduct an Assessment. 7.18 Affiliate Agreements; Tax Treatment. (a) Target shall identify in a letter to Parent all Persons who are, on the date hereof, "affiliates" of Target, as such term is used in Rule 145 under the Securities Act. Target shall use all reasonable efforts to cause its respective affiliates to deliver to Parent not later than 10 days prior to the date of the Parent Special Meeting, a written agreement substantially in the form attached as Exhibit 7.18, and shall use all reasonable efforts to cause Persons who become "affiliates" after such date but prior to the Closing Date to execute and deliver agreements at least 5 days prior to the Closing Date. (b) Each party shall use all reasonable efforts to cause the Merger to qualify, and shall not take, and shall use all reasonable efforts to prevent any subsidiary of such party 49 from taking, any actions which could prevent the Merger from qualifying, as a reorganization under the provisions of Section 368(a) of the Code. 7.19 Stockholder Litigation. Each of Parent and Target shall give the other the reasonable opportunity to participate in the defense of any litigation against Parent or Target, as applicable, and its directors relating to the Transactions. 7.20 Certain Parent Board Approvals. Parent shall use its best efforts to cause its Board of Directors prior to the Effective Time to approve in the form required by Rule 16b-3 under the Exchange Act certain acquisitions of Parent Common Shares pursuant to the Merger, as directed by Target and in form reasonably acceptable to Target. 7.21 Optional Redemption or Liquidation of Target D Preferred Shares. Target may take any and all actions necessary to redeem or liquidate the Target D Preferred Shares effective after the Record Date for the Target Special Meeting and on or prior to the Effective Time for an amount equal to the Preferred Stock Conversion Consideration, except that dividends shall only be paid through the date of redemption. 7.22 Registration Rights Agreement. Parent and Target agree to use their reasonable best efforts to cause the parties to the Registration Rights Agreement, dated as of August 27, 1999, as amended on October 19, 1999, by and among Middle Bay Oil Company, Inc. and the parties listed on Schedule 1 thereto, to be amended such that no parties thereto will have registration rights with respect to their Parent Common Shares after the Effective Time if the Parent Common Shares they receive in the Merger may be transferred either (a) in one 90-day period under Rule 144 under the Securities Act, or (b) in a transaction exempt from registration under the Securities Act because such parties have received Parent Common Shares in a registered transaction under the Proxy/Prospectus. ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER 8.1 Conditions to the Obligation of Each Party. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) The Target Stockholders' Approval and the Parent Share Issuance Approval must have been obtained. (b) No action, suit or proceeding instituted by any Governmental Authority may be pending and no statute, rule, order, decree or regulation and no injunction, order, decree or judgment of any court or Governmental Authority of competent jurisdiction may be in effect, in each case which would prohibit, restrain, enjoin or restrict the consummation of the Transactions; provided, however, that the party seeking to terminate this Agreement pursuant to this subsection (b) must have used all reasonable best efforts to prevent the entry of such injunction or other order. 50 (c) The Registration Statement must have become effective in accordance with the provisions of the Securities Act and no stop order suspending the effectiveness of the Registration Statement may be in effect and no proceeding for such purpose may be pending before or threatened by the SEC. (d) Each of Target and Parent must have obtained all material permits, authorizations, consents, or approvals required to consummate the Transactions. (e) The Parent Common Shares to be issued in the Merger must have been approved for listing on the New York Stock Exchange, subject to official notice of issuance. (f) Parent must have received a supplemental ruling from the Internal Revenue Service or a tax opinion reasonably acceptable to Plains Resources Inc. from counsel to Parent to the effect that the Transactions would not adversely affect the tax treatment of the spin-off of Parent from Plains Resources Inc. under Section 355 of the Code as ruled by the Internal Revenue Service in its private letter rulings to Plains Resources Inc. dated November 5, 2002 and May 22, 2002; provided, however, that if counsel to Parent shall not render such opinion, this condition shall nonetheless be deemed satisfied if other nationally-recognized counsel shall render such opinion to Parent. 8.2 Conditions to the Obligations of Parent. The obligation of Parent to effect the Merger is subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) Target must have performed in all material respects its obligations under this Agreement required to be performed by it at or prior to the Effective Time and the representations and warranties of Target contained in this Agreement, to the extent qualified with respect to materiality must be true and correct in all respects, and to the extent not so qualified must be true and correct in all material respects, in each case as of the date hereof and at and as of the Effective Time as if made at and as of such time, except as expressly contemplated by the Target Disclosure Schedule or this Agreement and except that the accuracy of representations and warranties that by their terms speak as of the date hereof or some other date shall be determined as of such date, and Parent must have received a certificate of the Chief Executive Officer and Chief Financial Officer of Target as to the satisfaction of this condition. (b) From the date hereof through the Effective Time, there must not have occurred any change in the financial condition, business, operations or prospects of Target, that would constitute a Target Material Adverse Effect. (c) Target must have delivered to its counsel, Parent and Parent's counsel a certificate signed on behalf of Target by a duly authorized officer of Target certifying the representations set forth in the form of Target Tax Certificate attached as Exhibit 8.2(c) (the "Target Tax Certificate"). (d) Parent must have received an opinion from Akin Gump Strauss Hauer & Feld LLP prior to the effectiveness of the Registration Statement and also as of the Effective Time to the effect that (i) the Merger constitutes a reorganization under Section 368(a) of the Code, (ii) Parent and Target shall each be a party to that reorganization, and (iii) no gain or loss shall be recognized by Parent or Target because of the Merger; provided, however, that if 51 counsel to Parent shall not render such opinion, this condition shall nonetheless be deemed satisfied if counsel to Target shall render such opinion to Parent; provided further, that in rendering such opinion, such counsel may rely upon the Parent Tax Certificate and the Target Tax Certificate. (e) Each consent, waiver and approval set forth in Section 4.4(c) of the Target Disclosure Schedule must have been obtained, and Target must have provided Parent with copies thereof. 8.3 Conditions to the Obligations of Target. The obligation of Target to effect the Merger is subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) Parent must have performed in all material respects its obligations under this Agreement required to be performed by it at or prior to the Effective Time and the representations and warranties of Parent contained in this Agreement, to the extent qualified with respect to materiality must be true and correct in all respects, and to the extent not so qualified must be true and correct in all material respects, in each case as of the date hereof and at and as of the Effective Time as if made at and as of such time, except as expressly contemplated by the Parent Disclosure Schedule or this Agreement and except that the accuracy of representations and warranties that by their terms speak as of the date hereof or some other date shall be determined as of such date, and Target must have received a certificate of the Chief Executive Officer and Chief Financial Officer of Parent as to the satisfaction of this condition. (b) From the date hereof through the Effective Time, there must not have occurred any change in the financial condition, business, operations or prospects of Parent that would constitute a Parent Material Adverse Effect. (c) Parent must have delivered to its counsel, Target and Target's counsel a certificate signed on behalf of Parent by a duly authorized officer of Parent certifying the representations set forth in the form of Parent Tax Certificate attached as Exhibit 8.3(c) (the "Parent Tax Certificate"). (d) Target must have received an opinion from Thompson & Knight, LLP prior to the effectiveness of the Registration Statement and also as of the Effective Time to the effect that (i) the Merger constitutes a reorganization under Section 368(a) of the Code, (ii) Target and Parent shall each be a party to that reorganization, and (iii) no gain or loss shall be recognized by the Target stockholders upon the receipt of Parent Common Shares in exchange for Target Common Shares pursuant to the Merger except with respect to the Cash Consideration, the Series D Preferred Stock Merger Consideration and any cash received in lieu of fractional share interests; provided, however, that if counsel to Target shall not render such opinion, this condition shall nonetheless be deemed satisfied if counsel to Parent shall render such opinion to Target; provided further, that in rendering such opinion, such counsel may rely upon the Parent Tax Certificate and the Target Tax Certificate. 52 ARTICLE IX SURVIVAL 9.1 Survival of Representations and Warranties. The representations and warranties of the parties contained in this Agreement shall not survive the Effective Time. 9.2 Survival of Covenants and Agreements. The covenants and agreements of the parties to be performed after the Effective Time contained in this Agreement shall survive the Effective Time. ARTICLE X TERMINATION, AMENDMENT AND WAIVER 10.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by the stockholders of Target or Parent: (a) by the mutual written consent of Parent and Target; (b) by either Parent or Target if the Effective Time has not occurred on or before August 31, 2003 (the "Termination Date"), provided that the party seeking to terminate this Agreement pursuant to this Section 10.1(b) shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the failure to consummate the Merger on or before the Termination Date; (c) by Target if there has been a material breach by Parent of any representation, warranty, covenant or agreement set forth in this Agreement which breach (if susceptible to cure) has not been cured in all material respects within 20 business days following receipt by Parent of notice of such breach; (d) by Parent, if there has been a material breach by Target of any representation, warranty, covenant or agreement set forth in this Agreement which breach (if susceptible to cure) has not been cured in all material respects within 20 business days following receipt by Target of notice of such breach (a "Target Breach"); (e) by either Target or Parent, if any applicable law, rule or regulation that makes consummation of the Merger illegal is extant or if any judgment, injunction, order or decree of a court or other Governmental Authority of competent jurisdiction restrains or prohibits the consummation of the Merger, and such judgment, injunction, order or decree becomes final and nonappealable; (f) by either Target or Parent, if either of the stockholder approvals referred to in Section 7.13 is not obtained because of the failure to obtain the Target Stockholders Approval or the Parent Share Issuance Approval upon a vote at a duly held meeting of stockholders or at any adjournment or postponement thereof; 53 (g) by Parent, if (i) Target's Board of Directors withdraws, modifies or changes its recommendation of this Agreement or the Merger in a manner adverse to Parent or resolves to do any of the foregoing or Target's Board of Directors recommends to Target's stockholders any Target Acquisition Proposal or resolves to do so; (ii) a tender offer or exchange offer for outstanding shares of Target's capital stock then representing 30% or more of the combined power to vote generally for the election of directors is commenced, and Target's Board of Directors does not, within the applicable period required by law, recommend that stockholders not tender their shares into such tender or exchange offer; or (iii) Target shall have breached any of its obligations under Section 7.2; or (h) by Parent, or, subject to Section 7.13(c), Target, if Target accepts a Target Superior Proposal. For this Agreement, "Target Superior Proposal" means bona fide written Target Acquisition Proposal that (i) Target's Board of Directors in good faith determines, after consultation with its financial advisors and its outside legal counsel, is reasonably likely to be consummated taking into account the Person making such Target Acquisition Proposal and all legal, financial, regulatory and other relevant aspects of such Target Acquisition Proposal, and Target's Board of Directors in good faith determines, after consultation with its financial advisors and its outside legal counsel, that such Target Acquisition Proposal would, if consummated, result in a transaction that is more favorable from a financial point of view to the holders of Target Common Shares than the Transactions; provided, however, that Target may not terminate this Agreement under this Section 10.1(h) unless it pays the Termination Fee plus Parent's Expenses up to the Expense Cap and has used all reasonable efforts to provide Parent with five business days prior written notice of its intent to so terminate this Agreement together with a detailed summary of the terms and conditions of such Target Acquisition Proposal; provided further, during such five (5) day period, Target shall and shall direct its respective financial and legal advisors to negotiate in good faith with Parent to make such adjustments in the terms and conditions of this Agreement as would result, in the opinion of Target's Board of Directors, after consultation with its financial advisors and outside legal counsel, in a revised Parent proposal that is reasonably capable of being completed, and, if consummated, may reasonably be expected to result in a transaction that is at least as favorable from a financial point of view to the holders of Target Common Stock as the Target Superior Proposal. (i) by Parent, if the Market Price is less than the Minimum Market Price. 10.2 Effect of Termination. (a) If this Agreement is terminated and the Merger is abandoned under this Article X, all obligations of the parties shall terminate, except the parties' obligations pursuant to this Section 10.2 and except for Sections 7.5, 7.7, 9.1, 9.2, 11.2, 11.6, 11.7, 11.8, 11.9 and the last two sentences of Section 7.1, provided that nothing herein shall relieve any party from liability for any breaches hereof. (b) Termination by Parent. (i) If (x) a Target Acquisition Proposal shall have been made or shall have otherwise become publicly known or any Person (other than Parent or any of its affiliates) shall have publicly announced an intention (whether or not 54 conditional) to make a Target Acquisition Proposal, (y) this Agreement is terminated by Parent under Section 10.1(f) (failure to obtain the Target Stockholder's Approval), Section 10.1(b) (Effective Time has not occurred on or prior to Termination Date) or Section 10.1(d) (Target Breach), and (z) in each case, within twelve months after such termination of this Agreement: (A) a transaction is consummated, which transaction, if offered or proposed, would constitute a Target Acquisition Proposal, (B) a definitive agreement (the execution and delivery of which has been authorized by the boards of directors, or comparable bodies) that would if consummated constitute a Target Acquisition Proposal is entered into or (C) (X) any Person acquires beneficial ownership or the right to acquire beneficial ownership of, or any "group" (as such term is defined under Section 13(d) of the Exchange Act and the rules and regulations promulgated hereunder), shall have been formed that beneficially owns, or has the right to acquire beneficial ownership of, outstanding shares of capital stock of Target then representing 50% or more of the combined power to vote generally for the election of directors, and (Y) Target's Board of Directors has taken any action for the benefit of such person, that facilitates the acquisition by such person or group of such beneficial ownership, then Target shall promptly (and no later than one business day after the first to occur of any of clauses (A)-(C) above) pay to Parent a termination fee of $9.0 million (the "Termination Fee"), plus Parent's Expenses up to $1.0 million (the "Expense Cap"). (ii) If (x) Parent terminates this Agreement under Section 10.1(g) (change of recommendation; recommendation of Target Acquisition Proposal; failure to reject; breach of Sections 7.2 or (y) Target or Parent terminates this Agreement pursuant to Section 10.1(h) (Target Superior Proposal), Target shall promptly (and in any event no later than one business day after such termination) pay to Parent the Termination Fee plus Parent's Expenses up to the Expense Cap. ARTICLE XI MISCELLANEOUS 11.1 Notices. All notices or communications hereunder shall be in writing (including facsimile or similar writing) addressed as follows: To Parent: Plains Exploration & Production Company 500 Dallas Street, Suite 700 55 Houston, Texas 77002-4804 Attention: James C. Flores Telephone: (713) 739-6700 Facsimile: (713) 654-1523 With a copy (which shall not constitute notice) to: Akin Gump Strauss Hauer & Feld LLP 1900 Pennzoil Place South Tower 711 Louisiana Street Houston, Texas 77002 Attention: Michael E. Dillard, P.C. Facsimile No.: (713) 236-0822 To Target: 3TEC Energy Corporation 700 Milam, Suite 1100 Houston, Texas 77002 Attention: Floyd C. Wilson Telephone: (713) 821-7100 Facsimile: (713) 821-7200 With a copy (which shall not constitute notice) to: Hinkle Elkouri Law Firm L.L.C. 301 N. Main, Suite 2000 Wichita, Kansas 67202 Attention: David S. Elkouri Telephone: (316) 660-6111 Facsimile: (316) 660-6011 and Thompson & Knight LLP 333 Clay Street, Suite 3300 Houston, Texas 77002 Attention: Dallas Parker or Timothy T. Samson Facsimile: (713) 654-1871 Any such notice or communication shall be deemed given (i) when made, if made by hand delivery, and upon confirmation of receipt, if made by facsimile, (ii) one business day after being deposited with a next-day courier, postage prepaid, or (iii) three business days after being sent certified or registered mail, return receipt requested, postage prepaid, in each case addressed as above (or to such other address as such party may designate in writing from time to time). 56 11.2 Severability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. 11.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, and assigns; provided, however, that neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation and any assignment in violation hereof shall be null and void. 11.4 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.5 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 such counterparts have been signed by each of the parties and delivered to each party. 11.6 Entire Agreement. This Agreement, all documents contemplated herein or required hereby, and the Confidentiality Agreements represent the entire Agreement of the parties with respect to the subject matter hereof and shall supersede any and all previous contracts, arrangements or understandings between the parties with respect to the subject matter hereof. 11.7 Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the state of Delaware, without reference to rules relating to conflicts of law. 11.8 Submission to Jurisdiction. Each party to this Agreement submits to the exclusive jurisdiction of any state or federal court sitting in the State of Delaware in any dispute or action arising out of or relating to this Agreement and agrees that all claims in respect of such dispute or action may be heard and determined in any such court. Each party also agrees not to bring any dispute or action arising out of or relating to this Agreement in any other court. Each party agrees that a final judgment in any dispute or action so brought will be conclusive and may be enforced by dispute or action on the judgment or in any other manner provided at law (common, statutory or other) or in equity. Each party waives any defense of inconvenient forum to the maintenance of any dispute or action so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto. 11.9 Attorneys' Fees. If any action at law or equity, including an action for declaratory relief, is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and expenses from the other party, which fees and expenses shall be in addition to any other relief which may be awarded. 11.10 No Third Party Beneficiaries. Except as provided in Section 7.3, no Person other than the parties is an intended beneficiary of this Agreement or any portion hereof. 11.11 Disclosure Schedules. The disclosures made on any disclosure schedule, including the Target Disclosure Schedule and the Parent Disclosure Schedule, with respect to any representation or warranty shall be deemed to be made with respect to any other 57 representation or warranty requiring the same or similar disclosure to the extent that the relevance of such disclosure to other representations and warranties is reasonably evident from the face of the disclosure schedule. The inclusion of any matter on any disclosure schedule will not be deemed an admission by any party that such listed matter is material or that such listed matter has or would have a Target Material Adverse Effect or a Parent Material Adverse Effect, as applicable. 11.12 Amendments and Supplements. At any time before or after approval of the matters presented in connection with the Merger by the respective stockholders of Parent and Target and prior to the Effective Time, this Agreement may be amended or supplemented in writing by Parent and Target with respect to any of the terms contained in this Agreement, except as otherwise provided by law; provided, however, that following approval of this Agreement by the stockholders of Parent, or Target, as applicable, there shall be no amendment or change to the provisions hereof unless permitted by the DGCL without further approval by the stockholders of Parent, or Target, as applicable. 11.13 Extensions, Waivers, Etc. At any time prior to the Effective Time, either party may (a) extend the time for the performance of any of the obligations or acts of the other party; (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered pursuant hereto; or (c) subject to the proviso of Section 11.12 waive compliance with any of the agreements or conditions of the other party contained herein. Notwithstanding the foregoing, no failure or delay by Parent or Target in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. [SIGNATURE PAGE FOLLOWS] 58 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. PLAINS EXPLORATION & PRODUCTION COMPANY By: ___________________________________ Name: James C. Flores Title: Chief Executive Officer PXP GULF COAST INC. By: ___________________________________ Name: James C. Flores Title: Chief Executive Officer 3TEC ENERGY CORPORATION By: ___________________________________ Name: Floyd C. Wilson Title: Chief Executive Officer Exhibit 7.13(b) Parent Incentive Plan The Parent Incentive Plan will have the same characteristics as the Plains Exploration & Production Company 2002 Stock Incentive Plan. Parent's Compensation Committee shall determine the number of shares that will be reserved under such plan. Exhibit 7.18 Form of Affiliate Agreement Plains Exploration & Production Company 599 Dallas Street, Suite 700 Houston, Texas 77002-4804 Gentlemen: Reference is made to the Agreement and Plan of Merger (the "Merger Agreement") dated as of February 2, 2003 between Plains Exploration & Production Company, a Delaware corporation ("Parent"), PXP Gulf Coast Inc. a Delaware corporation ("Merger Sub"), and 3TEC Energy Corporation, a Delaware corporation ("Target"), pursuant to which Merger Sub and Target shall merge. Pursuant to the terms and conditions of the Merger Agreement, upon consummation of the transactions contemplated thereby, each share of Common Stock, par value $.02 per share, of Target owned by the undersigned as of the Effective Time (as defined in the Merger Agreement) shall be converted into and exchangeable for certain shares of the common stock, par value $.01 per share, of Parent (the "Parent Common Shares") and cash. The undersigned understands that the he may be deemed to be an "affiliate" of Target for purposes of Rule 145 promulgated under the Securities Act of 1933, as amended (the "Act"). The undersigned is delivering this letter of undertaking and commitment pursuant to Section 7.18 of the Merger Agreement. With respect to such Parent Common Shares the undersigned may receive under the Merger Agreement (the "Shares"), the undersigned represents to and agrees with Parent that: A. The undersigned shall not make any offer to sell or any sale or other disposition of all or any part of the Shares in violation of the Act or the rules and regulations thereunder, including Rule 145, and shall hold all the Shares subject to all applicable provisions of the Act and the rules and regulations thereunder. B. The undersigned has been advised that the offering, sale and delivery of the Shares to the undersigned pursuant to the Merger Agreement shall be registered under the Act on a Registration Statement on Form S-4. The undersigned has also been advised, however, that, since the undersigned may be deemed an "affiliate" of Target, any public reoffering or resale by the undersigned of any of the Shares shall, under current law, require either (i) the further registration under the Act of the Shares to be sold, (ii) compliance with Rule 145 promulgated under the Act (permitting limited sales under certain circumstances) or (iii) the availability of another exemption from registration under the Act. C. The undersigned also understands that, if Parent should deem it necessary to comply with the requirements of the Act, stop transfer instructions will be given to its transfer agents with respect to the Shares and that there will be placed on the certificates for the Shares, or any substitutions therefor, a legend stating in substance: "The securities represented by this certificate were issued in a transaction under Rule 145 promulgated under the Securities Act of 1933, as amended (the "Act"), and may be sold, transferred or otherwise disposed of only upon receipt by the Corporation of an opinion of counsel acceptable to it that the securities are being sold in compliance with the limitations of Rule 145 or that some other exemption from registration under the Act is available, or pursuant to a registration statement under the Act." Execution of this letter shall not be considered an admission on the part of the undersigned that the undersigned is an "affiliate" of Target for purposes of Rule 145 under the Act or as a waiver of any rights the undersigned may have to any claim that the undersigned is not such an affiliate on or after the date of this letter. Very truly yours, _______________________________ Signature _______________________________ Name _______________________________ Date Exhibit 8.2(c) TARGET OFFICER'S CERTIFICATE On behalf of 3TEC Energy Corporation, a Delaware corporation ("Target"), I hereby certify that all the information set forth below relating to the proposed merger of Target into PXP Gulf Coast Inc. a Delaware corporation ("Merger Sub") and the wholly-owned subsidiary of Plains Exploration & Production Company, a Delaware corporation ("Parent"), is true, correct and complete as of the date hereof and will continue to be true and correct as of the Effective Time. To make this certification, I have relied on my personal knowledge of the facts set forth below or I have obtained information as to these matters from officers or employees or other advisors in whom I have confidence and whose duties require them to have personal knowledge thereof. I understand that each of Thompson & Knight L.L.P. and Akin Gump Strauss Hauer & Feld LLP will rely on this certification in delivering certain opinions pursuant to the Agreement and Plan of Merger dated as of February 2, 2003 (the "Merger Agreement"), by and among Parent, Merger Sub, and Target. Except as expressly provided otherwise, capitalized terms used herein have the same meanings assigned to them in the Merger Agreement. 1. The Merger will be carried out strictly in accordance with the Merger Agreement and the agreements referenced therein, and there are no other written or oral agreements regarding the Merger other than those expressly referred to in the Merger Agreement. 2. The fair market value of Parent Common Shares and cash received by each holder of Target Common Shares in connection with the Merger will be approximately equal to the fair market value of the shares of Target Common Shares surrendered in the exchange. 3. To the best knowledge of Target, neither Parent nor Merger Sub (nor any Related Person as defined in Attachment A) has any plan or intention to redeem or otherwise reacquire, directly or indirectly, any Parent Common Shares to be issued in the Merger. 4. To the best knowledge of Target, the aggregate fair market value, determined at the Effective Time, of the Parent Common Stock to be received in the Merger will not be less than forty percent (40%) of the value, determined at the Effective Time, of Target Common Shares and Target Warrants outstanding immediately before the Effective Time. For this purpose, we assume that the fair market value of the outstanding Target Common Shares and Target Warrants will equal the fair market value of the aggregate Merger Consideration. 5. Prior to the Effective Time and in connection with or anticipation of the Merger, (i) none of the Target Common Shares will be redeemed, (ii) no extraordinary distribution will be made with respect to Target Common Shares, and (iii) none of the Target Common Shares will be acquired by Target or any Related Person. 6. Target will redeem its outstanding Series D Preferred Stock immediately before the Merger solely with Target's funds. Parent will provide no funds to Target, directly or indirectly, for Target to redeem such Series D Preferred Stock or for Target to repay debt incurred to redeem such stock. 7. The only capital stock of Target issued and outstanding is Target Common Stock and Series D Preferred Stock. 8. Target and Target stockholders will each pay their respective expenses, if any, incurred in connection with the Merger. 9. Any compensation paid to the Target stockholders who enter (or have entered) into employment, consulting or noncompetitive contracts, if any, with Parent, Merger Sub, or the Surviving Corporation (a) will be for services actually rendered or to be rendered, (b) will be commensurate with amounts paid to third parties bargaining at arm's length for similar services, and (c) will not represent consideration for the surrender of the Target Common Shares in the Merger. 10. No debt of Target is guaranteed by any Target stockholder. 11. Target owns no stock of Parent. 12. Merger Sub will acquire at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the gross assets held by Target immediately prior to the Merger. For purposes of this representation, amounts paid by Target to dissenters, amounts paid by Target to stockholders who receive cash or other property, Target assets used to pay its reorganization expenses, and all redemptions and distributions (including the redemption of the Series D Preferred Stock, but excluding regular, normal dividends) made by Target immediately preceding the transfer, will be included in assets of Target held immediately prior to the Merger. 13. No assets of Target have been sold, transferred or otherwise disposed of which would prevent Parent from continuing the historic business of Target or from using a significant portion of Target's historic business assets in a business following the Merger. Target intends to continue its historic business or use a significant portion of its historic business assets in a business. 14. Target is not an investment company as defined in Section 368(a)(2)(F) of the Code. An investment company is (a) a regulated investment company; (b) a real estate investment trust; or (c) a corporation (i) fifty percent (50%) or more of the value of whose total assets are stock and securities, and (ii) eighty percent (80%) or more of the value of whose total assets are held for investment. For this purpose, "total assets" shall not include cash and cash items (including receivables) and government securities. 15. The fair market value of the assets of Target transferred to Merger Sub in the Merger will equal or exceed the sum of the liabilities assumed or paid by Parent or Merger Sub, plus the amount of liabilities, if any, to which the transferred assets are subject. 16. The total adjusted basis of the assets of Target transferred to Merger Sub in the Merger will equal or exceed the sum of the liabilities assumed or paid by Parent or Merger Sub, plus the amount of liabilities, if any, to which the transferred assets are subject. 17. Target is not under the jurisdiction of a court in a title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 18. There is no intercorporate indebtedness existing between Parent and Target, or between Merger Sub and Target, that was or will be issued, acquired, or settled at a discount in connection with the Merger. 19. Target has substantial non-tax business purposes and reasons for the Merger, and the terms of the Merger are the product of arm's length negotiations. 20. Target will not take, and Target is not aware of any plan or intention of any of the Target stockholders to take, any position on any federal, state or local income or franchise tax return, or take any other tax reporting position, that is inconsistent with the treatment of the Merger as a reorganization within the meaning of Section 368(a) of the Code, unless otherwise required by a "determination" (as defined in Code Section 1313(a)(1)). 21. No stock or securities of Target, or to the knowledge of Target, no stock or securities of Parent, will be issued to any Target stockholder for services rendered to or for the benefit of Parent, Merger Sub, or Target in connection with the Merger. 22. No stock or securities of Parent or of Target will be issued to any Target stockholder for any indebtedness owed to any Target stockholder in connection with the Merger. 23. The liabilities of Target to be assumed or paid by Parent and Merger Sub and the liabilities to which the transferred assets of Target are subject were incurred by Target in the ordinary course of its business. 24. No assets were transferred to Target, nor did Target assume any liabilities, in anticipation of the Merger. 25. The undersigned officer is authorized to make all of the certifications and representations set forth herein. [SIGNATURE PAGE FOLLOWS] Signed _______________ ____, 2003. 3TEC ENERGY CORPORATION By:__________________________________ Name: Floyd C. Wilson Title: Chief Executive Officer ATTACHMENT A For purposes of this certificate, a Related Person with respect to either Parent or Merger Sub shall mean (i) a corporation that, immediately before or immediately after a purchase, exchange, redemption, or other acquisition of Parent Common Stock, is a member of an Affiliated Group (as defined herein) of which Parent (or any successor corporation) is a member, or (ii) a corporation in which Parent (or any successor corporation), owns, or which owns with respect to Parent (or any successor corporation), directly or indirectly, immediately before or immediately after such purchase, exchange, redemption, or other acquisition, at least 50% of the total combined voting power of all classes of stock entitled to vote or at least 50% of the total value of shares of all classes of stock, taking into account for purposes of this clause (ii) any stock owned by 5% or greater stockholders of Parent (or any successor) or such corporation, a proportionate share of the stock owned by entities in which Parent (or any successor) or such corporation owns an interest, and any stock which may be acquired pursuant to the exercise of options. For purposes of this certificate, "Affiliated Group" shall mean one or more chains of corporations connected through stock ownership with a common parent corporation, but only if (x) the common parent owns directly stock that possesses at least 80% of the total voting power, and has a value at least equal to 80% of the total value, of the stock in at least one of the other corporations, and (y) stock possessing at least 80% of the total voting power, and having a value at least equal to 80% of the total value, of the stock in each corporation (except the common parent) is owned directly by one or more of the other corporations. For purposes of the preceding sentence, "stock" does not include any stock that (a) is not entitled to vote, (b) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, (c) has redemption and liquidation rights that do not exceed the issue price of such stock (except for a reasonable redemption or liquidation premium), and (d) is not convertible into another class of stock. Exhibit 8.3(c) PARENT AND MERGER SUB OFFICER'S CERTIFICATE On behalf of Plains Exploration & Production Company, a Delaware corporation ("Parent"), and its wholly-owned subsidiary PXP Gulf Coast Inc., a Delaware corporation ("Merger Sub"), I hereby certify that all the information set forth below relating to the proposed merger of 3TEC Energy Corporation, a Delaware corporation ("Target"), into Merger Sub is true, correct and complete as of the date hereof and will continue to be true and correct as of the Effective Time. To make this certification, I have relied on my personal knowledge of the facts set forth below or I have obtained information as to these matters from officers or employees or other advisors in whom I have confidence and whose duties require them to have personal knowledge thereof. I understand that each of Thompson & Knight L.L.P. and Akin Gump Strauss Hauer & Feld LLP will rely on this certification in delivering certain opinions pursuant to the Agreement and Plan of Merger dated as of February 2, 2003 (the "Merger Agreement"), by and among Parent, Merger Sub, and Target. Except as expressly provided otherwise, capitalized terms used herein have the same meanings assigned to them in the Merger Agreement. 1. The Merger will be carried out strictly in accordance with the Merger Agreement and the agreements referenced therein, and there are no other written or oral agreements relating to the Merger other than those expressly referred to in the Merger Agreement. 2. In connection with the Merger, no Target Common Shares will be acquired by Parent or a Related Person (as defined in Attachment A) for consideration other than Parent Common Shares, except for the Cash Consideration, payments to the dissenting stockholders, if any, and any cash received in lieu of fractional share interests in Parent Common Shares. 3. The fair market value of Parent Common Shares and cash received by each holder of Target Common Shares in connection with the Merger will be approximately equal to the fair market value of the Target Common Shares surrendered in the exchange. 4. Parent will provide no funds to Target, directly or indirectly, for Target to redeem its Series D Preferred Stock or for Target to repay debt incurred to redeem such stock. 5. Neither Parent nor Merger Sub (nor any Related Person as defined in Attachment A) has any plan or intention to redeem or otherwise reacquire, directly or indirectly, any Parent Common Shares to be issued in the Merger. 6. Parent has no stock repurchase program and has no current plan or intention to adopt such a plan. 7. To the best knowledge of Parent, the aggregate fair market value, determined at the Effective Time, of the Parent Common Shares to be received in the Merger will not be less than forty percent (40%) of the value, determined at the Effective Time, of the Target Common Shares and Target Warrants outstanding immediately before the Effective Time. For this purpose, we assume that the fair market value of the outstanding Target Common Shares and Target Warrants will equal the fair market value of the aggregate Merger Consideration. 8. Neither Parent nor any Related Person owns, nor has it owned during the past five years, any shares of stock of the Target. Neither Parent nor any Related Person has caused any other person to acquire stock of the Target on behalf of Parent or a Related Person, and will not directly or indirectly acquire any stock of the Target in connection with the Merger, except as described in the Merger Agreement. 9. Parent has not, directly or indirectly, transferred any cash or property to the Target (or any entity controlled directly or indirectly by the Target) for less than full and adequate consideration and has not made any loan to the Target (or any entity controlled directly or indirectly by the Target) in anticipation of the Merger. 10. There is no intercompany indebtedness existing between Parent and Target, or between Merger Sub and Target, that was or will be issued, acquired, or settled at a discount in connection with the Merger. 11. Parent will pay its own expenses incurred in connection with or as part of the Merger or related transactions. Parent has not paid and will not pay, directly or indirectly, any expenses (including transfer taxes) incurred by any holder of Target Common Shares in connection with or as part of the Merger or any related transactions. Parent has not agreed to assume, nor will it directly or indirectly assume, any expense or other liability, whether fixed or contingent, of any holder of Target Common Shares. 12. Any compensation paid to the holders of Target Common Shares who enter (or have entered) into employment, consulting or noncompetitive contracts, if any, with Parent, Merger Sub, or the Surviving Corporation (a) will be for services actually rendered or to be rendered, (b) will be commensurate with amounts paid to third parties bargaining at arm's length for similar services, and (c) will not represent consideration for the surrender of the Target Common Shares in the Merger. 13. Merger Sub is wholly and directly owned by Parent and has been newly formed solely to consummate the Merger. Prior to the Effective Time, Merger Sub will have no assets other than cash to satisfy capital requirements under state law and has not, and will not, conduct any business activities or other operations of any kind other than the issuance of its stock to Parent or as otherwise expressly required by the Merger Agreement. 14. At the Effective Time of the Merger, Merger Sub will not have or issue any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire any stock in Merger Sub. 15. Merger Sub will acquire at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the gross assets held by Target immediately prior to the Merger. For purposes of this representation, amounts paid by Target to dissenters, amounts paid by Target to stockholders who receive cash or other property, Target assets used to pay its reorganization expenses, and all redemptions and distributions (including the redemption of the Series D Preferred Stock, but excluding regular, normal dividends) made by Target immediately preceding the transfer, will be included in assets of Target held immediately prior to the Merger. 16. Following the Merger, the Surviving Corporation will continue the historic business of Target or use a significant portion of its assets in a business, within the meaning of Treas. Reg.ss.1.368-1(d). 17. Parent has no plan or intention to liquidate the Surviving Corporation following the Merger; to merge the Surviving Corporation with another corporation; to sell or otherwise dispose of the stock of Merger Sub; or to sell or otherwise dispose of any of the assets of Target except for dispositions made in the ordinary course of business or transfers or successive transfers to one or more corporations controlled (within the meaning of Section 368(c) of the Code) in each case by the transferor corporation. 18. Following the Merger, Parent has no plan or intention to cause the Surviving Corporation to issue additional shares of its stock that would result in Parent owning stock possessing less than eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote or less than eighty percent (80%) of the total number of shares of all other classes of stock of the Surviving Corporation. 19. Parent is paying no consideration for the Target stock other than the Merger Consideration. 20. To the best knowledge of Parent, any Target liabilities assumed or paid by Parent or Merger Sub and the liabilities to which the transferred assets of the Target are subject were incurred by the Target in the ordinary course of its business. 21. Neither Parent nor Merger Sub is an investment company within the meaning of Sections 368(a)(2)(F) of the Code. An investment company is (1) a regulated investment company; (2) a real estate investment trust; or (3) a corporation (i) fifty percent (50%) or more of the value of whose total assets are stock and securities, and (ii) eighty percent (80%) or more of the value of whose total assets are held for investment. For this purpose, "total assets" shall not include cash and cash items (including receivables) and government securities. 22. Parent has substantial non-tax business purposes and reasons for the Merger, and the terms of the Merger are the product of arm's length negotiations. 23. Neither Parent nor the Surviving Corporation will take any position on any federal, state or local income or franchise tax return, or take any other tax reporting position that is inconsistent with the treatment of the Merger as a reorganization within the meaning of Section 368(a) of the Code, unless otherwise required by a "determination" (as defined in Code Section 1313(a)(1)). 24. No stock or securities of Parent will be issued to any Target stockholder for services rendered to or for the benefit of Parent, Merger Sub, or the Target in connection with the Merger. 25. To the best knowledge of Parent, no stock or securities of the Target will be issued to any Target stockholder for services rendered to or for the benefit of Parent, Merger Sub, or the Target in connection with the Merger. 26. No stock or securities of Parent will be issued for any indebtedness owed to any Target stockholder in connection with the Merger. 27. To the best knowledge of Parent, no stock or securities of the Target will be issued for any indebtedness owed to any Target stockholder in connection with the Merger. 28. No stock of Merger Sub will be issued in connection with the Merger. 29. Rights received by the Parent stockholders pursuant to Parent's [Poison Pill Agreement] are not separately tradeable, are contingent, are non-exercisable, are subject to redemption if they become exercisable, and have no ascertainable fair market value. 30. The undersigned officer is authorized to make all of the certifications and representations set forth herein. [SIGNATURE PAGE FOLLOWS] Signed _______________ ___, 2003. PLAINS EXPLORATION & PRODUCTION COMPANY By: ________________________________ Name: James C. Flores Title: Chief Executive Officer PXP GULF COAST INC. By: ________________________________ Name: James C. Flores Title: Chief Executive Officer ATTACHMENT A For purposes of this certificate, a Related Person with respect to either Parent or Merger Sub shall mean (i) a corporation that, immediately before or immediately after a purchase, exchange, redemption of Parent Common Stock, or other acquisition, is a member of an Affiliated Group (as defined herein) of which Parent (or any successor corporation) is a member, or (ii) a corporation in which Parent (or any successor corporation), owns, or which owns with respect to Parent (or any successor corporation), directly or indirectly, immediately before or immediately after such purchase, exchange, redemption, or other acquisition, at least 50% of the total combined voting power of all classes of stock entitled to vote or at least 50% of the total value of shares of all classes of stock, taking into account for purposes of this clause (ii) any stock owned by 5% or greater stockholders of Parent (or any successor) or such corporation, a proportionate share of the stock owned by entities in which Parent (or any successor) or such corporation owns an interest, and any stock which may be acquired pursuant to the exercise of options. For purposes of this certificate, "Affiliated Group" shall mean one or more chains of corporations connected through stock ownership with a common parent corporation, but only if (x) the common parent owns directly stock that possesses at least 80% of the total voting power, and has a value at least equal to 80% of the total value, of the stock in at least one of the other corporations, and (y) stock possessing at least 80% of the total voting power, and having a value at least equal to 80% of the total value, of the stock in each corporation (except the common parent) is owned directly by one or more of the other corporations. For purposes of the preceding sentence, "stock" does not include any stock that (a) is not entitled to vote, (b) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, (c) has redemption and liquidation rights that do not exceed the issue price of such stock (except for a reasonable redemption or liquidation premium), and (d) is not convertible into another class of stock. EX-10.2 4 dex102.txt VOTING AGREEMENT Exhibit 10.2 VOTING AGREEMENT (PXP) VOTING AGREEMENT (this "Agreement") dated as of February 2, 2003, by and among Plains Exploration & Production Company, a Delaware corporation ("PXP"), 3TEC Energy Corporation, a Delaware corporation ("3TEC"), EnCap Energy Acquisition III-B, Inc., EnCap Energy Capital Fund III, L.P., BOCP Energy Partners, L.P., and ECIC Corporation, (together with EnCap Energy Acquisition III-B, Inc., EnCap Energy Capital Fund III, L.P. and BOCP Energy Partners, L.P., the "EnCap Entities"), Floyd C. Wilson ("Wilson"), Stephen W. Herod ("Herod"), and R. A. Walker (with the EnCap Entities, Wilson, and Herod, each a "Stockholder" and collectively, the "Stockholders"). WHEREAS, each Stockholder desires that PXP, PXP Gulf Coast, Inc., a Delaware corporation and wholly-owned subsidiary of PXP ("Merger Sub"), and 3TEC, enter into an Agreement and Plan of Merger dated the date hereof (the "Merger Agreement"; undefined capitalized terms herein are defined in the Merger Agreement) providing for the merger of 3TEC with and into Merger Sub (the "Merger") upon the terms and subject to the conditions set forth in the Merger Agreement; WHEREAS, each Stockholder is executing this Agreement as an inducement to PXP to enter into and execute the Merger Agreement; and WHEREAS, concurrently with the execution and delivery of this Agreement, 3TEC is entering into a voting agreement with certain PXP Stockholders (the "PXP Stockholders") under which such parties have, among other things, agreed to support the Merger upon the terms and conditions set forth therein. NOW, THEREFORE, in consideration of the execution and delivery by PXP of the Merger Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: 1. Representations and Warranties. (a) Each Stockholder severally represents and warrants to PXP as follows: (i) Such Stockholder is the record and beneficial owner of that number of shares of capital stock of 3TEC set forth opposite such Stockholder's name on Schedule A (together with any other shares of other capital stock of 3TEC acquired after the date hereof including through the exercise of any stock options, warrants or similar instruments) being collectively referred to herein as the "Subject Shares") and the other securities exercisable or exchangeable for such capital stock listed on Schedule A (the "Other Securities" and, together with the Subject Shares, the "Covered Securities"). The Subject Shares constitute the only shares, with respect to which such Stockholder is the record or beneficial owner, of capital stock of 3TEC or options, warrants or other rights (whether or not contingent) to acquire such shares of capital stock of 3TEC that are or may be entitled to vote on the Merger or the Merger Agreement at any meeting of 3TEC's Stockholders called to vote upon the Merger or the Merger Agreement. Such Stockholder has the sole right to vote and Transfer (as defined herein) the Covered Securities set forth opposite its name on Schedule A, and none of such Covered Securities is subject to any voting trust or other agreement, arrangement or restriction with respect to the voting or the Transfer of the Subject Shares, except (A) as provided by this Agreement (it being understood that any pledge of the Pledged Shares (as defined below) shall not be a breach of this representation) and (B) those arising under applicable securities laws. Such Stockholder has all requisite power and authority, and, if such Stockholder is a natural person, the legal capacity, to enter into this Agreement and to perform its obligations hereunder. To the extent that such Stockholder is an entity and not an individual, such Stockholder is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. The execution and delivery of this Agreement by such Stockholder and the performance by such Stockholder of its obligations hereunder have been duly authorized by all necessary action on the part of such Stockholder. This Agreement has been duly executed and delivered by, and constitutes a valid and binding agreement of, such Stockholder, enforceable against such Stockholder in accordance with its terms, except as enforcement may be limited by the Enforceability Exceptions. (ii) Neither the execution and delivery of this Agreement nor the performance by such Stockholder of its obligations hereunder will result in a violation of, or a default under, or conflict with, (A) if such Stockholder is an entity, any provision of its certificate of incorporation, bylaws, partnership agreement, limited liability company agreement or similar organizational documents, (B) any contract, trust, commitment, agreement, understanding, arrangement or restriction of any kind (other than as may relate to the Pledged Shares but subject to the proviso set forth in (iv) below) to which such Stockholder is a party or bound or to which the Covered Securities are subject, except, in the case of clause (B), as would not prevent, delay or otherwise materially impair such Stockholder's ability to perform its obligations hereunder. Execution, delivery and performance of this Agreement by such Stockholder will not violate, or require any consent, approval or notice under, any provision of any judgment, order, decree, statute, law, rule or regulation applicable to such Stockholder or the Covered Securities, except (x) for any reports under Sections 13(d) and 16 of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby or (y) as would not reasonably be expected to prevent, delay or otherwise materially impair such Stockholder's ability to perform its obligations hereunder. (iii) If the Stockholder is married and the Covered Securities of the Stockholder constitute community property or spousal approval is otherwise required for this Agreement to be legal, valid and binding, then, to the extent so required, this Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Stockholder's spouse, enforceable against such spouse in accordance with its terms, subject to the Enforceability Exceptions. (iv) The Covered Securities and the certificates representing such Covered Securities are held by such Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for (A) any such encumbrances arising hereunder, or (B) any such encumbrances arising pursuant to the pledge of any Covered Securities by such 2 Stockholder to a financial institution or a brokerage firm (the "Pledged Shares"); provided, however, that such Stockholder represents that any such arrangement regarding such Pledged Shares shall not prevent, delay or otherwise materially impair such Stockholder's ability to execute and deliver this Agreement or perform its obligations hereunder and such Stockholder shall use his reasonable efforts to obtain an acknowledgment by the pledgee of the terms of this Agreement and such pledgee's agreement to vote the Pledged Shares (if and to the extent the voting power of the Pledged Shares is being or to be exercised by pledgee) in accordance with Section 2. (v) No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission based upon arrangements made by or on behalf of such Stockholder in connection with its entering into this Agreement. (vi) Such Stockholder understands and acknowledges that PXP is entering into the Merger Agreement in reliance upon such Stockholder's execution and delivery of this Agreement. (b) PXP represents and warrants to each Stockholder and 3TEC that the execution and delivery of this Agreement by PXP and the consummation by PXP of the transactions contemplated hereby have been duly authorized by all necessary action on the part of PXP. (c) 3TEC represents and warrants to each Stockholder and PXP that the execution and delivery of this Agreement by 3TEC and the consummation by 3TEC of the transactions contemplated hereby have been duly authorized by all necessary action on the part of 3TEC. 2. Voting Agreements. During the Term (as defined below) of this Agreement, at any meeting of stockholders of 3TEC or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval (including by written consent) is sought, each Stockholder shall, including by executing a written consent solicitation if requested by PXP, vote (or cause to be voted) the Subject Shares: (a) in favor of the Merger, the adoption by 3TEC of the Merger Agreement and the approval of the terms thereof and each of the other Transactions and (b) against any transaction, agreement, matter or 3TEC Acquisition Proposal that would impede, interfere with, delay, postpone or attempt to discourage the Merger and the Merger Agreement. 3. Irrevocable Proxy. Each Stockholder hereby appoints PXP as its proxy to vote all of such Stockholder's Subject Shares at any meeting of stockholders of 3TEC (including any adjournments and postponements thereof) on the matters described in Section 2, and to execute and deliver any written consents to fulfill such Stockholder's obligations under this Agreement. This proxy is coupled with an interest and is irrevocable until the end of the Term. 3 4. Revocation of Other Proxies. To the extent inconsistent with the other provisions of this Agreement or the Merger Agreement, each Stockholder hereby revokes any and all previous proxies with respect to such Stockholder's Subject Shares. 5. Other Covenants. Each Stockholder severally agrees with, and covenants to, PXP during the Term of this Agreement as follows: (a) Such Stockholder shall not after the date hereof (i) sell, transfer, pledge, assign or otherwise dispose of (including by gift) (collectively, "Transfer"), or consent to any Transfer of, any Covered Securities or any interest therein, except pursuant to the Merger, (ii) enter into any contract, option or other agreement with respect to any Transfer of any or all of the Covered Securities or any interest therein, (iii) grant any proxy, power-of-attorney or other authorization in or with respect to the Subject Shares or (iv) deposit the Subject Shares into a voting trust or enter into a voting agreement or voting arrangement with respect to the Subject Shares; provided, that any such Stockholder may Transfer any of the Covered Securities to an affiliate of such Stockholder (provided such affiliates evidences in a writing reasonably satisfactory to the other parties hereto such affiliate's agreement to the terms hereof) or any other Stockholder who is on the date hereof or hereafter becomes a party to this Agreement; provided, further, that the restrictions in this Section 5 shall not be deemed violated by any Transfer of Covered Securities pursuant to a cashless exercise of stock options or warrants; and provided, further, that a pledge of Pledged Shares made in accordance with Section 1(a)(iv) shall not be deemed to be a violation of the restrictions in this Section 5. (b) Such Stockholder hereby waives any rights of appraisal, or rights to dissent from the Merger, that such Stockholder may have. (c) Such Stockholder shall not take any action prohibited by Section 7.2 of the Merger Agreement. 6. Additional Covenants. During the Term of this Agreement no Stockholder shall (a) exercise any of the Other Securities other than as contemplated by Section 3.3 of the Merger Agreement or (b) convert any shares of Series D Preferred Stock, par value $.02, of 3TEC. 7. Certain Events. This Agreement and the obligations hereunder shall attach to each Stockholder's Covered Securities and shall be binding upon any Person to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including such Stockholder's heirs, guardians, administrators or successors. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of 3TEC affecting the Covered Securities or the acquisition of additional shares of Covered Securities or other voting securities of 3TEC by any Stockholder, the number of Covered Securities listed on Schedule A beside the name of such Stockholder shall be adjusted appropriately and this Agreement and the obligations hereunder shall attach to any additional Covered Securities or other voting securities of 3TEC issued to or acquired by such Stockholder. 8. Stop Transfer. 3TEC shall not register the transfer of any certificate representing any Covered Securities, unless such transfer is made to PXP or otherwise in compliance with this Agreement. 4 9. Stockholder Capacity. No person executing this Agreement (or an affiliate thereof) who is or becomes during the Term a director of 3TEC makes any agreement or understanding herein in his or her capacity as such director. Each Stockholder signs solely in his or her capacity as the record and beneficial owner of, or the trustee of a trust whose beneficiaries are the beneficial owners of, such Stockholder's Covered Securities. 10. Further Assurances. Each Stockholder shall, upon request of PXP, execute and deliver any additional documents and take such further actions as may reasonably be deemed by PXP to be necessary or desirable to carry out the provisions hereof. 11. Termination. This Agreement, and all rights and obligations of the parties hereunder, shall terminate upon (and shall only be effective from the date hereof until) the first to occur of (i) the Effective Time of the Merger, or (ii) the date upon which the Merger Agreement is terminated in accordance with its terms (such period from the date hereof until such termination is referred to herein as the "Term"); provided, however, that (x) Section 12 shall survive any termination of this Agreement and (y) termination of this Agreement pursuant to clause (ii) above shall not relieve any party hereto from liability for any willful and knowing breach hereof prior to such termination. 12. Miscellaneous. (a) All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to PXP or 3TEC, to the appropriate address set forth in Section 11.1 of the Merger Agreement; and (ii) if to a Stockholder, to the appropriate address set forth on Schedule A. (b) Each Party submits to the jurisdiction of any state or federal court sitting in the State of Delaware in any dispute or action arising out of or relating to this Agreement and agrees that all claims in respect of such dispute or action may be heard and determined in any such court. Each Party also agrees not to bring any dispute or action arising out of or relating to this Agreement in any other court. Each Party agrees that a final judgment in any dispute or action so brought will be conclusive and may be enforced by action on the judgment or in any other manner provided at law (common, statutory or other) or in equity. Each Party waives any defense of inconvenient forum to the maintenance of any dispute or action so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. (c) Each Party appoints RLF Service Corp., One Rodney Square, Wilmington, Delaware 19801 as their agent to receive on their behalf service of copies of the summons and complaint and any other process that might be served in an dispute or action (the "Process Agent"). Any Party may make service on any other Party by sending or delivering a copy of the process (i) to the Party to be served at the address and in the manner provided for the giving of notices in Section 12(a) or (ii) to the Party to be served in care of the Process Agent at the address and in the manner provided for the giving of notices in Section 12(a). 5 (d) The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (e) This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective as to any Stockholder when one or more counterparts have been signed by each of PXP, 3TEC and such Stockholder and delivered to PXP, 3TEC and such Stockholder. (f) This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and this Agreement is not intended to confer upon any other person (other than PXP) any rights or remedies hereunder. (g) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. (h) Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other parties, except by laws of descent or as expressly provided by Section 5(a). Any assignment in violation of the foregoing shall be void. (i) As between any Stockholder and PXP, each of such parties agrees that irreparable damage to the other, non-breaching party would occur and that such non-breaching party would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the non-breaching party shall be entitled to an injunction or injunctions to prevent breaches by the other party of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which it may be entitled at law or in equity. (j) If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any extent, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. (k) No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party. [SIGNATURE PAGE FOLLOWS] 6 IN WITNESS WHEREOF, PXP, 3TEC, and the Stockholders party hereto have caused this Agreement to be duly executed and delivered as of the date first written above. PLAINS EXPLORATION AND PRODUCTION COMPANY By: ________________________________ Name: James C. Flores Title: Chief Executive Officer 3TEC ENERGY CORPORATION By: ________________________________ Name: Floyd C. Wilson Title: Chief Executive Officer STOCKHOLDERS: _______________________________________ FLOYD C. WILSON _______________________________________ STEPHEN W. HEROD _______________________________________ R. A. WALKER ENCAP ENERGY CAPITAL FUND III, L.P. By: ENCAP INVESTMENTS L.L.C., General Partner By: ______________________________ Name: ______________________________ Title: Managing Director 7 ENCAP ENERGY ACQUISITION III-B, INC. By: ______________________________ Name: ______________________________ Title: Vice President BOCP ENERGY PARTNERS, L.P. By: ENCAP INVESTMENTS L.L.C., Manager By: ______________________________ Name: ______________________________ Title: Managing Director ECIC CORPORATION By: ______________________________ Name: ______________________________ Title: Vice President ENCAP INVESTMENTS L.L.C. By: ______________________________ Name: ______________________________ Title: Managing Director 8 EX-10.3 5 dex103.txt VOTING AGREEMENT (3TEC) EXHIBIT 10.3 VOTING AGREEMENT (3TEC) VOTING AGREEMENT (this "Agreement") dated as of February 2, 2003, by and among Plains Exploration & Production Company, a Delaware corporation ("PXP"), 3TEC Energy Corporation, a Delaware corporation ("3TEC"), EnCap Energy Capital Fund III-B, L.P., EnCap Energy Capital Fund III, L.P., BOCP Energy Partners, L.P., and Energy Capital Investment Company PLC (together with EnCap Energy Capital Fund III-B, L.P., EnCap Energy Capital Fund III, L.P. and BOCP Energy Partners, L.P., the "EnCap Entities"), Sable Management, L.P. ("Sable"), and James C. Flores (with the EnCap Entities and Sable, each a "Stockholder" and collectively, the "Stockholders"). WHEREAS, each Stockholder desires that 3TEC, PXP Gulf Coast, Inc., a Delaware corporation and wholly-owned subsidiary of PXP ("Merger Sub"), and PXP, enter into an Agreement and Plan of Merger dated the date hereof (the "Merger Agreement"; undefined capitalized terms herein are defined in the Merger Agreement) providing for the merger of 3TEC with and into Merger Sub (the "Merger") upon the terms and subject to the conditions set forth in the Merger Agreement; WHEREAS, each Stockholder is executing this Agreement as an inducement to 3TEC to enter into and execute the Merger Agreement; and WHEREAS, concurrently with the execution and delivery of this Agreement, PXP is entering into a voting agreement with certain 3TEC stockholders under which such parties have, among other things, agreed to support the Merger upon the terms and conditions set forth therein. NOW, THEREFORE, in consideration of the execution and delivery by 3TEC of the Merger Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: 1. Representations and Warranties. (a) Each Stockholder severally represents and warrants to 3TEC as follows: (i) Such Stockholder is the record and beneficial owner of that number of shares of capital stock of PXP set forth opposite such Stockholder's name on Schedule A (together with any other shares of other capital stock of PXP acquired after the date hereof including through the exercise of any stock options, warrants or similar instruments) being collectively referred to herein as the "Subject Shares"). The Subject Shares constitute the only shares, with respect to which such Stockholder is the record or beneficial owner, of capital stock of PXP or options, warrants or other rights (whether or not contingent) to acquire such shares of capital stock of PXP that are or may be entitled to vote on the Merger or the Merger Agreement at any meeting of PXP's Stockholders called to vote upon the Merger or the Merger Agreement. Such Stockholder has the sole right to vote and Transfer (as defined herein) the Subject Shares set forth opposite its name on Schedule A, and none of such Subject Shares is subject to any voting trust or other agreement, arrangement or restriction with respect to the voting or the Transfer of the Subject Shares, except (A) as provided by this Agreement (it being understood that any pledge of the Pledged Shares (as defined below) shall not be a breach of this representation) and (B) those arising under applicable securities laws. Such Stockholder has all requisite power and authority, and, if such Stockholder is a natural person, the legal capacity, to enter into this Agreement and to perform its obligations hereunder. To the extent that such Stockholder is an entity and not an individual, such Stockholder is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. The execution and delivery of this Agreement by such Stockholder and the performance by such Stockholder of its obligations hereunder have been duly authorized by all necessary action on the part of such Stockholder. This Agreement has been duly executed and delivered by, and constitutes a valid and binding agreement of, such Stockholder, enforceable against such Stockholder in accordance with its terms, except as enforcement may be limited by the Enforceability Exceptions. (ii) Neither the execution and delivery of this Agreement nor the performance by such Stockholder of its obligations hereunder will result in a violation of, or a default under, or conflict with, (A) if such Stockholder is an entity, any provision of its certificate of incorporation, bylaws, partnership agreement, limited liability company agreement or similar organizational documents, (B) any contract, trust, commitment, agreement, understanding, arrangement or restriction of any kind (other than as may relate to the Pledged Shares but subject to the proviso set forth in (iv) below) to which such Stockholder is a party or bound or to which the Subject Shares are subject, except, in the case of clause (B), as would not prevent, delay or otherwise materially impair such Stockholder's ability to perform its obligations hereunder. Execution, delivery and performance of this Agreement by such Stockholder will not violate, or require any consent, approval or notice under, any provision of any judgment, order, decree, statute, law, rule or regulation applicable to such Stockholder or the Subject Shares, except (x) for any reports under Sections 13(d) and 16 of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby or (y) as would not reasonably be expected to prevent, delay or otherwise materially impair such Stockholder's ability to perform its obligations hereunder. (iii) If the Stockholder is married and the Subject Shares of the Stockholder constitute community property or spousal approval is otherwise required for this Agreement to be legal, valid and binding, then, to the extent so required, this Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, the Stockholder's spouse, enforceable against such spouse in accordance with its terms, subject to the Enforceability Exceptions. (iv) The Subject Shares and the certificates representing such Subject Shares are held by such Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for (A) any such encumbrances arising hereunder, or (B) any such encumbrances arising pursuant to the pledge of any Subject Shares by such Stockholder to a financial institution or a brokerage firm (the "Pledged Shares"); provided, however, that such Stockholder represents that any such arrangement regarding such Pledged Shares shall not prevent, delay or otherwise materially impair such Stockholder's ability to execute and deliver this Agreement or perform its obligations hereunder and such Stockholder 2 shall use his reasonable efforts to obtain an acknowledgment by the pledgee of the terms of this Agreement and such pledgee's agreement to vote the Pledged Shares (if and to the extent the voting power of the Pledged Shares is being or to be exercised by pledgee) in accordance with Section 2. (v) No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission based upon arrangements made by or on behalf of such Stockholder in connection with its entering into this Agreement. (vi) Such Stockholder understands and acknowledges that 3TEC is entering into the Merger Agreement in reliance upon such Stockholder's execution and delivery of this Agreement. (b) 3TEC represents and warrants to each Stockholder and PXP that the execution and delivery of this Agreement by 3TEC and the consummation by 3TEC of the transactions contemplated hereby have been duly authorized by all necessary action on the part of 3TEC. (c) PXP represents and warrants to each Stockholder and 3TEC that the execution and delivery of this Agreement by PXP and the consummation by PXP of the transactions contemplated hereby have been duly authorized by all necessary action on the part of PXP. 2. Voting Agreements. During the Term (as defined below) of this Agreement, at any meeting of stockholders of PXP or at any adjournment thereof or in any other circumstances upon which a vote, consent or other approval (including by written consent) is sought, each Stockholder shall, including by executing a written consent solicitation if requested by 3TEC, vote (or cause to be voted) the Subject Shares: (a) in favor of the Merger, the adoption by PXP of the Merger Agreement and the approval of the terms thereof and each of the other Transactions and (b) against any transaction, agreement, matter or PXP Acquisition Proposal that would impede, interfere with, delay, postpone or attempt to discourage the Merger and the Merger Agreement. 3. Irrevocable Proxy. Each Stockholder hereby appoints 3TEC as its proxy to vote all of such Stockholder's Subject Shares at any meeting of stockholders of PXP (including any adjournments and postponements thereof) on the matters described in Section 2, and to execute and deliver any written consents to fulfill such Stockholder's obligations under this Agreement. This proxy is coupled with an interest and is irrevocable until the end of the Term. 4. Revocation of Other Proxies. To the extent inconsistent with the other provisions of this Agreement or the Merger Agreement, each Stockholder hereby revokes any and all previous proxies with respect to such Stockholder's Subject Shares. 5. Other Covenants. Each Stockholder severally agrees with, and covenants to, 3TEC during the Term of this Agreement as follows: such Stockholder shall not after the date hereof (i) sell, transfer, pledge, assign or otherwise dispose of (including by gift) (collectively, "Transfer"), or consent to any Transfer of, any Subject Shares or any interest therein, except pursuant to the Merger, (ii) enter into any contract, option or other agreement with respect to any 3 Transfer of any or all of the Subject Shares or any interest therein, (iii) grant any proxy, power-of-attorney or other authorization in or with respect to the Subject Shares or (iv) deposit the Subject Shares into a voting trust or enter into a voting agreement or voting arrangement with respect to the Subject Shares; provided, that any such Stockholder may Transfer any of the Subject Shares to an affiliate of such Stockholder (provided such affiliates evidences in a writing reasonably satisfactory to the other parties hereto such affiliate's agreement to the terms hereof) or any other Stockholder who is on the date hereof or hereafter becomes a party to this Agreement; provided, further, that the restrictions in this Section 5 shall not be deemed violated by any Transfer of Subject Shares pursuant to a cashless exercise of stock options or warrants; and provided, further, that a pledge of Pledged Shares made in accordance with Section 1(a)(iv) shall not be deemed to be a violation of the restrictions in this Section 5. 6. Certain Events. This Agreement and the obligations hereunder shall attach to each Stockholder's Subject Shares and shall be binding upon any Person to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including such Stockholder's heirs, guardians, administrators or successors. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of PXP affecting the Subject Shares or the acquisition of additional shares of Subject Shares or other voting securities of PXP by any Stockholder, the number of Subject Shares listed on Schedule A beside the name of such Stockholder shall be adjusted appropriately and this Agreement and the obligations hereunder shall attach to any additional Subject Shares or other voting securities of PXP issued to or acquired by such Stockholder. 7. Stop Transfer. PXP shall not register the transfer of any certificate representing any Subject Shares, unless such transfer is made to 3TEC or otherwise in compliance with this Agreement. 8. Stockholder Capacity. No person executing this Agreement (or an affiliate thereof) who is or becomes during the Term a director of PXP makes any agreement or understanding herein in his or her capacity as such director. Each Stockholder signs solely in his or her capacity as the record and beneficial owner of, or the trustee of a trust whose beneficiaries are the beneficial owners of, such Stockholder's Subject Shares. 9. Further Assurances. Each Stockholder shall, upon request of 3TEC, execute and deliver any additional documents and take such further actions as may reasonably be deemed by 3TEC to be necessary or desirable to carry out the provisions hereof. 10. Termination. This Agreement, and all rights and obligations of the parties hereunder, shall terminate upon (and shall only be effective from the date hereof until) the first to occur of (i) the Effective Time of the Merger, or (ii) the date upon which the Merger Agreement is terminated in accordance with its terms (such period from the date hereof until such termination is referred to herein as the "Term"); provided, however, that (x) Section 12 shall survive any termination of this Agreement and (y) termination of this Agreement pursuant to clause (ii) above shall not relieve any party hereto from liability for any willful and knowing breach hereof prior to such termination. 11. Miscellaneous. 4 (a) All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to 3TEC or PXP, to the appropriate address set forth in Section 11.1 of the Merger Agreement; and (ii) if to a Stockholder, to the appropriate address set forth on Schedule A. (b) Each Party submits to the jurisdiction of any state or federal court sitting in the State of Delaware in any dispute or action arising out of or relating to this Agreement and agrees that all claims in respect of such dispute or action may be heard and determined in any such court. Each Party also agrees not to bring any dispute or action arising out of or relating to this Agreement in any other court. Each Party agrees that a final judgment in any dispute or action so brought will be conclusive and may be enforced by action on the judgment or in any other manner provided at law (common, statutory or other) or in equity. Each Party waives any defense of inconvenient forum to the maintenance of any dispute or action so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. (c) Each Party appoints RLF Service Corp., One Rodney Square, Wilmington, Delaware 19801 as their agent to receive on their behalf service of copies of the summons and complaint and any other process that might be served in an dispute or action (the "Process Agent"). Any Party may make service on any other Party by sending or delivering a copy of the process (i) to the Party to be served at the address and in the manner provided for the giving of notices in Section 11(a) or (ii) to the Party to be served in care of the Process Agent at the address and in the manner provided for the giving of notices in Section 11(a). (d) The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (e) This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective as to any Stockholder when one or more counterparts have been signed by each of 3TEC, PXP and such Stockholder and delivered to 3TEC, PXP and such Stockholder. (f) This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and this Agreement is not intended to confer upon any other person (other than 3TEC) any rights or remedies hereunder. (g) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. (h) Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other parties, except by laws of descent or as expressly provided by Section 5. Any assignment in violation of the foregoing shall be void. 5 (i) As between any Stockholder and 3TEC, each of such parties agrees that irreparable damage to the other, non-breaching party would occur and that such non-breaching party would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the non-breaching party shall be entitled to an injunction or injunctions to prevent breaches by the other party of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which it may be entitled at law or in equity. (j) If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any extent, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. (k) No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party. [SIGNATURE PAGE FOLLOWS] 6 IN WITNESS WHEREOF, 3TEC, PXP, and the Stockholders party hereto have caused this Agreement to be duly executed and delivered as of the date first written above. PLAINS EXPLORATION & PRODUCTION COMPANY By: ________________________________ Name: James C. Flores Title: Chief Executive Officer 3TEC ENERGY CORPORATION By: ________________________________ Name: Floyd C. Wilson Title: Chief Executive Officer STOCKHOLDERS: SABLE MANAGEMENT, L.P. By: Sable Management, LLC, its general partner By: ________________________________ Name: James C. Flores Title: Member _______________________________________ James C. Flores ENCAP ENERGY CAPITAL FUND III, L.P. By: ENCAP INVESTMENTS L.L.C., General Partner By: ________________________________ Name: ________________________________ Title: Managing Director 7 ENCAP ENERGY FUND III-B, L.P. By: ENCAP INVESTMENTS L.L.C., General Partner By: ________________________________ Name: ________________________________ Title: Managing Director BOCP ENERGY PARTNERS, L.P. By: ENCAP INVESTMENTS L.L.C., Manager By: ________________________________ Name: ________________________________ Title: Managing Director ENERGY CAPITAL INVESTMENT COMPANY PLC By: ________________________________ Name: ________________________________ Title: Authorized Representative 8 EX-10.4 6 dex104.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.4 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated February 2, 2003, is by and among Plains Exploration & Production Company, an Delaware corporation (the "Company"), EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., ECIC Corporation and EnCap Investments L.L.C. (together with permitted assigns, the "Holders"). WHEREAS, pursuant to the Merger Agreement (the "Merger Agreement") dated as of the date hereof among the Company, 3Tec Energy Corporation, a Delaware corporation, and PXP Gulf Coast, Inc., a Delaware corporation, the Holders will receive, at the Effective Time (as defined in the Merger Agreement), shares of Common Stock, par value $.01 per share, of the Company (the "Common Stock"); and WHEREAS, in connection with the Merger Agreement, the Company has agreed to grant to each Holder certain registration rights set forth below. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Holder and the Company, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 Specific Definitions. The following capitalized terms shall have the indicated meanings: "Affiliate" is defined in Rule 12b-2 under the Exchange Act. "Agreement" is defined in the preamble hereto. "Common Stock" is defined in the preamble. "Company" is defined in the preamble. "Company Registration" is defined in Section 3.1. "Effective Time" is defined in the Merger Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holders" is defined in the preamble (subject, however, to Section 10.2). "Indemnified Party" is defined in Section 7.3. "Indemnifying Party" is defined in Section 7.3. "Inspectors" is defined in Section 4.1(l). "Loss" or "Losses" is defined in Section 7.1. "Merger Agreement" is defined in the recitals. "person" means any business entity (including a corporation, partnership (limited or general), limited liability company or business trust) or a natural person. Prospectus" is defined in Section 7.1. "register" "registered" and "registration" and words of similar import refer to a registration effected by preparing and filing with the SEC a registration statement in compliance with the Securities Act, and the declaration and ordering by the SEC of effectiveness of such registration statement or document. "Registrable Stock" means (i) any Common Stock held by any Holder or its permitted assigns as of the Effective Time and (ii) any Common Stock held by a Holder of a Substitute Warrant upon exercise after the Effective Time, in whole or in part, of the Substitute Warrant issued to such Holder pursuant to the Merger Agreement, and any securities issued or issuable in respect of any Registrable Stock by way of any stock split or stock dividend or in connection with any combination of shares, recapitalization, merger, consolidation, reorganization or otherwise. "SEC" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Substitute Warrant" is defined in the Merger Agreement. SECTION 2. REGISTRATION RIGHTS 2.1 Demand Registration Rights. (a) After the Effective Time, upon receipt of a written request from a Holder to register under the Securities Act (whether for purposes of a public offering, an exchange offer or otherwise) all or part of the Registrable Stock held by such Holder, as the case may be, the Company shall as expeditiously as reasonably possible (but in any event not later than 30 days after receipt of such request) prepare and file, and use its best efforts to cause to become effective as soon thereafter as practicable, a registration statement under the Securities Act to effect the offering of such Registrable Stock in the manner specified in such request. (b) The Holder, shall be entitled to select and retain one or more investment bankers or managers reasonably acceptable to the Company in connection with any underwritten offerings made pursuant to this Section 2.1. 2 (c) Subject to the terms and conditions set forth in Section 2.2, any Holder may request the Company to register Registrable Stock under the Securities Act pursuant to this Section 2.1 at any time and from time to time; provided, however, that the Holders may not request the Company to register Registrable Stock pursuant to this Section 2.1 more than once in any 270-day period. 2.2 Terms And Conditions Of Demand Registration Rights. Notwithstanding anything to the contrary contained elsewhere herein, the registration rights granted to the Holders in Section 2.1 are expressly subject to the following terms and conditions: (a) The Holders, collectively, shall only be entitled (i) to two requests to register Registrable Stock under the terms of Section 2.1, and (ii) to commence requests after the Effective Time. A "request" as it is used in this Section 2.2(a) shall be deemed to have occurred only upon completion of a requested registration and the subsequent sale of Registrable Stock. (b) In no event shall the Registrable Stock to be offered under a registration statement prepared and filed pursuant to Section 2.1 constitute less than (i) 4% of the then outstanding shares of Common Stock, or (ii) if the number of shares of Registrable Stock constitutes less than 4% of the then outstanding shares of Common Stock, then all of such Holders remaining shares of Registrable Stock. For purposes of meeting the 4% threshold in (i) above, the Holders may aggregate their shares of Registrable Stock to be included therein. (c) If at any time or from time to time a Holder requests registration of any of its Registrable Stock in accordance with Section 2.1, the Company shall give the other Holders prompt written notice of the proposed registration and shall include in such registration on the same terms and conditions as the other Registrable Stock included in such registration such number of shares of Registrable Stock as the other Holders shall request within ten business days after the giving of such notice. If the managing underwriter or underwriters of a proposed offering for which securities of more than one Holder are included pursuant to this Section 2.2(c) advise the Company in writing that in its or their good faith judgment the total amount of securities to be included in such offering is sufficiently large to jeopardize the success of such offering, then the securities to be included in such offering shall be allocated pro rata among each Holder participating in the offering based upon the number of shares of Registrable Stock requested to be included in such registration by each such Holder. (d) The Company shall be entitled to defer for a reasonable period of time, but not in excess of 135 days in any 365 day period, or any 90 consecutive day period, the filing of any registration statement otherwise required to be prepared and filed by it under Section 2.1 if the Company notifies the requesting Holder(s), within five business days after such Holder requested the registration under Section 2.1, that the Company (i) is at such time conducting or about to conduct an underwritten public offering of its securities for its own account and the Company's Board of Directors determines in good faith that such offering would be materially adversely affected by such registration requested by such Holder(s) or (ii) would, in the opinion of its counsel, be required to disclose in such registration statement information not otherwise then required by law to be publicly disclosed and, in the good faith judgment of the Company's 3 Board of Directors, such disclosure might adversely affect any material business transaction or negotiation in which the Company is then engaged. If the Company elects to defer the filing of a registration statement pursuant to this Section 2.2(c), the requesting Holder(s) may withdraw its request, in writing, during the time of such deferral and such request shall not be counted toward the limit set forth in Section 2.2(a). (e) No Holder shall exercise its rights pursuant to Section 2.1 during the 60-day period immediately following the effective date of any registration statement filed by the Company under the Securities Act (other than on Form S-8 or another similar form) in respect of an offering or sale of Common Stock by or on behalf of the Company or any other stockholder of the Company. (f) Notwithstanding any other provision of this Agreement, the Holders may not effect a continuous offering of securities on a "shelf registration statement" hereunder. SECTION 3. PIGGYBACK REGISTRATION RIGHTS 3.1 Piggyback Registration Rights. If at any time or from time to time the Company shall propose to register any Common Stock for public sale under the Securities Act (for its own account or for the account of any other person) pursuant to an underwritten offering (a "Company Registration"), the Company shall give each Holder prompt written notice of the proposed registration and shall include in such registration on the same terms and conditions as the other securities included in such registration such number of shares of Registrable Stock as any Holder shall request within ten business days after the giving of such notice; provided, however, that the Company may at any time prior to the effectiveness of any such registration statement, in its sole discretion and without the consent of Holders, abandon the proposed offering in which a Holder had requested to participate (provided that the Company gives each Holder prompt notice of such decision); and provided further that any Holder shall be entitled to withdraw any or all of its shares of Registrable Stock to be included in a registration statement under this Section 3.1 at any time prior to the date on which the registration statement with respect to such shares of Registrable Stock is declared effective by the SEC. The Company shall be entitled to select the investment bankers and/or managers, if any, to be retained in connection with any registration referred to in this Section 3.1. 3.2 Restrictions On Piggyback Registration Rights. Notwithstanding anything to the contrary contained elsewhere herein, the registration rights granted to Holders in Section 3.1 are expressly subject to the following terms and conditions: (a) The Company shall not be obligated to include shares of Registrable Stock in an offering as contemplated by Section 3.1 if the Company is advised in writing by the managing underwriter or underwriters of such offering (with a copy to each Holder), that the success of such offering would in its or their good faith judgment be jeopardized by such inclusion (after consideration of all relevant factors, including without limitation, the impact of any delay caused by including such shares); provided, however, that the Company shall in any 4 case be obligated to include such number of shares of Registrable Stock in such offering, if any, as such underwriter or underwriters shall determine will not jeopardize the success of such offering. (b) The Company shall not be obligated to include any shares of Registrable Stock in any registration by the Company of any Common Stock in connection with any merger, acquisition, exchange offer, or any other business combination, including any transaction within the scope of Rule 145 under the Securities Act, subscription offer, dividend reinvestment plan or stock option or other director or employee incentive or benefit plan. (c) The Company shall use all commercially reasonable efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Stock requested to be included in a registration of Common Stock, pursuant to this Section 3 to be included on the same terms and conditions as any similar securities included therein. Notwithstanding the foregoing, the Company shall not be required to include any Holder's Registrable Stock in such offering unless such Holder accepts the terms of the underwriting agreement between the Company and the managing underwriter or underwriters and otherwise complies with Section 7. If the managing underwriter or underwriters of a proposed underwritten offering advise the Company in writing that in its or their good faith judgment the total amount of securities, including securities requested to be included in a registration of Common Stock, pursuant to this Section 3 and other similar securities, to be included in such offering is sufficiently large to jeopardize the success of such offering, then in such event the securities to be included in such offering shall be allocated first to the Company and then, to the extent that any additional securities can, in the good faith judgment of such managing underwriter or underwriters, be sold without creating any such jeopardy to the success of such offering, pro rata among each holder of Common Stock participating in the offering based upon the number of shares of Common Stock requested to be included in such registration by each such holder. (d) If some but less than all of a Holder's shares of Registrable Stock are included in an offering contemplated by a registration statement pursuant to this Section 3, such Holder shall execute one or more "lockup" letters, in customary form, setting forth an agreement by such Holder not to offer for sale, sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Stock, or any securities convertible into or exchangeable into or exercisable for any shares of Common Stock, for a period of 180 days from the date such offering commences; provided, however, that if the period of any such "lockup" applicable to the Company with respect to any such registration statement shall be less than 180 days, then the period of time applicable to each Holder shall be such lesser period of time. SECTION 4. COVENANTS 4.1 Covenants Of The Company. In connection with any offering of shares of Registrable Stock pursuant to this Agreement, the Company shall: 5 (a) Prepare and file with the Commission such amendments and post-effective amendments to the registration statement as may be necessary to keep the registration statement effective for the period provided in Section 4.1(i) or until withdrawn at the request of participating holders of Common Stock; and cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; (b) Furnish to each Holder, (i) at least two business days prior to filing with the SEC, any registration statement covering shares of Registrable Stock, any amendment or supplement thereto, and any prospectus used in connection therewith, which documents will be subject to the reasonable review of such Holders and such underwriter, and, with respect to a registration statement prepared pursuant to Section 2.1, the Company shall not file any such documents with the SEC to which any such Holder shall reasonably object; and (ii) a copy of any and all transmittal letters or other correspondence with the SEC or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering of shares of Registrable Stock; (c) Furnish to each Holder, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and the prospectus included in such registration statement (including each preliminary prospectus and prospectus supplement) as such Holder may reasonably request in order to facilitate the sale of the shares of Registrable Stock; (d) After the filing of such registration statement, promptly notify each Holder of any stop order issued or enforcement action initiated or, to the knowledge of the Company, threatened to be issued by the SEC and promptly take all reasonable actions to prevent the entry of such stop order or to obtain its withdrawal if entered; (e) Use its commercially reasonable efforts to qualify such shares of Registrable Stock for offer and sale under the securities, "blue sky" or similar laws of such jurisdictions (including any foreign country or any political subdivision thereof in which shares of Common Stock are then listed) as any Holder shall reasonably request and use its commercially reasonable efforts to obtain all appropriate registrations, permits and consents required in connection therewith, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation or to file a general consent to service of process in any such jurisdiction; (f) Furnish to each managing underwriter, if any, an opinion of counsel for the Company addressed to each of them, dated as of the date of the closing of the offering of shares of Registrable Stock, and a "comfort" letter or letters signed by the Company's independent public accountants, each in reasonable and customary form and covering such matters of the type customarily covered by opinions or comfort letters delivered by such parties in underwritten public offerings, and use its commercially reasonable efforts to have such opinions and comfort letters addressed to and delivered to each Holder; 6 (g) Furnish certificates (unlegended in the case of Registrable Stock) representing ownership of the shares of the Registrable Stock being sold in such denominations as shall be requested by a Holder or the managing underwriter, if any, provided such request is made at least two business days prior to the closing of the sale of such shares; (h) Promptly inform each Holder (i) in the case of any offering of shares of Registrable Stock in respect of which a registration statement is filed under the Securities Act, of the date on which such registration statement or any post-effective amendment thereto becomes effective and, if applicable, of the date of filing a Rule 430A prospectus (and, in the case of an offering abroad of shares of Registrable Stock, of the date when any required filing under the securities and other laws of such foreign jurisdictions shall have been made and when the offering may be commenced in accordance with such laws) and (ii) of any request by the SEC, any securities exchange, government agency, self-regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or preliminary prospectus or prospectus included therein or any offering memorandum or other offering document relating to such offering; (i) Subject to subparagraph (k) below, until the earlier of (i) such time as all of the shares of Registrable Stock being offered have been disposed of in accordance with the intended method of disposition by such Holder set forth in the registration statement or other offering document (and the expiration of any prospectus delivery requirements in connection therewith) or (ii) the expiration of 120 days after such registration statement or other offering document becomes effective, keep effective and maintain any registration, qualification or approval obtained in connection with the offering of the shares of Registrable Stock, and amend or supplement the registration statement or prospectus or other offering document used in connection therewith to the extent necessary in order to comply with applicable securities laws; (j) Use its commercially reasonable efforts to have the shares of Registrable Stock listed on any domestic and foreign securities exchanges on which the Common Stock is then listed; (k) As promptly as practicable, notify each Holder at any time when a prospectus relating to the sale of the shares of Registrable Stock is required by law to be delivered in connection with sales by an underwriter or dealer, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made, not misleading, and as promptly as practicable make available to each Holder, any such supplement or amendment; if the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective as provided in Section 4.1(i) by the number of days during the period from and including the date of the giving of such notice to the date when the Company shall make available to each Holder such supplemented or amended prospectus; (l) Make available for inspection during the normal business hours of the Company by any Holder, any underwriter participating in such offering, and any attorney, 7 accountant or other agent retained by any such Holder in connection with the sale of shares of Registrable Stock (collectively, the "Inspector"), all relevant financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the officers, directors and employees of the Company to supply all information reasonably requested by any such Inspector in connection with such registration statement and make available for consultation and for analyst and other marketing calls such officers, accountants and employees in connection therewith as shall reasonably be requested by the Holders; provided, however, that (i) in connection with any such inspection, any such Inspectors shall cooperate to the extent reasonably practicable to minimize any disruption to the operation by the Company of its business and (ii) any records, information or documents shall be kept confidential by such Inspectors, unless (1) such records, information or documents are in the public domain or otherwise publicly available or (2) disclosure of such records, information or documents is required by a court or administrative order or by applicable law (including, the Securities Act); (m) Enter into and perform its obligations under usual and customary agreements (including an underwriting agreement in usual and customary form) and take such other actions as are reasonably required to expedite or facilitate the sale of the Registrable Stock. (n) Make "generally available to its security holders" (within the meaning of Rule 158 of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder no later than 45 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of the registration statement, which earnings statement shall cover said 12-month period; (o) If requested by the managing underwriter or underwriters or Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Holder, as the case may be, reasonably requests to be included therein, including, information with respect to the number of shares of Registrable Stock being sold by Holder to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the Registrable Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (p) As promptly as practicable after filing with the SEC of any document which is incorporated by reference in a prospectus contained in a registration statement, deliver a copy of such document to each Holder; (q) Not later than the effective date of the applicable registration statement (or if later, the earliest business day thereafter on which a CUSIP number is available), provide a CUSIP number for all Registrable Stock and provide the applicable transfer agent with printed certificates for the Registrable Stock which are in a form eligible for deposit with The Depository Trust Company (if such Registrable Stock is then eligible for such deposit); 8 (r) Cooperate with each seller of Registrable Stock and each underwriter or agent, if any, participating in the disposition thereof and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers; (s) Provide and cause to be maintained a transfer agent and registrar for all Registrable Stock covered by such registration statement from and after a date not later than the effective date thereof; and (t) Take all other steps necessary to effect the registration of the Registrable Stock contemplated hereby. 4.2 Covenant Of Holders. Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.1(k), the Holders will forthwith discontinue disposition of Registrable Stock pursuant to the registration statement covering such Registrable Stock until such Holders, receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.1(k), and, if so directed by the Company, such Holder will deliver to the Company all copies, other than permanent file copies, then in such Holder's possession of the most recent prospectus covering such Registrable Stock at the time of receipt of such notice. SECTION 5. RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS The Company agrees that it will not effect any public sale or distribution of any Common Stock during the 90-day period commencing on the effective date of a registration statement filed pursuant to Section 2.1, except in connection with any merger, acquisition, exchange offer, or any other business combination, including any transaction within the scope of Rule 145 promulgated pursuant to the Securities Act, subscription offer, dividend reimbursement plan or stock option or other director or employee incentive or benefit plan. SECTION 6. EXPENSES All expenses incurred in connection with the registration of Registrable Stock, including, all filing fees, escrow fees, fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of the Company's counsel in connection with blue sky qualifications of the Registrable Stock), rating agency fees, printing expenses, messenger and delivery expenses, internal expenses (including, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed, and fees and disbursements of counsel for the Company and the reasonable fees and disbursements of a single counsel for selling Holders and the Company's independent certified public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance) directly attributable to the registration of securities, Securities Act liability insurance (if the Company 9 elects to obtain such insurance), and the fees and expenses of any special experts or other persons retained by the Company will be borne by the Company. The Company shall have no obligation to pay and shall not pay any underwriting fees, discounts or commissions in connection with any Registrable Stock registered pursuant to this Agreement or any out-of-pocket expenses of the holders in connection therewith (except as expressly contemplated by the preceding sentence). SECTION 7. INDEMNIFICATION 7.1 Indemnification By The Company. The Company agrees to indemnify and hold harmless each Holder, its officers, directors and agents, and will agree to indemnify and hold harmless any underwriter of Registrable Stock, and each person, if any, who controls any of the foregoing persons within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all Losses, claims, damages and liabilities (individually, a "Loss" collectively, "Losses") arising from or caused by (x) any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Stock (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and (y) any violation or alleged violation by the Company of the Securities Act, any blue sky laws, securities laws or other applicable laws of any state in which shares of Registrable Stock are offered and relating to action or inaction required of the Company in connection with such offering; and will reimburse each such person for any legal or other out-of-pocket expenses reasonably incurred in connection with investigating, or defending against, any such Loss (or any proceeding in respect thereof), subject to the provisions of Section 7.3, except that the indemnification provided for in this Section 7.1 shall not apply to Losses that are caused by any such untrue statement or omission or alleged untrue statement or omission based upon and in conformity with information furnished in writing to the Company by or on behalf of any Holder expressly for use therein. Notwithstanding the foregoing, the Company shall not be liable in any such case to the extent that any such Loss arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) a Holder failed to send or deliver a copy of the prospectus included in the relevant registration statement at the time it became effective (the "Prospectus") with or prior to the delivery of written confirmation of the sale of Registrable Stock to the person asserting such Loss or who purchased such Registrable Stock which are the subject thereof if, in either case, such delivery is required by the Securities Act and (ii) the Prospectus would have corrected such untrue statement or omission or alleged untrue statement or alleged omission; and the Company shall not be liable in any such case to the extent that any such Loss arises out of, or is based upon, an untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in the Prospectus, if such untrue statement or alleged untrue statement or omission or alleged omission is corrected in any amendment or supplement to the Prospectus and if, having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, a Holder thereafter fails to deliver such Prospectus as so amended or supplemented prior to and concurrently with the sale of Registrable 10 Stock if such delivery is required by the Securities Act. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of each Holder or any other person indemnified hereunder and shall survive the transfer of such securities by such Holder. 7.2 Indemnification By Holders. Each Holder, severally but not jointly, agrees to indemnify and hold harmless the Company, its officers and directors, and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity made pursuant to clause (x) of Section 7.1 above from the Company to such Holder, but only with reference to information furnished in writing by or on behalf of such Holder expressly for use in any registration statement or prospectus relating to shares of Registrable Stock, or any amendment or supplement thereto, or any preliminary prospectus. 7.3 Conduct Of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 7.1 or 7.2, such person (the "Indemnified Party") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Party") in writing, provided that the omission to so notify the Indemnifying Party will not relieve the Indemnifying Party of any liability it may have under this Agreement or otherwise except to the extent of any loss, arising from such omission. The Indemnifying Party, upon the request of the Indemnified Party, shall retain counsel reasonably satisfactory to such Indemnified Party to represent such Indemnified Party and any others the Indemnifying Party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention, (ii) the Indemnifying Party shall have failed to comply with its obligations under the preceding sentence or (iii) the Indemnified Party shall have been advised by its counsel in writing that actual or potential differing interests exist between the Indemnifying Party and the Indemnified Party. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld. The Indemnifying Party shall not agree to any settlement as the result of which any remedy or relief, other than monetary damages for which the Indemnifying Party shall be fully responsible, shall be applied to or against an Indemnified Party without the prior written consent of such Indemnified Party. 7.4 Contribution. If the indemnification provided for in this Section 7 from the Indemnifying Party is unavailable to an Indemnified Party hereunder in respect of any Losses, referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such Losses, claims, damages, liabilities or 11 expenses, as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 7.3, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. No party shall be liable for contribution with respect to any action or claim settled without its written consent, which consent shall not be unreasonably withheld. Notwithstanding the provisions of this Section 7.4, no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Stock of such Holder was offered to the public exceeds the amount of any damages which such Holder has otherwise been required to pay because of such untrue or alleged untrue statement or omission of alleged omission. The parties agree that it would not be just and equitable if contribution pursuant to this Section 7.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. SECTION 8. TERMINATION This Agreement shall terminate with respect to any group of Holders that are Affiliates (or any Holder than has no Affiliates that are Holders) upon the first such instance as such Holders cease to collectively own at least 1% of the outstanding Common Stock. For this Section 8, a Holder shall be deemed to own any and all Common Stock owned by (i) such Holder and (ii) its Affiliates. Notwithstanding the foregoing, the Company's and Holders' rights, duties and obligations under Section 6 and Section 7 shall survive the termination of this Agreement. SECTION 9. AVAILABLE INFORMATION The Company shall take such reasonable action and file such information, documents and reports as shall be required by the SEC as a condition to the availability of Rule 144 and Rule 144A, or any successor provisions. 12 SECTION 10. ASSIGNMENT OF RIGHTS 10.1 Assignment Of Rights. Subject to Section 10.2, the Registrable Stock and rights of any Holder under this Agreement with respect to any Registrable Stock owned by such Holder may be assigned to any affiliate of such Holder or to any person who acquires at least 1,250,000 shares (as adjusted for splits, etc.) of Registrable Stock from a Holder, except that any person who acquires such Registrable Stock (x) pursuant to a public offering registered under the Securities Act, or (y) pursuant to a transfer made in accordance with Rule 144 under the Securities Act (or any similar successor provision) may not assign rights hereunder with respect to such Registrable Stock. Any assignment of registration rights pursuant to this Section 10.1 shall be effective upon receipt by the Company of written notice from such assigning Holder (i) stating the name and address of any assignee, (ii) describing the manner in which the assignee acquired Registrable Stock from such Holder and (iii) identifying the Registrable Stock with respect to which the rights under this Agreement are being assigned. 10.2 Scope of Assignment. The rights of an assignee under Section 10.1 shall be the same rights granted to the assigning Holder under this Agreement, except that in no event shall the Company's obligations hereunder be increased due to any such assignment. In connection with any such assignment, the term "Holder" as used herein shall, where appropriate to assign the rights and obligations of the assigning Holder hereunder to such assignee, be deemed to refer to the assignee. After any such assignment, the assigning Holder shall retain its rights under this Agreement with respect to all other Registrable Stock owned by such Holder. SECTION 11. MISCELLANEOUS 11.1 Provision Of Information. Each Holder shall, and shall cause its officers, directors, employees and agents to complete and execute all such questionnaires as the Company shall reasonably request in connection with any registration pursuant to this Agreement. 11.2 Injunctions. Irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specified terms or were otherwise breached. Therefore, the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms of provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which they may be entitled at law or in equity. 13 11.3 Severability. If any term or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms and provisions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term or provision. 11.4 Further Assurances. Subject to the specific terms of this Agreement, each Holder and the Company shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. 11.5 Entire Agreement; Modification. This Agreement contains the entire understanding of the parties with respect to the transactions contemplated hereby and supersedes all agreements and understandings entered into prior to the execution hereof. This Agreement may be modified only by a written instrument duly executed by or on behalf of the Company and each Holder. No breach of any covenant, agreement, warranty or representation shall be deemed waived unless expressly waived in writing by or on behalf of the party who might assert such breach. 11.6 Counterparts. For the convenience of the parties hereto, any number of counterparts of this Agreement may be executed by the parties hereto, but all such counterparts shall be deemed one and the same instrument. 11.7 Notices. All notices, consents, requests, demands, and other communications hereunder shall be in writing and shall be given by hand or by mail (return receipt requested) or sent by overnight delivery service, cable, telegram, or facsimile transmission to the parties at the address specified beside each party's name on the signature pages hereto or at such other address as shall be specified by the parties by like notice. Notice so given shall, in the case of notice so given by mail, be deemed to be given and received on the fourth business day after posting, in the case of notice so given by overnight delivery service, on the day after notice is deposited with such service, and in the case of notice so given by cable, telegram, facsimile transmission or, as the case may be, personal delivery, on the date of actual delivery. 11.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE 14 WITHOUT REGARD TO ANY CHOICE OF LAW PRINCIPLES WHICH MIGHT REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. 11.9 Successors And Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by and against the successors and permitted assigns of the parties hereto. 11.10 Parties In Interest. Except as otherwise specifically provided herein, nothing in this Agreement expressed or implied is intended or shall be construed to confer any right or benefit upon any person, firm or corporation other than the Holders and the Company and their respective successors and permitted assigns. 11.11 Other Registration Rights. The Company represents and warrants to the Holders that as of the date hereof, the Company has not entered into any agreement, written or oral, granting or otherwise affording to a third party registration rights with respect to any common stock held by such third party in the Company; provided that the Stockholders acknowledge the existence of the Registration Rights Agreement (the "3TEC Registration Rights Agreement"), dated as of August 27, 1999, as amended on October 19, 1999, by and among Middle Bay Oil Company, Inc. and the parties listed on Schedule 1 thereto. The Stockholders agree that they will not exercise any rights under the 3TEC Registration Rights Agreement without the consent of the Company and that they shall exercise their rights under such agreement as directed by the Company, including by voting in favor of terminating such agreement or amending such agreement such that it is no longer effective. 11.12 Shares Subject To This Agreement; Effective Time. This Agreement shall be effective at the Effective Time and will be null and void and of no effect upon the termination of the Merger Agreement in accordance with its terms. Remainder of this page intentionally left blank. 15 IN WITNESS WHEREOF, each Holder and the Company have caused this Registration Rights Agreement to be duly executed as of the date first above written. PLAINS EXPLORATION & PRODUCTION COMPANY By: _________________________________ Name: James C. Flores Title: Chief Executive Officer Address: 500 Dallas, Suite 700 Houston, TX 77002 ENCAP ENERGY CAPITAL FUND III, L.P. By: ENCAP INVESTMENTS L.L.C., General Partner By:______________________________________ Name:____________________________________ Title: Managing Director ENCAP ENERGY ACQUISITION III-B, INC. By: __________________________________ Name: __________________________________ Title: Vice President BOCP ENERGY PARTNERS, L.P. By: ENCAP INVESTMENTS L.L.C., Manager By:______________________________________ Name:____________________________________ Title: Managing Director ECIC CORPORATION By: __________________________________ Name: __________________________________ Title: Vice President ENCAP INVESTMENTS L.L.C. By:______________________________________ Name: ___________________________________ Title: Managing Director 17 EX-99.1 7 dex991.txt PRESS RELEASE DATED FEBRUARY 3, 2003 EXHIBIT 99.1 [PXP LOGO] Plains Exploration & Production Company 500 Dallas St., Suite 700 Houston, TX 77002 NEWS RELEASE Contact: Stephen A. Thorington Executive Vice President and Chief Financial Officer (713) 739-6700 or (800) 934-6083 FOR IMMEDIATE RELEASE PLAINS EXPLORATION ANNOUNCES AN AGREEMENT TO ACQUIRE 3TEC ENERGY FOR $432 MILLION - 3TEC ENERGY STOCKHOLDERS TO RECEIVE $8.50 CASH AND 0.85 PXP SHARES - Houston, Texas - February 3, 2003 - Plains Exploration & Production Company ("PXP" or the "Company") (NYSE: PXP) and 3TEC Energy Corporation ("3TEC") (NASDAQ: TTEN) announced today that they have entered into a definitive agreement pursuant to which PXP will acquire 3TEC for a combination of cash and stock. Under the terms of the transaction, 3TEC stockholders will receive $8.50 in cash and 0.85 shares of PXP's common stock for each share of 3TEC common stock, subject to certain adjustments based on PXP's share price prior to closing. Following the acquisition, PXP will be a large, domestic independent oil and gas company with an expected enterprise value of over $900 million. It is anticipated that this acquisition should benefit the stockholders of both companies by creating an enterprise with the following attributes: . Highly Accretive To Shareholders--the transaction is expected to be immediately and significantly accretive to PXP's pro forma per share earnings and cash flow for 2003 and 2004. . Significant Exploration Potential--PXP will gain significant exploration potential in the Gulf Coast region of South Louisiana. This resulting property base is expected to supply several years of drilling locations, and should expand through an extensive, ongoing 3-D seismic acquisition and evaluation program. 3TEC has a three year exploration drilling inventory with multiple separate prospects which complements the development program at PXP, particularly the Inglewood field in Southern California. . Establishes New Core Areas--3TEC provides PXP with new core areas in East Texas and the Gulf Coast, both of which have strong growth potential. These areas complement PXP's primary production area in Southern California. . More Balanced Production Profile/Reserve Base--upon completion of the acquisition, PXP is expected to have a production mix of 37% natural gas and 63% oil, and a proved reserve base that will be 19% natural gas and 81% oil with total proved reserves of 302 MMBOE at year end 2002. PXP's proved developed reserves as a percentage of total reserves are expected to increase to 58% from 54% while the reserve-to-production ratio will decrease from 27.1 years to 20.9 years. PXP's production should increase in excess of 50% as a result of the acquisition. In addition, it is anticipated that the transaction will result in enhanced capital allocation for the Company as lower-risk California and East Texas reserves should provide significant free cash flow to fund higher impact, exploration activities in South Louisiana. . Combined Production Partially Hedged for 2003 and 2004--3TEC's natural gas hedges and PXP's crude oil hedges lock in attractive financial accretion and returns while substantial free cash flow generation should allow the Company to reduce debt and invest in future growth. . Enhanced Credit Profile and Stockholder Liquidity--in addition to enhanced geographic diversification and increased size, PXP's pro forma cash flow to interest and debt coverage ratios should improve. Moreover, the transaction should result in a more diversified stockholder base and increased public float, both of which should provide improved liquidity to PXP's and 3TEC's existing stockholders. Mr. James C. Flores, Chairman and Chief Executive Officer of PXP stated, "This transaction represents a cornerstone in the transformation of PXP and is consistent with our previously articulated growth strategy. 3TEC's high quality, natural gas oriented properties bring more balance to our reserve base and production mix and diversity to our risk profile. Additionally, the recent exploration success 3TEC has had in South Louisiana is very exciting and we believe its continuation will lead to substantial organic reserve and production growth. Having spent much of my career working both onshore and offshore South Louisiana, the quality of 3TEC's prospect inventory, acreage position and technical capabilities are truly unique for an independent of its size. 3TEC's high impact exploration program is very complementary to PXP's substantial inventory of low-risk development drilling. After the acquisition, PXP will have the prospect inventory, financial flexibility and technical capability to deliver significant production growth through the drillbit and be opportunistic regarding further acquisitions." Mr. John Raymond, President and Chief Operating Officer of PXP stated, "Clearly, the strategic merits of the transaction speak for themselves. While the strategic benefits are important, it is equally important to understand that the rationale behind the deal goes far beyond the strategic benefits as it satisfies all of our key constructs from a financial and operational perspective. To this end, upon consummation, this transaction will provide for meaningful immediate accretion to each of our key financial metrics and is expected to generate a competitive, compelling return on capital which speaks to the longer term value and vision for the business. The larger scale coupled with the geographic diversity and financial flexibility that this transaction manifests further positions us to optimistically look to the future." Mr. Floyd C. Wilson, 3TEC's Chairman and Chief Executive Officer stated, "When 3TEC was founded in 1999, our primary goal was the creation and realization of stockholder value. In the near term, we believe the transaction with PXP will provide 3TEC stockholders with excellent value and substantially improved liquidity in their securities. Over the longer term, 3TEC's high potential exploration program should provide excellent reinvestment opportunities for the combined company's substantial cash flow. The future of PXP is very exciting as this transaction results in a company with the prospect inventory and financial resources to conduct a significant South Louisiana exploration program, being led by Jim Flores, who is widely recognized as an industry leader with a long track record of success in South Louisiana." Major Terms and Conditions Under the terms of the definitive agreement, 3TEC stockholders will receive $8.50 of cash and 0.85 shares of PXP's common stock for each share of 3TEC common stock, which based on PXP's January 31, 2003 closing price of $9.96 per share, equates to $16.97 per 3TEC common share. This exchange ratio is subject to an upward or downward adjustment should the market price of PXP's stock fall below $7.65 per share or rise above $12.35 per share. This collar mechanism is intended to provide that the total value of the consideration received by 3TEC stockholders will be between $15.00 per 3TEC common share and $19.00 per 3TEC common share. For the purpose of the collar, the market price of PXP common stock for purposes of this transaction is defined as the average closing price of PXP common stock during the 20 trading day period ending on the third trading day prior to closing. The transaction is expected to qualify as a tax free reorganization under Section 368(a) and is expected to be tax free to PXP stockholders and tax free for the stock portion of the consideration received by 3TEC stockholders who receive stock in the transaction. PXP anticipates funding the cash portion of the transaction through a new credit facility. The Boards of Directors of both companies have approved the merger agreement and each has recommended it to their respective stockholders for approval. The transaction will remain subject to stockholder approval from both companies and other customary conditions. Post closing, 3TEC stockholders will own approximately 40% of the combined company and PXP stockholders will own approximately 60% of the combined company subject to adjustments under the collar mechanism. Mr. James C. Flores will remain as Chairman and Chief Executive Officer and PXP's current executive staff will continue in their capacities including: Mr. John T. Raymond (President and Chief Operating Officer), Mr. Stephen A. Thorington (Executive Vice President and Chief Financial Officer), Mr. Timothy T. Stephens (Executive Vice President - Administration, Secretary and General Counsel) and Mr. Thomas M. Gladney (Senior Vice President of Operations). The size of PXP's Board of Directors will increase by two directors to be appointed by 3TEC. The transaction will be accounted for as a purchase of 3TEC by PXP under purchase accounting rules and PXP will continue to use the full cost method of accounting for its oil and gas properties. The acquisition is expected to be immediately and significantly accretive to PXP's earnings and cash flow. Based on a 3TEC transaction value of approximately $432 million and $80 million of unproved properties, the transaction implies a proved reserve purchase price of $1.19 per Mcfe. The following table provides detail on key proved reserve, operating and financial data:
- ---------------------------------------------------------------------------------------------------------- PXP 3TEC Pro Forma -------------- -------------- ---------------- Reserves (12/31/02): Proved Reserves (MMBOE) 253 49 302 % Oil 95% 13% 81% % Proved Developed 54% 81% 58% Reserve Life (Years) 27.1 9.7 20.9 2003E Production Data: Production (MBOE)/(1)/ 9,400 - 9,600 5,800 - 6,400 15,200 - 16,000 % Oil 95% 14% 63% 2003E Financial Data: Production Expenses ($/BOE) $9.00 - $9.15 $4.62 - $4.92 $ 7.50 - $ 7.60 G&A ($/BOE) /(2)/ $1.50 - $1.60 $1.62 - $1.74 $ 1.40 - $ 1.50 Capital Expenditures ($MM) $70.0 - $80.0 $55.0 - $65.0 $125.0 - $145.0 Pro Forma Combined Hedge Position: Crude Oil Hedges (bpd) 2003 Swaps - $23.81/bbl 19,250 2004 Swaps - $23.82/bbl 17,500 Gas Hedges (Mcf/d) 2003 Swaps - $5.60/mcf (February) 40,000 Swaps - $5.02/mcf (March-December) 50,000 Collar - $3.20 x $3.54/mcf (January-March) 30,000 2004 Swaps - $4.45/mcf 20,000 Collar - $4.00 x $5.15/mcf 20,000
- -------------------------------------------------------------------------------- (1) Based on company guidance. (2) PXP's G&A does not include expenses related to outstanding stock appreciation rights (SARS). 2003 results will include expenses related to changes in the market price of common stock versus the average price of SARS and cash paid upon exercise in excess of amounts previously expensed. Other Terms and Conditions The transaction is subject to approval by the stockholders of both companies and other customary closing conditions. Stockholders representing approximately 22% of 3TEC's ownership, and stockholders representing approximately 12% of PXP's ownership have agreed to vote in favor of the transaction. Both companies intend to hold stockholders meetings as soon as practicable. The companies anticipate completing the transaction in the second quarter of 2003. Lehman Brothers Inc. acted as a financial advisor to PXP and Credit Suisse First Boston LLC and Bear, Stearns & Co. Inc. acted as financial advisors for 3TEC. A conference call to discuss the transaction will be hosted by the senior management teams of PXP and 3TEC at 11 a.m. (Central) on Monday, February 3, 2003. Investors wishing to participate may dial 1-800-903-0247 or int'l: 785-830-1956. Reference Conference I.D#: Plains XP. The replay will be available for 2 weeks at 1-800-938-2801 or int'l: 402-220-9031. Presentation materials related to the transaction are available on PXP's and 3TEC's website at www.plainsxp.com and www.3tecenergy.com, respectively. PXP is an independent oil and gas company primarily engaged in the upstream activities of acquiring, exploiting, developing and producing oil and gas in its core areas of operation: onshore California, primarily in the Los Angeles Basin, and offshore California in the Point Arguello unit, and the Illinois Basin in southern Illinois. PXP is headquartered in Houston, Texas. 3TEC is engaged in the acquisition, development, production and exploration of oil and natural gas reserves. 3TEC's properties are concentrated in East Texas and the Gulf Coast region of the United States, both onshore and in the shallow waters of the Gulf of Mexico. 3TEC's management and technical staff have substantial experience in each of these areas. Additional Information & Forward Looking Statement This press release includes "forward-looking statements" as defined by the Securities and Exchange Commission ("SEC"). Such statements are those concerning the companies' merger and strategic plans, expectations and objectives for future operations. All statements included in this press release that address activities, events or developments that the companies expect, believe or anticipate will or may occur in the future are forward-looking statements. These include: . completion of the proposed merger, . effective integration of the two companies . reliability of reserve and production estimates, . production expense, . cash flow and EBITDA estimates, . future financial performance, and . other matters which are discussed in PXP's and 3TEC's filings with the SEC. These statements are based on certain assumptions made by the companies based on their experience and perception of historical trends, current conditions, expected future developments and other factors they believe are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the companies' control. Statements regarding future production are subject to all of the risks and uncertainties normally incident to the exploration for and development and production of oil and gas. These risks include, but are not limited to, inflation or lack of availability of goods and services, environmental risks, drilling risks and regulatory changes. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. Investors and security holders are urged to read the proxy statement/prospectus that will be included in the Registration Statement on Form S-4 to be filed with the SEC in connection with the proposed merger. PXP and 3TEC will file the proxy statement/prospectus with the SEC. Investors and security holders may obtain a free copy of the proxy statement/prospectus (when available) and other documents filed by PXP and 3TEC with the SEC at the SEC's web site at www.sec.gov. The proxy statement/prospectus and such other documents (relating to PXP) may also be obtained for free from PXP by directing such request to: Plains Exploration & Production Company, 500 Dallas, Suite 700 Houston, TX 77002, Attention: Joanna Pankey; telephone: (713) 739-6700; e-mail: jpankey@plainsxp.com. The proxy statement/prospectus and such other documents (relating to 3TEC) may also be obtained for free from 3TEC by directing such request to: 3TEC Energy Corporation, 700 Milam, Suite 1100, Houston, Texas 77002. PXP, its directors, executive officers and certain members of management and employees may be considered "participants in the solicitation" of proxies from PXP's stockholders in connection with the merger. Information regarding such persons and a description of their interests in the merger will be contained in the Registration Statement on Form S-4 when it is filed. 3TEC, its directors, executive officers and certain members of management and employees may be considered "participants in the solicitation" in connection with the merger. Information regarding such persons and a description of their interests in the merger will be contained in the Registration Statement on Form S-4 when it is filed. # # # -----END PRIVACY-ENHANCED MESSAGE-----