-----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, BBQEDc6ixBH+Se69KPYFv3hpHaVHLSuwRhz00pvmrpGsxXwmNu4Y6Mcwn0AH/SPL sOQeDheRV+iWQ30fc8AYNA== 0000950123-99-008131.txt : 19990901 0000950123-99-008131.hdr.sgml : 19990901 ACCESSION NUMBER: 0000950123-99-008131 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19990831 GROUP MEMBERS: CALPINE CORP GROUP MEMBERS: CPN SHERIDAN INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SHERIDAN ENERGY INC CENTRAL INDEX KEY: 0001018355 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 760507664 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-52123 FILM NUMBER: 99703969 BUSINESS ADDRESS: STREET 1: 1000 LOUISIANA STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7136517899 MAIL ADDRESS: STREET 1: 222 PENNBRIGHT STREET 2: STE 200 CITY: HOUSTON STATE: TX ZIP: 77090 FORMER COMPANY: FORMER CONFORMED NAME: GEOSTRAT RESOURCES INC DATE OF NAME CHANGE: 19960708 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CALPINE CORP CENTRAL INDEX KEY: 0000916457 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 770212977 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 50 WEST SAN FERNANDO ST CITY: SAN JOSE STATE: CA ZIP: 95113 BUSINESS PHONE: 4089955115 MAIL ADDRESS: STREET 1: 50 W SAN FERNANDO STREET 2: SUITE 500 CITY: SAN JOSE STATE: CA ZIP: 95113 SC 14D1 1 TENDER OFFER 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14D-l TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 SHERIDAN ENERGY, INC. ----------------------------------------------------------------------- (Name of Subject Company) CPN SHERIDAN, INC. CALPINE CORPORATION ----------------------------------------------------------------------- (Bidder) COMMON STOCK, PAR VALUE $.01 PER SHARE ----------------------------------------------------------------------- (Title of Class of Securities) 823764 10 5 ----------------------------------------------------------------------- (CUSIP Number of Class of Securities) ANN B. CURTIS CPN SHERIDAN, INC. c/o CALPINE CORPORATION 50 WEST SAN FERNANDO STREET SAN JOSE, CA 95113 TELEPHONE: (408) 995-5115 ----------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidder) COPIES TO: WILLIAM R. COLLINS, ESQ. HOWARD, SMITH & LEVIN LLP 1330 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019 TELEPHONE: (212) 841-1000 ----------------------------------------------------------------------- 2 CALCULATION OF FILING FEE ================================================================================ TRANSACTION VALUATION* AMOUNT OF FILING FEE - ---------------------- -------------------- $37,035,735 $7,408 * Estimated for purposes of calculating the amount of filing fee only. The amount assumes the purchase of 6,733,770 Shares of common stock (the "Shares"), par value $.01 per Share, at a price per Share of $5.50 in cash. / / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: None. Form or Registration No.: Not applicable. Filing Party: Not applicable. Date Filed: Not applicable. ================================================================================ 3 14D-1 CUSIP No. 823764 10 5 1) Name of Reporting Persons: CPN Sheridan, Inc. S.S. or I.R.S. Identification Nos. of Above Person: 77-0521272 - -------------------------------------------------------------------------------- 2) Check the Appropriate Box if a Member of a Group (See Instructions). [ ] (a) [ ] (b) - -------------------------------------------------------------------------------- 3) SEC Use Only - -------------------------------------------------------------------------------- 4) Sources of Funds (See Instructions). AF, WC - -------------------------------------------------------------------------------- 5) [ ] Check if Disclosure of Legal Proceedings is Required pursuant to Items 2(e) or 2(f). - -------------------------------------------------------------------------------- 6) Citizenship or Place of Organization. Delaware - -------------------------------------------------------------------------------- 7) Aggregate Amount Beneficially Owned by Each Reporting Person. 4,067,537* - -------------------------------------------------------------------------------- 8) [ ] Check if the Aggregate Amount in Row 7 Excludes Certain Shares. - -------------------------------------------------------------------------------- 9) Percent of Class Represented by Amount in Row 7. Approximately 53.5% based on the outstanding shares as of August 25, 1999* - -------------------------------------------------------------------------------- 10) Type of Reporting Person (See Instructions). CO 4 14D-1 CUSIP No. 823764 10 5 1) Name of Reporting Persons: Calpine Corporation S.S. or I.R.S. Identification Nos. of Above Person: 77-0498817 - -------------------------------------------------------------------------------- 2) Check the Appropriate Box if a Member of a Group (See Instructions). [ ] (a) [ ] (b) - -------------------------------------------------------------------------------- 3) SEC Use Only - -------------------------------------------------------------------------------- 4) Sources of Funds (See Instructions). AF, WC, BK - -------------------------------------------------------------------------------- 5) [ ] Check if Disclosure of Legal Proceedings is Required pursuant to Items 2(e) or 2(f). - -------------------------------------------------------------------------------- 6) Citizenship or Place of Organization. Delaware - -------------------------------------------------------------------------------- 7) Aggregate Amount Beneficially Owned by Each Reporting Person. 4,067,537* - -------------------------------------------------------------------------------- 8) [ ] Check if the Aggregate Amount in Row 7 Excludes Certain Shares. - -------------------------------------------------------------------------------- 9) Percent of Class Represented by Amount in Row 7. Approximately 53.5% based on the outstanding shares as of August 25, 1999* - -------------------------------------------------------------------------------- 10) Type of Reporting Person (See Instructions). CO * Calpine Corporation ("Calpine"), CPN Sheridan, Inc. ("Merger Subsidiary") and certain stockholders of the subject company have entered into an Agreement, dated as of August 25, 1999 (the "Stockholder Agreement"), pursuant to which such stockholders granted to Merger Subsidiary an irrevocable option (the "Stock Option") to purchase, subject to certain conditions, for a price of $5.50 per share, or to cause to be tendered pursuant to the tender offer described in this statement (the "Offer"), an aggregate of up to 3,492,537 outstanding shares of common stock, par value $.01 per share (the "Shares"), of Sheridan Energy, Inc., up to an additional 425,000 Shares issuable upon exercise of outstanding stock options and up to an additional 150,000 Shares issuable upon exercise of the outstanding warrants (collectively, the "Stockholder Option Shares"). The Stockholder Option Shares represent approximately 53.5% of the Company's fully diluted outstanding Shares. Merger Subsidiary's option to purchase the Stockholder Option Shares is reflected in Rows 7 and 9 of each of the tables above. Subject to satisfaction of certain conditions (including the commencement of the Offer), the Stock Option is exercisable by Merger Subsidiary at any time until the 20th business day following termination of the Merger Agreement. Under the Stockholder Agreement, each such Stockholder granted an irrevocable proxy to Merger Subsidiary to vote in favor of the Merger Agreement and certain related matters, subject as aforesaid. The Stockholder Agreement is described more fully in Section 11 ("Purpose of the Offer; Merger Agreement; Stockholder Agreement; Appraisal Rights") of the Offer to Purchase, dated August 31, 1999. 5 ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is Sheridan Energy, Inc., a Delaware corporation (the "Company"), and the address of its principal executive offices is 1000 Louisiana, Suite 800, Houston, Texas 77002. (b) This Statement on Schedule 14D-1 relates to the offer by Merger Subsidiary (defined below) to purchase all outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of the Company at $5.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase (the "Offer to Purchase") and in the related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2) (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The information set forth in the Introduction to the Offer to Purchase (the "Introduction") is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) This Tender Offer Statement on Schedule 14D-1 is filed by CPN Sheridan, Inc., a Delaware corporation ("Merger Subsidiary"), and Calpine Corporation, a Delaware corporation, ("Calpine"). Merger Subsidiary is a wholly-owned subsidiary of Calpine. Information concerning the principal business and the addresses of the principal offices of Merger Subsidiary and Calpine is set forth in Section 8 ("Certain Information Concerning Merger Subsidiary and Calpine") of the Offer to Purchase, and is incorporated herein by reference. The names, business addresses, present principal occupations or employments, material occupations, positions, offices or employment during the last five years and citizenship of the directors and executive officers of Merger Subsidiary and Calpine are set forth in Schedule I to the Offer to Purchase and are incorporated herein by reference. (e) and (f) None of Merger Subsidiary, Calpine or, to the best knowledge of such corporations, any of the persons listed on Schedule I to the Offer of Purchase, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, Federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) and (b) The information set forth in (i) the Introduction, Section 8 ("Certain Information Concerning Merger Subsidiary and Calpine"), Section 10 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company"), Section 11 ("Purpose of the Offer; Merger Agreement; Stockholder Agreement; Appraisal Rights") and Schedule I to the Offer to -2- 6 Purchase, (ii) the Agreement and Plan of Merger, dated as of August 25, 1999 (the "Merger Agreement"), among the Company, Calpine and Merger Subsidiary, a copy of which is attached as Exhibit (c)(1) hereto, (iii) the Stockholder Agreement, dated as of August 25, 1999 (the "Stockholder Agreement"), among the Merger Subsidiary and the stockholders of the Company named therein, a copy of which is attached as Exhibit (c)(2) hereto and (iv) the Confidentiality Agreement, dated June 15, 1999 (the "Confidentiality Agreement"), between Calpine and the Company, a copy of which is attached as Exhibit (c)(3) hereto, respectively, is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) and (b) The information set forth in Section 9 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. (c) Not applicable. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(e) The information set forth in the Introduction and Section 11 ("Purpose of the Offer; Merger Agreement; Stockholder Agreement; Appraisal Rights") of the Offer to Purchase is incorporated herein by reference. (f) and (g) The information set forth in Section 12 ("Effect of the Offer on the Market for the Shares; Stock Quotations, Registration Under the Exchange Act") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The information set forth in (i) the Introduction, Section 8 ("Certain Information Concerning Merger Subsidiary and Calpine"), Section 10 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company"), Section 11 ("Purpose of the Offer; Merger Agreement; Stockholder Agreement; Appraisal Rights"), Schedule I of the Offer to Purchase, (ii) the Merger Agreement, and (iii) the Stockholder Agreement, respectively, is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in (i) the Introduction, Section 8 ("Certain Information Concerning Merger Subsidiary and Calpine"), Section 10 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company") and Section 11 ("Purpose of the Offer; Merger Agreement; Stockholder Agreement; Appraisal Rights") of the Offer to Purchase, (ii) the Merger Agreement, (iii) the Stockholder Agreement and (iv) the Confidentiality Agreement, respectively, is incorporated herein by reference. -3- 7 ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in Section 17 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 8 ("Certain Information Concerning Merger Subsidiary and Calpine") of the Offer to Purchase, and such information and the consolidated financial statements of Calpine in Calpine's Annual Report on Form 10-KSB for the year ended December 31, 1998 and Quarterly Report on Form 10-QSB for the six months ended June 30, 1999, respectively, are incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in Section 8 ("Certain Information Concerning Merger Subsidiary and Calpine") and Section 11 ("Purpose of the Offer; Merger Agreement; Stockholder Agreement; Appraisal Rights") of the Offer to Purchase is incorporated herein by reference. (b)-(d) The information set forth in Section 16 ("Certain Legal Matters; Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (e) None. (f) The information set forth in (i) the Offer to Purchase, (ii) the Letter of Transmittal, (iii) the Merger Agreement, (iv) the Stockholder Agreement and the Confidentiality Agreement, respectively, is incorporated herein by reference. ITEM 11. MATERIAL TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase dated August 31, 1999. (a)(2) Form of Letter of Transmittal. (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Text of press release issued by Calpine dated August 25, 1999. (a)(7) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. -4- 8 (a)(8) Form of summary advertisement dated August 31, 1999. (a)(9) Text of press release issued by Calpine dated August 31, 1999. (b)(1) Credit Agreement, dated as of September 25, 1996, among Calpine and the Bank of Nova Scotia (previously filed as an exhibit to Calpine's Current Report on Form 8-K dated May 1, 1996 and incorporated herein by reference). (c)(1) Agreement and Plan of Merger, dated as of August 25, 1999, among the Company, Calpine and Merger Subsidiary. (c)(2) Stockholder Agreement, dated as of August 25, 1999, among Merger Subsidiary, Calpine and the stockholders of the Company named therein. (c)(3) Confidentiality Agreement, dated June 15, 1999, between Calpine and the Company. (d) None. (e) Not applicable. (f) None. -5- 9 SIGNATURE After due inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: August 31, 1999 CPN SHERIDAN, INC. By: /s/ Ann B. Curtis ---------------------------------------------- Name: Ann B. Curtis Title: Vice President, Chief Financial Officer and Secretary CALPINE CORPORATION By: /s/ Ann B. Curtis ---------------------------------------------- Name: Ann B. Curtis Title: Executive Vice President -6- 10 EXHIBIT INDEX Exhibit Number Exhibit Name - ------ ------------ (a)(1) Offer to Purchase dated August 31, 1999. (a)(2) Form of Letter of Transmittal. (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Text of press release issued by Calpine dated August 25, 1999. (a)(7) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(8) Form of summary advertisement dated August 31, 1999. (a)(9) Text of press release issued by Calpine dated August 31, 1999. (b)(1) Credit Agreement, dated as of September 25, 1996, among Calpine and the Bank of Nova Scotia (previously filed as an exhibit to Calpine's Current Report on Form 8-K dated May 1, 1996 and incorporated herein by reference). (c)(1) Agreement and Plan of Merger, dated as of August 25, 1999 among the Company, Calpine and Merger Subsidiary. (c)(2) Stockholder Agreement, dated as of August 25, 1999, among Merger Subsidiary, Calpine and the stockholders of the Company named therein. (c)(3) Confidentiality Agreement, dated June 15, 1999, between Calpine and the Company. (d) None. (e) Not applicable. (f) None. -7- EX-99.A.1 2 OFFER TO PURCHASE 1 Exhibit 99 (a)(1) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF SHERIDAN ENERGY, INC. AT $5.50 NET PER SHARE BY CPN SHERIDAN, INC. A WHOLLY OWNED SUBSIDIARY OF CALPINE CORPORATION THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, SEPTEMBER 28, 1999, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED BY THE EXPIRATION DATE AND NOT WITHDRAWN A NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "SHARES"), OF SHERIDAN ENERGY, INC. (THE "COMPANY") WHICH, TOGETHER WITH THE SHARES THEN OWNED BY CPN SHERIDAN, INC. ("MERGER SUBSIDIARY") AND CALPINE CORPORATION ("CALPINE"), WOULD REPRESENT AT LEAST A MAJORITY OF THE TOTAL NUMBER OF OUTSTANDING SHARES ON A FULLY DILUTED BASIS. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT (DEFINED BELOW) ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY, HAS UNANIMOUSLY APPROVED THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES. ------------------------------------- Any stockholder desiring to tender Shares should either (i) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and deliver it with the certificate(s) representing such tendered Shares and all other required documents to the Depositary or follow the procedure for book-entry tender of Shares set forth in Section 3 or (ii) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. A stockholder having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if such stockholder desires to tender such Shares. Any stockholder who desires to tender Shares and whose certificate(s) representing such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares pursuant to the guaranteed delivery procedure set forth in Section 3. Questions and requests for assistance or additional copies of this Offer to Purchase or the Letter of Transmittal may be directed to the Information Agent at its addresses and telephone numbers specified on the back cover of this Offer to Purchase. ------------------------------------- THE INFORMATION AGENT FOR THE OFFER IS: D.F. King & Co., Inc. August 31, 1999 2 TABLE OF CONTENTS
Page ---- INTRODUCTION............................................................................................ 1 1. Terms of the Offer............................................................................... 3 2. Acceptance for Payment and Payment............................................................... 5 3. Procedure for Tendering Shares................................................................... 6 4. Withdrawal Rights................................................................................ 9 5. Certain Tax Consequences......................................................................... 9 6. Price Range of Shares; Dividends................................................................. 11 7. Certain Information Concerning the Company....................................................... 12 8. Certain Information Concerning Merger Subsidiary and Calpine..................................... 14 9. Source and Amount of Funds....................................................................... 16 10. Background of the Offer; Past Contacts, Transactions or Negotiations with the Company...................................................................................... 17 11. Purpose of the Offer; Merger Agreement; Stockholder Agreement; Appraisal Rights.................. 19 12. Effect of the Offer on the Market for the Shares; Stock Quotations; Registration under the Exchange Act................................................................................. 33 13. Dividends and Distributions...................................................................... 34 14. Extension of Tender Period; Termination; Amendment............................................... 34 15. Certain Conditions of the Offer.................................................................. 36 16. Certain Legal Matters; Regulatory Approvals...................................................... 39 17. Fees and Expenses................................................................................ 41 18. Miscellaneous.................................................................................... 41 Schedule I Information Concerning the Directors and Executive Officers of Calpine and Merger Subsidiary...................................................... I-1
3 To the Holders of Common Stock of Sheridan Energy, Inc.: INTRODUCTION CPN Sheridan, Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of Calpine Corporation ("Calpine"), hereby offers to purchase all outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of Sheridan Energy, Inc., a Delaware corporation (the "Company"), at $5.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Tendering stockholders of the Company (the stockholders of the Company are referred to herein as the "Stockholders") will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. Calpine will pay all charges and expenses of American Stock Transfer & Trust Company (the "Depositary") and D.F. King & Co., Inc. (the "Information Agent") in connection with the Offer. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES. PURSUANT TO THE MERGER AGREEMENT, THE COMPANY HAS REPRESENTED TO CALPINE THAT DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ("FINANCIAL ADVISOR" OR "DLJ"), THE COMPANY'S FINANCIAL ADVISOR, HAS DELIVERED TO THE COMPANY'S BOARD OF DIRECTORS ITS OPINION TO THE EFFECT THAT THE $5.50 PER SHARE TO BE PAID IN THE OFFER AND THE MERGER (DEFINED BELOW) IS FAIR TO THE HOLDERS OF THE SHARES FROM A FINANCIAL POINT OF VIEW. THE OPINION OF THE FINANCIAL ADVISOR IS TO BE SET FORTH IN FULL IN THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9, TO BE FILED BY THE COMPANY AND MAILED TO STOCKHOLDERS IF NOT MAILED HEREWITH. STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED BY THE EXPIRATION DATE (DEFINED BELOW) AND NOT WITHDRAWN A NUMBER OF SHARES WHICH, TOGETHER WITH THE SHARES THEN OWNED BY CALPINE AND MERGER SUBSIDIARY, WOULD REPRESENT AT LEAST A MAJORITY OF THE TOTAL NUMBER OF OUTSTANDING SHARES, ASSUMING THE EXERCISE OF ALL OUTSTANDING OPTIONS, RIGHTS AND CONVERTIBLE SECURITIES (IF ANY) AND THE ISSUANCE OF ALL SHARES THAT THE COMPANY IS OBLIGATED TO ISSUE (SUCH TOTAL NUMBER OF OUTSTANDING SHARES BEING HEREINAFTER REFERRED TO AS THE "FULLY DILUTED SHARES") (THE "MINIMUM CONDITION"). SEE SECTION 15, WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. The Company has represented to Calpine in the Merger Agreement that, as of August 25, 1999, there were (i) 6,733,770 Shares issued and outstanding, (ii) 1,139,556.25 shares of Preferred Stock, par value $.01 per share, of the Company (the "Preferred Stock") issued and outstanding, (iii) 725,500 Shares reserved for issuance upon the exercise of stock options outstanding under various Company stock option plans and (iv) 150,000 Shares reserved for issuance upon exercise of outstanding warrants (the "Warrants") to purchase additional Shares. Based upon the foregoing, as of August 25, 1999, there 4 were approximately 7,609,270 Fully Diluted Shares. Calpine owns no Shares of record, but Merger Subsidiary has the right to direct the tender in connection with the Offer of up to 4,067,537 Shares pursuant to an agreement with certain Stockholders, as more specifically described in Section 11. Accordingly, Calpine believes that the Minimum Condition would be satisfied (based on the foregoing assumptions) if the Shares referred to in the immediately preceding sentence are validly tendered pursuant to the Offer and not withdrawn. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of August 25, 1999 (the "Merger Agreement"), among the Company, Calpine and Merger Subsidiary, which has been unanimously approved by the Company's Board of Directors. The Merger Agreement provides, among other things, that, after consummation of the Offer, and after satisfaction or waiver of all conditions to the Merger, Merger Subsidiary will be merged into the Company (the "Merger"), with the Company continuing as the surviving corporation (the "Surviving Corporation"). Pursuant to the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each outstanding Share (other than Shares owned by Calpine, Merger Subsidiary or any subsidiary of either of them or held by the Company as treasury stock (which shall be canceled) or by Stockholders exercising appraisal rights under Delaware Law (defined below)) will be converted into the right to receive $5.50 in cash or any higher price paid for each Share in the Offer, without interest. If the Minimum Condition is satisfied and Merger Subsidiary purchases Shares pursuant to the Offer, Merger Subsidiary will have the power to approve the Merger without the affirmative vote of any other Stockholder. In the event that Merger Subsidiary owns 90% or more of the Shares then outstanding, the "short-form" merger provisions of the Delaware General Corporation Act ("Delaware Law") would permit the Merger to occur without a meeting or a vote of the Stockholders. See Section 11. Calpine, Merger Subsidiary and certain Stockholders have entered into an Agreement, dated as of August 25, 1999 (the "Stockholder Agreement"), pursuant to which such Stockholders granted to Merger Subsidiary an irrevocable option (the "Stock Option") to purchase, subject to certain conditions, for a price of $5.50 per Share, or to cause to be tendered pursuant to the Offer, an aggregate of up to 3,492,537 outstanding Shares, up to an additional 425,000 Shares issuable under outstanding employee and director stock options and up to an additional 150,000 Shares issuable upon exercise of the outstanding Warrants (collectively, the "Stockholder Option Shares"). The Stockholder Option Shares represent approximately 53.5% of the Fully Diluted Shares. Subject to satisfaction of certain conditions (including the commencement of the Offer), the Stock Option is exercisable by Merger Subsidiary at any time until the 20th business day following termination of the Merger Agreement. Under the Stockholder Agreement, each such Stockholder granted an irrevocable proxy to Merger Subsidiary to vote in favor of the Merger Agreement and certain related matters, subject as aforesaid. As a result of the Stockholder Agreement, Calpine and Merger Subsidiary may be deemed to be the beneficial owner of the Stockholder Option Shares. The Stockholder Agreement also provides that, promptly after the consummation of the Offer, Merger Subsidiary will purchase, or cause the Company to purchase and redeem, all of the outstanding Preferred Stock at a price per share of Preferred Stock equal to $10.10, plus accrued and unpaid dividends thereon (whether or not declared). All of the outstanding Preferred Stock is owned by one of the Stockholders which is a party to the Stockholder Agreement. -2- 5 Upon consummation of the Offer, each outstanding stock option under the Company's various stock option plans (whether vested or unvested) will be canceled and each option holder will receive cash from the Company based on the Offer price. See Section 11. Upon acceptance for payment by Merger Subsidiary of such number of Shares which satisfies the Minimum Condition, Calpine is entitled, pursuant to the Merger Agreement, to designate the number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors and (ii) the percentage that the number of Shares owned by Calpine or Merger Subsidiary (including Shares accepted for payment) bears to the total number of Shares outstanding, and the Company shall take all necessary action to cause Calpine's designees to be elected or appointed to the Company's Board of Directors; provided that, prior to the Effective Time, the Company's Board of Directors shall always have one member who is neither a designee nor an affiliate of Calpine or Merger Subsidiary nor an employee of the Company (an "Independent Director"). No action proposed to be taken by the Company to (i) amend or terminate the Merger Agreement or the certificate of incorporation or by-laws of the Company or (ii) waive any action required to be taken by Calpine or Merger Subsidiary or any rights of the Company under the Merger Agreement shall be effective without the approval of the Independent Director. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 1. TERMS OF THE OFFER Upon the terms and subject to the conditions set forth in the Offer, Merger Subsidiary will accept for payment and purchase, at the time and in the manner set forth in Section 2, all Shares that are validly tendered by the Expiration Date and not withdrawn as provided in Section 4. The term "Expiration Date" shall mean 12:00 Midnight, New York City time, on September 28, 1999, unless Merger Subsidiary shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Merger Subsidiary, shall expire. The Offer is subject to certain conditions set forth in Section 15, including satisfaction of the Minimum Condition. If any such condition is not satisfied, Merger Subsidiary may, except as otherwise described below, (i) terminate the Offer and return all tendered Shares to tendering Stockholders, (ii) extend the Offer and, subject to withdrawal rights as set forth in Section 4, retain all such Shares until the expiration of the Offer as so extended, (iii) waive such condition (except the Minimum Condition) and, subject to any requirement to extend the period of time during which the Offer is open, purchase all Shares validly tendered by the Expiration Date and not withdrawn or (iv) delay acceptance for payment or payment for Shares, subject to applicable law, until satisfaction or waiver of the conditions to the Offer. For a description of Merger Subsidiary's right (or, in certain circumstances, obligation) to extend the period of time during which the Offer is open and to amend, delay or terminate the Offer, see Section 14. Merger Subsidiary acknowledges that Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires Merger -3- 6 Subsidiary to pay the consideration offered or return the Shares tendered promptly after the termination or withdrawal of the Offer. Pursuant to the Merger Agreement, Calpine and Merger Subsidiary expressly reserve the right to waive any of the conditions to the Offer and to make any change in the terms or conditions of the Offer; provided that, without the prior written consent of the Company, no change may be made which (i) changes the form of consideration to be paid in the Offer, (ii) decreases the price per Share or the number of Shares being sought in the Offer, (iii) imposes conditions to the Offer in addition to those expressly set forth in the Merger Agreement, (iv) changes or waives the Minimum Condition, (v) extends the Offer (except as set forth in the Merger Agreement) or (vi) makes any other change to any condition to the Offer set forth in the Merger Agreement which is materially adverse to the holders of Shares. Any extension, delay in payment, amendment or termination of the Offer will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which Merger Subsidiary may choose to make any public announcement, subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act which require that material changes be promptly disseminated to stockholders in a manner reasonably designed to inform them of such changes), Merger Subsidiary shall have no obligation (except as otherwise required by applicable law) to advertise publicly or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. Subject to the Merger Agreement, if Merger Subsidiary makes any material change in the terms of the Offer or the information concerning the Offer, or waives any condition to the Offer that results in a material change to the circumstances of the Offer, Merger Subsidiary will disseminate additional tender offer materials and extend the Offer to the extent required to comply with Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The Securities and Exchange Commission (the "Commission") has interpreted such rules to prescribe that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the terms or information changed. With respect to a change in price or a change in the percentage of securities sought, a minimum period of ten business days may be required to allow for adequate dissemination to stockholders and investor response. As used in this Offer to Purchase, "business day" means any day other than a Saturday, Sunday or a federal holiday and shall consist of the time period from 12:01 a.m. through 12:00 midnight, New York City time. The Company has provided Merger Subsidiary with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. -4- 7 2. ACCEPTANCE FOR PAYMENT AND PAYMENT. Subject to the terms of the Offer and the satisfaction (or waiver to the extent permitted by the Merger Agreement) of all the conditions to the Offer, Merger Subsidiary shall accept for payment all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the expiration of the Offer and shall pay for all such Shares promptly after acceptance. Merger Subsidiary may, without the consent of the Company, (i) extend the Offer if, at the scheduled Expiration Date, any of the conditions to the Offer have not been satisfied or waived, until such time as such conditions are satisfied or waived, (ii) extend the Offer for a period of time of not more than 20 business days beyond the initial Expiration Date, if on the date of such extension less than 90% of the Fully Diluted Shares have been validly tendered and not withdrawn and (iii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff applicable to the Offer. In addition, under certain circumstances, Merger Subsidiary may be required under the Merger Agreement to extend the Offer. See Section 11. For a description of Merger Subsidiary's right to terminate the Offer (subject to the terms of the Merger Agreement) and not accept for payment or pay for Shares or to delay acceptance for payment or payment for Shares, see Section 14. For purposes of the Offer, Merger Subsidiary shall be deemed to have accepted for payment tendered Shares when, and if, Merger Subsidiary gives oral or written notice to the Depositary of its acceptance of the tenders of such Shares. In all cases, upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price with the Depositary, which will act as agent for the tendering Stockholders for the purpose of receiving payments from Merger Subsidiary and transmitting such payments to tendering Stockholders. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or of a confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Shares into the Depositary's account at the Book-Entry Transfer Facility (defined in Section 3)), (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (defined below) in connection with a book-entry transfer and (iii) any other required documents. Accordingly, payment may be made to tendering Stockholders at different times if delivery of the Shares and other required documents occur at different times. For a description of the procedure for tendering Shares pursuant to the Offer, see Section 3. Under no circumstances will interest be paid by Merger Subsidiary on the consideration paid for Shares pursuant to the Offer, regardless of any delay in making such payment. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Merger Subsidiary may enforce such agreement against such participant. -5- 8 If Merger Subsidiary increases the consideration to be paid for Shares pursuant to the Offer, Merger Subsidiary will pay such increased consideration for all Shares purchased pursuant to the Offer. Merger Subsidiary reserves the right to transfer or assign, in whole or from time to time in part, to one or more of Calpine or any of its wholly owned subsidiaries, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Merger Subsidiary of its obligations under the Offer or prejudice the rights of tendering Stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. If any tendered Shares are not purchased pursuant to the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased or untendered Shares will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), without expense to the tendering Stockholder, as promptly as practicable following the expiration or termination of the Offer. 3. PROCEDURE FOR TENDERING SHARES. To tender Shares pursuant to the Offer, either (i) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), or an Agent's Message in connection with a book-entry transfer of such Shares, and any other documents required by the Letter of Transmittal must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (a) certificates for such Shares to be tendered must be received by the Depositary at one of such addresses or (b) such Shares must be delivered pursuant to the procedures for book-entry transfer described below (and a Book-Entry Confirmation received by the Depositary), in each case by the Expiration Date, or (ii) the guaranteed delivery procedure described below must be complied with. The Depositary will establish an account with respect to the Shares at the Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of the Book-Entry Transfer Facility. However, although delivery of Shares may be effected through book-entry transfer, the Letter of Transmittal (or facsimile thereof), or an Agent's Message in connection with such book-entry transfer, and any other required documents must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the guaranteed delivery procedure described below must be complied with. Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. -6- 9 Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a bank, broker, dealer, credit union, savings association or other entity that is a member of a recognized Medallion Program approved by The Securities Transfer Association, Inc. (an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (i) if the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates representing Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made to, or certificates for unpurchased Shares are to be issued or returned to, a person other than the registered holder, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, signed exactly as the name or names of the registered holder or holders appear on the certificates, with the signatures on the certificates or stock powers guaranteed by an Eligible Institution as provided in the Letter of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates representing Shares are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or facsimile thereof) must accompany each such delivery. If a Stockholder desires to tender Shares pursuant to the Offer and cannot deliver such Shares and all other required documents to the Depositary by the Expiration Date, or such Stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered if all of the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Merger Subsidiary, is received by the Depositary (as provided below) by the Expiration Date; and (iii) the certificates for all physically delivered Shares (or a Book-Entry Confirmation of all Shares delivered electronically), as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal, are received by the Depositary within three National Association of Securities Dealers Inc. trading days on the Nasdaq National Market System after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mailed to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice. -7- 10 THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of the certificates for such Shares, or a Book-Entry Confirmation of the delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal. Under the federal income tax laws, the Depositary will be required to withhold 31% of the amount of any payments made to certain Stockholders pursuant to the Offer. In order to avoid such backup withholding, each tendering Stockholder must provide the Depositary with such Stockholder's correct taxpayer identification number and certify that such Stockholder is not subject to such backup withholding by completing the Substitute Form W-9 included in the Letter of Transmittal (or, in the case of a foreign individual, a Form W-8 which may be obtained from the Depositary). By executing a Letter of Transmittal, a tendering Stockholder irrevocably appoints designees of Merger Subsidiary as such Stockholder's proxies in the manner set forth in the Letter of Transmittal to the full extent of such Stockholder's rights with respect to the Shares tendered by such Stockholder and accepted for payment by Merger Subsidiary (and any and all other Shares or other securities issued or issuable in respect of such Shares on or after August 25, 1999). All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment is effective only upon the acceptance for payment of such Shares by Merger Subsidiary. Upon such acceptance for payment, all prior proxies and consents granted by such Stockholder with respect to such Shares and other securities will, without further action, be revoked, and no subsequent proxies may be given nor subsequent written consents executed by such Stockholder (and, if given or executed, will not be deemed to be effective). Such designees of Merger Subsidiary will be empowered to exercise all voting and other rights of such Stockholder as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the Company's stockholders, by written consent or otherwise. Merger Subsidiary reserves the right to require that, in order for Shares to be validly tendered, immediately upon Merger Subsidiary's acceptance for payment of such Shares, Merger Subsidiary is able to exercise full voting rights with respect to such Shares and other securities (including voting at any meeting of stockholders then scheduled or acting by written consent without a meeting). All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Merger Subsidiary, in its sole discretion, which determination shall be final and binding on all parties. Merger Subsidiary reserves the absolute right to reject any or all tenders of Shares determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Merger Subsidiary's counsel, be unlawful. Merger Subsidiary also reserves the absolute right to waive any defect or irregularity in any tender of Shares, whether or not similar defects or irregularities are waived -8- 11 in the case of any other tender of Shares. None of Merger Subsidiary, Calpine, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in tenders or incur any liability for failure to give any such notification. Merger Subsidiary's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. The acceptance for payment of Shares tendered pursuant to any one of the procedures described above will constitute an agreement between the tendering Stockholder and Merger Subsidiary upon the terms and subject to the conditions of the Offer. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn on or after October 29, 1999 unless theretofore accepted for payment as provided in this Offer to Purchase. If Merger Subsidiary extends the period of time during which the Offer is open, is delayed in accepting for payment or paying for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Merger Subsidiary's rights under the Offer, the Depositary may, on behalf of Merger Subsidiary, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in this Section 4. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution) signatures guaranteed by an Eligible Institution must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering Stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Merger Subsidiary, in its sole discretion, which determination shall be final and binding. None of Merger Subsidiary, Calpine, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or incur any liability for failure to give any such notification. 5. CERTAIN TAX CONSEQUENCES. This summary sets forth the material anticipated Federal income tax consequences to -9- 12 Stockholders of their disposition of Shares pursuant to the Offer and the Merger. The summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as currently in effect. Such laws or interpretations may differ on the date of the consummation of the Offer or at the Effective Time, and relevant facts may also differ. The summary does not address any foreign, state or local tax consequences, nor does it address estate or gift tax considerations. Neither the consummation of the Offer nor the effectiveness of the Merger is conditioned upon the receipt of any ruling from the Internal Revenue Service or any opinion of counsel as to tax matters. This summary is for general information only. The tax treatment of each Stockholder will depend in part upon his particular situation. Special tax consequences not described below may be applicable to particular classes of taxpayers, including financial institutions, pension funds, mutual funds, broker-dealers, persons who are not citizens or residents of the United States or who are foreign corporations, foreign partnerships or foreign estates or trusts, Stockholders who own actually or constructively (under certain attribution rules contained in the Code) 5% or more of the Shares, Stockholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation, and persons who receive payments in respect of options to acquire Shares. ALL STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX LAWS. Sales of Shares by Stockholders pursuant to the Offer (or the Merger) will be taxable transactions for Federal income tax purposes and may also be taxable transactions under applicable state, local, foreign and other tax laws. In general, a Stockholder will recognize gain or loss equal to the difference between the tax basis of such Stockholder's Shares and the amount of cash received in exchange for the Shares. This gain or loss will be capital gain or loss if the Shares are capital assets in the hands of the Stockholder and will be long-term capital gain or loss if the holding period for the Shares is more than 12 months as of the date of the sale of such Shares. -10- 13 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are traded on the Nasdaq SmallCap Market under the symbol "SHDN." The following table sets forth, on a per share basis for the periods shown, the range of high and low sales prices of the Shares as set forth in the Company 10-K (as defined below) for the years ended 1997 and 1998 and as reported by IDD Information Services for other quotations.
YEAR ENDING 1999: HIGH LOW ----------------- ---- --- First Quarter $3.75 $2.87 Second Quarter $3.62 $2.50 Third Quarter (Through August 24, 1999) $4.00 $3.00 YEAR ENDED 1998: First Quarter $6.25 $3.50 Second Quarter $5.62 $3.00 Third Quarter $4.00 $2.37 Fourth Quarter $5.12 $2.50 YEAR ENDED 1997: First Quarter $ * $ * Second Quarter $ * $ * Third Quarter $3.62 $2.25 Fourth Quarter $8.31 $3.50
- ------------------------- * No reported trading activity for the period noted. On August 24, 1999, the last day of trading prior to the issuance by Calpine of a press release announcing the execution of the Merger Agreement, the last sale price on the Nasdaq SmallCap Market was $4.00 per Share. On August 30, 1999, the last day of trading prior to the commencement of the Offer, the last sale price on the Nasdaq SmallCap Market was $5.39 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. As reported by the Company, the Company has not paid any dividends on its Common Stock. As of December 31, 1998, according to the Company's Annual Report on Form 10-KSB for its fiscal year ended December 31, 1998 (the "Company 10-K"), there were approximately 2,300 holders of record of outstanding Shares. -11- 14 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a Delaware corporation with its principal executive offices located at 1000 Louisiana, Suite 800, Houston, Texas 77002. According to the Company 10-K, the Company is a domestic independent energy company engaged in the exploration and production of oil and natural gas. The Company's core properties and operations are in the Sacramento Basin of California and South Texas. The Company is also engaged in intrastate natural gas gathering and treating. The following selected consolidated financial data relating to the Company and its subsidiaries has been taken or derived from the audited financial statements contained in the Company 10-K and the unaudited financial statements contained in the Company's Quarterly Report on Form 10-QSB for the six months ended June 30, 1999. More comprehensive financial information is included in the Company 10-K, such Quarterly Report and the other documents filed by the Company with the Commission, and the financial data set forth below is qualified in its entirety by reference to such reports and other documents including the financial statements (and any related notes) contained therein. Such reports and other documents may be examined and copies may be obtained from the offices of the Commission in the manner set forth below. -12- 15 SHERIDAN ENERGY, INC. SELECTED CONSOLIDATED FINANCIAL DATA (In thousands, except per share data)
FISCAL YEAR ENDED SIX MONTHS ENDED STATEMENT OF OPERATIONS DATA DECEMBER 31, JUNE 30, ---------------------------------------- ------------------------ (UNAUDITED) 1998 1997 1996 1999 1998 -------- -------- -------- -------- -------- Total revenues $ 19,831 $ 7,327 $ 5,445 $ 13,242 $ 9,369 Operating income (loss) (6,027) (1,154) (331) 1,027 (1,128) Net income (loss) (10,599) (1,867) 10,435 (1,346) (2,296) Net loss per Share -- Basic (1.78) (2.51) (2.00) (0.44) (0.44) Shares used in per share calculation -- Basic 6,731 4,365 4,406 6,731 6,731
BALANCE SHEET DATA AT JUNE 30, 1999 AT DECEMBER 31, 1998 ---------------- -------------------- (UNAUDITED) Cash and cash equivalents $ 714 $ 639 Working capital (4,671) (4,769) Total assets 115,431 68,877 Long-term debt, less current portion 64,200 31,950 Total stockholders' equity 7,624 10,384
The information concerning the Company contained herein has been taken from or is based upon reports and other documents on file with the Commission or otherwise publicly available. Although Calpine and Merger Subsidiary do not have any knowledge that would indicate that any statements contained herein based upon such reports and documents are untrue, Calpine and Merger Subsidiary do not take any responsibility for the accuracy or completeness of the information contained in such reports and other documents or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but that are unknown to Calpine or Merger Subsidiary. The Company is subject to the informational requirements of the Exchange Act and files periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company. Such reports, -13- 16 proxy statements and other information may be inspected at the public reference facilities maintained by the Commissioner at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and should also be available for inspection and copying at the regional offices of the Commission in New York (Seven World Trade Center, New York, New York 10048) and Chicago (500 West Madison Street (Suite 1400), Chicago, Illinois 60661). Copies of such material can also be obtained from the Public Reference Section of the Commission in Washington, D.C., at prescribed rates. The Commission maintains a Web site (http://www.sec.gov) on the Internet that contains reports, proxy statements and other information regarding issuers that file electronically with the Commission. 8. CERTAIN INFORMATION CONCERNING MERGER SUBSIDIARY AND CALPINE. Merger Subsidiary, a Delaware corporation and a wholly owned subsidiary of Calpine, was organized to acquire the Company and has not conducted any unrelated activities since its organization on August 23, 1999. Calpine, a Delaware corporation, is a leading independent power company engaged in the development, acquisition, ownership and operation of power generation facilities and the sale of electricity predominantly in the United States. The principal executive offices of Calpine and Merger Subsidiary are located at 50 West Fernando Street, San Jose, California 95113. The name, age, business address, present principal occupation or employment, five-year employment history and citizenship of each director and executive officer of Merger Subsidiary and Calpine are set forth in Schedule I hereto. The following selected consolidated financial data relating to Calpine and its subsidiaries has been taken or derived from the audited financial statements contained in Calpine's Annual Report on Form 10-K for the year ended December 31, 1998 and the unaudited financial statements contained in Calpine's Quarterly Report on Form 10-Q for the six months ended June 30, 1999. More comprehensive financial information is included in such Annual Report, such Quarterly Report and the other documents filed by Calpine with the Commission, and the financial data set forth below is qualified in its entirety by reference to such reports and other documents including the financial statements (and any related notes) contained therein. Such reports and other documents may be examined and copies may be obtained from the offices of the Commission in the same manner as set forth with respect to the Company in Section 7. -14- 17 CALPINE CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA (In thousands, except per share data)
FISCAL YEAR ENDED SIX MONTHS ENDED INCOME STATEMENT DATA DECEMBER 31, JUNE 30, -------------------------------------- ----------------------- (UNAUDITED) 1998 1997 1996 1999 1998 -------- -------- -------- -------- -------- Total revenue $555,948 $276,321 $214,554 $336,590 $196,742 Income from Operations 146,676 97,187 66,791 73,208 46,455 Net income 45,678 34,699 18,692 21,410 8,569 Net income per common 2.27 1.74 1.45 0.90 0.43 share-basic Net income per common 2.16 1.65 1.26 0.85 0.41 share-diluted
BALANCE SHEET DATA AT JUNE 30, 1999 AT DECEMBER 31, 1998 ---------------- -------------------- (UNAUDITED) Working capital $ 346,429 $ 86,924 Total assets 2,549,750 1,728,946 Non-recourse project financing -- 5,450 (current) Non-recourse project financing -- 114,190 (long-term) Senior notes 1,551,750 951,750 Stockholders' equity 514,127 286,966
Calpine is subject to the informational requirements of the Exchange Act and files periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Calpine is required to disclose in such proxy statements certain information, as of particular dates, concerning its directors and officers, their remuneration, stock options granted to them, the principal holders of its securities and any material interests of such persons in transactions with Calpine. Such reports, proxy statements and other information should be available for inspection and copying at the offices of the Commission in the same manner as set forth with respect to the Company in Section 7. On January 25, 1999, Calpine entered into an arrangement with Sheridan California Energy, Inc. ("SCEI"), a subsidiary of the Company, pursuant to which Calpine, through a subsidiary, contributed $15 million in cash to SCEI in exchange for (i) a 20% common equity interest in SCEI and (ii) $13 million of seven-year redeemable non-voting preferred stock of SCEI. The preferred stock provides for cash dividends of $0.70 payable annually (a 14.0% annual rate) or, at the discretion of SCEI, dividends may be paid in kind in an amount equal to .07 additional shares for -15- 18 each outstanding share of preferred stock. The proceeds of the financing were used by SCEI to acquire certain Sacramento Basin, California properties (the "Sacramento Basin Properties") from the Amerada Hess Corporation. The Company in such transaction contributed $3 million in cash and $4.6 million of seismic data and oil and gas producing assets in California in exchange for a 80% common equity interest in SCEI. In connection with such transaction, Calpine, through a subsidiary, entered into a Gas Purchase Sale Agreement with the Company which provides that substantially all of the natural gas produced at the Sacramento Basin Properties will be sold to Calpine. From April 1, 1999 through July 31, 1999, Calpine paid the Company approximately $4.9 million for natural gas under such agreement. Except as described in this Offer to Purchase, neither Calpine, Merger Subsidiary nor, to their knowledge, any of the persons listed in Schedule I or any associate or majority-owned subsidiary of any of the foregoing, beneficially owns or has the right to acquire any equity securities of the Company, nor has Calpine, Merger Subsidiary or, to their knowledge, any of the persons or entities referred to above or any of the respective executive officers, directors or subsidiaries of any of the foregoing, effected any transaction in the equity securities of the Company during the past 60 days. Except as described in this Offer to Purchase, neither Calpine, Merger Subsidiary nor, to their knowledge, any of the persons listed in Schedule I, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of the Company, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as described in this Offer to Purchase, there have been no contacts, negotiations or transactions between Calpine, Merger Subsidiary or any other subsidiary of Calpine or, to their knowledge, any of the persons listed in Schedule I, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except as described in this Offer to Purchase, none of Calpine, Merger Subsidiary, any other subsidiary of Calpine, or, to their knowledge, any of the persons listed in Schedule I, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that would require disclosure pursuant to the rules and regulations of the Commission. 9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by Merger Subsidiary to purchase Shares pursuant to the Offer and the Merger, refinance, if necessary, certain indebtedness of the Company and its subsidiaries, purchase the outstanding Preferred Stock, and pay related fees and expenses is expected to be approximately $64 million. Merger Subsidiary will obtain all funds needed for the Offer and the Merger from Calpine by means of a capital contribution, loan or a combination thereof. Calpine -16- 19 will obtain such funds (i) from its general corporate funds and/or (ii) by borrowing under its existing Credit Agreement, dated as of September 25, 1996, as amended as of May 15, 1998 (as amended, the "Credit Agreement"), among Calpine, as borrower, the banks and other financial institutions party thereto, as lenders, and the Bank of Nova Scotia, as agent. The Credit Agreement provides for borrowings of up to an aggregate of $100,000,000 of loans on an unsecured basis. Borrowings under the Credit Agreement bear interest at the Bank of Nova Scotia's base rate plus an applicable margin or at LIBOR plus an applicable margin. The Credit Agreement includes customary covenants including financial covenants. Merger Subsidiary has not conditioned the Offer on obtaining financing. As of August 30, 1999, Calpine had (i) approximately $250 million in cash, cash equivalents and marketable securities and (ii) availability to borrow up to an additional $79 million of loans under the Credit Agreement. The foregoing summary of the source and amount of funds is qualified in its entirety by reference to the text of the Credit Agreement, a copy of which is filed as an exhibit to Calpine's Current Report on Form 8-K, dated May 1, 1996, filed with the Commission and is incorporated in this Offer to Purchase by reference and may be inspected in the same manner as set forth with respect to the Company in Section 7. Although no definitive plan or arrangement for repayment of borrowings under the Credit Agreement have been made, Calpine anticipates such borrowings will be repaid with internally generated funds (including, if the Merger is accomplished, those of the Company) and from other sources which may include the proceeds of future bank refinancings or the public or private sale of debt or equity securities. No decision has been made concerning the method Calpine will use to repay the borrowings under the Credit Agreement. Such decision will be made based on Calpine's review from time to time of the advisability of particular actions, as well as prevailing interest rates, financial and other economic conditions and such other factors as Calpine may deem appropriate. 10. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE COMPANY. As described above in Section 8, in January 1999, Calpine made an investment in, and agreed to purchase natural gas from, SCEI, a subsidiary of the Company. SCEI used the proceeds of the investment and other funds to purchase the Sacramento Basin Properties. Following the January 1999 investment in SCEI, John T. King, Vice President-Business Development of Calpine, had several discussions with B.A. Berilgen, the President and Chief Executive Officer of the Company, about the Company's capitalization and prospects for growth. During these discussions, Mr. King inquired as to whether the Company would be interested in discussing a possible business combination transaction. Mr. Berilgen encouraged Mr. King to discuss the possibility of a transaction directly with Jeffrey E. Susskind, the Chairman of the Board of Directors of the Company. -17- 20 On May 21, 1999, on behalf of Calpine, Mr. King sent a letter to Mr. Susskind expressing an interest to meet and discuss Calpine's interest in the Company. On May 24, 1999, Mr. King and Mr. Susskind met in Houston, Texas. At such meeting, Mr. King indicated that Calpine desired to evaluate further a possible business combination with the Company at a price of $4.00 per Share. Mr. Susskind indicated that he was not satisfied with Calpine's valuation, but expressed interest in further discussions and indicated that the Company would be willing to provide Calpine with an opportunity to conduct preliminary due diligence with respect to the Company. Calpine and the Company entered into a confidentiality agreement dated as of June 15, 1999 (the "Confidentiality Agreement"). Following execution of the Confidentiality Agreement, the Company provided Calpine with certain due diligence materials including information relating to the Company's natural gas reserves. In addition, on June 10, 1999, Mr. Susskind, along with D. Bradley Dunn, a director of the Company, made a presentation to certain members of Calpine's management at Calpine's offices in San Jose, California regarding the Company's views on valuation. On July 2, 1999, Mr. King sent a letter to Mr. Susskind that contained a revised proposal to enter into a business combination transaction with the Company at a price of $5.00 per Share. Following the July 2 letter, Mr. King was informed that the Company had engaged DLJ as the Company's exclusive financial advisor in connection with a possible transaction. Mr. Berilgen then informed Mr. King that the Company intended to explore a sale opportunity with another party. Approximately one week later, Mr. King received telephone calls from both Mr. Berilgen and a representative of DLJ indicating an opportunity for Calpine to make a revised proposal to acquire the Company. On August 11, 1999, Mr. King sent a letter to B.A. Berilgen containing Calpine's final offer to acquire the Company at a $5.50 per Share cash price. On August 12, 1999, a DLJ representative informed Mr. King that the Company was prepared to negotiate definitive agreements for the proposed transaction. During the week of August 16, 1999 through the morning of August 25, representatives of Calpine, including its legal advisor, negotiated with representatives of the Company, including its legal advisor, regarding terms of a definitive merger agreement and conducted detailed due diligence. During this time, representatives of Calpine also negotiated with representatives of the Stockholders party to the Stockholder Agreement regarding the terms of the Stockholder Agreement. These negotiations included a meeting in Houston, Texas on Friday, August 20, 1999 attended by representatives of Calpine and of the Company and, to finalize the definitive agreements, a subsequent meeting of representatives of both companies in Houston, Texas on Tuesday, August 24, 1999. Final negotiations continued into the early morning of Wednesday, August 25. At the conclusion of such negotiations, the Merger Agreement and the Stockholder Agreement were executed. At approximately 9:00 a.m., New York City time, on Wednesday, August 25, 1999, Calpine and the Company issued separate press releases announcing the transaction. -18- 21 11. PURPOSE OF THE OFFER; MERGER AGREEMENT; STOCKHOLDER AGREEMENT; APPRAISAL RIGHTS. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. Following the Offer, Calpine and Merger Subsidiary intend to acquire any remaining equity interest in the Company not acquired in the Offer by consummating the Merger. The Merger Agreement. The following description of the Merger Agreement is qualified in its entirety by reference to the text of such agreement, a copy of which is attached as an exhibit to the Tender Offer Statement on Schedule 14D-1 ("Schedule 14D-1") filed by Calpine and Merger Subsidiary with the Commission in connection with the Offer, is incorporated in this Offer to Purchase by reference and may be inspected in the same manner as set forth with respect to the Company in Section 7. The Offer. The Merger Agreement provides for the making of the Offer. The obligation of Merger Subsidiary to accept for payment or pay for Shares is subject to the satisfaction of the Minimum Condition and certain other conditions that are described in Section 15 hereof. Pursuant to the Merger Agreement, Calpine and Merger Subsidiary expressly reserve the right to waive the conditions to the Offer and to make any change in the terms or conditions of the Offer; provided that, without the prior written consent of the Company, no change may be made which (i) changes the form of consideration to be paid, (ii) decreases the price per Share or the number of Shares sought in the Offer, (iii) imposes conditions to the Offer in addition to those set forth in the Merger Agreement, (iv) changes or waives the Minimum Condition, (v) extends the Offer (except as set forth in the Merger Agreement) or (vi) makes any other change to any condition to the Offer set forth in the Merger Agreement which is materially adverse to the holders of Shares. Notwithstanding the foregoing, the Merger Agreement also provides that Merger Subsidiary may, without the consent of the Company, (i) extend the Offer, if at any scheduled expiration date of the Offer any of the conditions to merger Subsidiary's obligation to purchase Shares pursuant to the Offer have not been satisfied or waived, until such time as such conditions are satisfied or waived, (ii) extend the Offer for a period of not more than 20 business days beyond the initial Expiration Date, if on the date of such extension less than 90% of the Fully Diluted Shares have been validly tendered and not properly withdrawn pursuant to the Offer and (iii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff thereof applicable to the Offer. Calpine and Merger Subsidiary have also agreed in the Merger Agreement that if all of the conditions to Merger Subsidiary's obligation to purchase Shares pursuant to the Offer are not satisfied on any scheduled expiration date of the Offer then, provided that all such conditions are reasonably capable of being satisfied, Merger Subsidiary shall extend the Offer from time to time in increments of a least five business days each until the earliest to occur of (x) the satisfaction or waiver of the Minimum Condition or such other condition, (y) the termination of the Merger Agreement in accordance with its terms and (z) December 1, 1999. Subject to the terms of the Offer in the Merger Agreement and the satisfaction (or waiver to the extent permitted by the Merger Agreement) of the conditions of the Offer, Merger Subsidiary shall accept for payment all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the applicable expiration of the Offer. Consideration to be Paid in the Merger. The Merger Agreement provides that, following the purchase of Shares pursuant to the Offer and upon the terms (but subject to the conditions) set forth -19- 22 in the Merger Agreement, Merger Subsidiary will be merged with and into the Company (the "Merger"), with the Company continuing as the surviving corporation (the "Surviving Corporation"). In the Merger, (i) each Share held by the Company as treasury stock or owned by Calpine, Merger Subsidiary or any subsidiary of either of them immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto; (ii) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation; and (iii) each Share outstanding immediately prior to the Effective Time shall, except as otherwise provided in the Merger Agreement with respect to Shares as to which appraisal rights have been exercised, be converted into the right to receive $5.50 in cash or any higher price paid for each Share in the Offer, without interest. The Merger Agreement provides that the Merger will be consummated as soon as practicable after satisfaction of or, to the extent permitted thereunder, waiver of the conditions to the Merger and shall become effective at such time as the certificate of merger is duly filed with the Secretary of State of the State of Delaware or, with the consent of the Independent Directors referred to below, at such later time as is specified in the certificate of merger. Board Representation. The Merger Agreement provides that, effective upon acceptance for payment by Merger Subsidiary of the Shares tendered pursuant to the Offer, Calpine shall be entitled to designate the number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to the Merger Agreement) and (ii) the percentage that the number of Shares owned by Calpine or Merger Subsidiary (including Shares accepted for payment) bears to the total number of Shares outstanding. The Company has agreed that it will take all action necessary to cause Calpine's designees to be elected or appointed to the Company's Board of Directors, including, without limitation, increasing the number of directors or seeking and accepting resignations of incumbent directors or both; provided that, prior to the Effective Time, the Company's Board of Directors shall always have one member who is neither a designee nor an affiliate of Calpine or Merger Subsidiary nor an employee of the Company (an "Independent Director"). If the number of Independent Directors is reduced below one for any reason prior to the Effective Time, the departing Independent Director shall be entitled to designate a person to fill such vacancy. No action proposed to be taken by the Company to (i) amend or terminate the Merger Agreement or the certificate of incorporation or by-laws of the Company or (ii) waive any action required to be taken by Calpine or Merger Subsidiary under the Merger Agreement or any rights of the Company under the Merger Agreement shall be effective without the approval of the Independent Director. At such times, the Company will use its best efforts to cause individuals designated by Calpine to constitute the same percentage as such individuals represent on the Company's Board of Directors of (i) each committee of the Board, (ii) each board of directors of each subsidiary and (iii) each committee of each such board. The Merger Agreement provides that, from and after the Effective Time, the directors and officers of Merger Subsidiary at the Effective Time will be the initial directors and officers of the Surviving Corporation, each to hold office until his or her respective successors are duly elected or appointed and qualified in accordance with applicable law. Pursuant to the Merger Agreement, the by-laws of Merger Subsidiary, as in effect at the Effective Time, will be the by-laws of the Surviving -20- 23 Corporation until amended in accordance with applicable law, and the certificate of incorporation of Merger Subsidiary, as in effect at the Effective Time, will be the certificate of incorporation of the Surviving Corporation until amended in accordance with applicable law, except that the name of the Surviving Corporation shall be changed to the name of the Company. Stockholder Meeting. The Merger Agreement provides that, if required by applicable law, the Company will call a meeting of its Stockholders to be held as soon as reasonably practicable following Merger Subsidiary's acquisition of Shares in the Offer for the purpose of voting on the approval and adoption of the Merger Agreement and the Merger. Under the Merger Agreement, at any such meeting, Calpine has agreed to make a quorum and to vote all Shares acquired in the Offer or otherwise beneficially owned by it in favor of adoption of the Merger Agreement. If the Minimum Condition is satisfied pursuant to the Offer, Merger Subsidiary will hold at least a majority of the outstanding Shares on a Fully Diluted Basis and will be able to assure that the requisite number of affirmative votes in favor of approval and adoption of the Merger Agreement will be received, even if no other Stockholder votes in favor thereof. If Merger Subsidiary obtains at least 90% of the outstanding Shares, it may effect the Merger without any notice to and without the authorization of the Stockholders of the Company pursuant to the "short-form" merger provisions of Delaware Law. Representations and Warranties. The Merger Agreement contains various representations and warranties of the parties thereto. These include representations and warranties of the Company with respect to corporate existence and power, corporate authorization, governmental authorization, non-contravention, capitalization, subsidiaries, Commission filings, financial statements, absence of certain changes, undisclosed liabilities, litigation, taxes, employee benefits, brokers, compliance with laws, contracts and debt instruments, environmental, intellectual property and technology and other matters. Calpine and Merger Subsidiary have also made certain representations and warranties with respect to corporate existence and power, corporate authorization, governmental authorization, non-contravention, disclosure documents, brokers and other matters. Conduct of Business Pending the Merger. The Company has agreed that, during the period from the date of the Merger Agreement to the Effective Time, the Company will, and will cause its subsidiaries to, carry on their respective businesses in the ordinary course in substantially the same manner as theretofore conducted and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing business shall be unimpaired at the Effective Time. The Company has further agreed that, during the period from the date of the Merger Agreement to the Effective Time, the Company will not, and will not permit any of its subsidiaries to, without the prior written approval of Calpine (which determination by Calpine will not be unreasonably delayed), (i)(a) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly owned subsidiary of the Company to its parent, (b) split, combine or reclassify any of its capital stock or issue or authorize the issuance -21- 24 of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (c) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than in connection with the exercise of Company Options (defined below)); (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Shares upon the exercise of Company Options; (iii) amend its certificate of incorporation, by-laws or other comparable charter or organizational documents; (iv) except as provided in the Merger Agreement, acquire or agree to acquire (including, without limitation, by merger, consolidation, or acquisitions of stock or assets) any business including through the acquisition of any interest in any corporation, partnership, limited liability company, joint venture, association or other business organization or division thereof; (v) except as provided in the Merger Agreement, mortgage or otherwise encumber or subject to any lien or, except in the ordinary course of business consistent with past practice and pursuant to existing contracts or commitments, sell, lease, license, transfer or otherwise dispose of any of the Company's intellectual property rights or any other material properties or assets; (vi) except as provided in the Merger Agreement, make or agree to make any new capital expenditures in excess of $500,000; (vii) make any material tax election (unless required by law) or settle or compromise any material income tax liability; (viii) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice and in accordance with their terms, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; (ix) commence a lawsuit other than (a) for the routine collection of bills or (b) in such cases where the Company in good faith determines that the failure to commence suit would result in a material impairment of a valuable aspect of the Company's business, provided that the Company consults with Calpine prior to filing such suit; (x) (a) enter into or amend any employment or severance agreement or similar arrangements, (b) make any determination as to amounts payable under any plan, arrangement or agreement, providing for discretionary incentive compensation or bonus to any officer, director, employee or independent contractor of the Company or any of its subsidiaries or (c) enter into, adopt, or amend any agreement, arrangement, or benefit plan so as to increase the liability (whether or not contingent) of the Company or Calpine or any of their subsidiaries in respect of compensation or benefits except as may be required by law; (xi) incur any additional indebtedness other than borrowings under the Company's senior bank credit facilities as in effect of the date of the Merger Agreement; (xii) authorize any of, or commit or agree to take any of, the foregoing actions; or (xiii) take or agree or commit to take any action that would make representation or warranty of the Company hereunder inaccurate in any material respect at, or as of any time prior to, the Effective Time; or (xiv) omit or agree or commit to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time. Access to Information. Subject to the terms of the Confidentiality Agreement, the Company has agreed (i) to give Calpine and its representatives access (during normal business hours and upon reasonable notice) to the offices, properties, books and records, of the Company and its subsidiaries, (ii) to furnish Calpine and its representatives with such other information concerning its business, -22- 25 properties and personnel as such persons may reasonably request, (iii) to give Calpine and its representatives full access (during normal business hours and upon reasonable notice) to all abstracts of title, title opinions, title files, ownership maps, lease files, assignments, division orders, check vouchers and payment statements as the same may be in existence and in possession of the Company and (iv) to give Calpine and its representatives full access (during normal business hours and at their actual location) to all accounting, revenue, marketing, transportation, processing, environmental, geological, geophysical, production and engineering books, records and data in possession of the Company, except such records or data which Company is prevented by contractual obligations with third parties from disclosing, in which case Company will inform Calpine of the existence of such records, the parties thereto and the subject matter of such records. HSR Act Filings; Efforts. Pursuant to the Merger Agreement, each of Calpine and the Company has agreed, if applicable, to (i) promptly make or cause to be made the filings required of such party or any of its subsidiaries under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act") with respect to the transactions contemplated by the Merger Agreement, (ii) comply at the earliest practicable date with any request under the HSR Act for additional information, documents, or other material received by such party or any of its subsidiaries from any Governmental Entity (defined below) in respect of such filings or such transactions and (iii) cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry of any such agency or other Governmental Entity under any Antitrust Laws (defined below) with respect to any such filing or any such transaction. Each of Calpine and the Company has agreed, pursuant to the Merger Agreement, to promptly inform the other of any communication with, and any proposed understanding, undertaking, or agreement with, any Governmental Entity regarding any such filings or any such transaction. The Merger Agreement prohibits both Calpine and the Company from participating in any meeting with any Governmental Entity in respect of any such filings, investigation, or other inquiry without giving the other notice of the meeting and, to the extent permitted by such Governmental Entity, the opportunity to attend and participate. "Governmental Entity" means any federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign. Each of Calpine and the Company has agreed, pursuant to the Merger Agreement, to use all commercially reasonable efforts to resolve such objections, if any, as may be asserted by any Governmental Entity with respect to the transactions contemplated by the Merger Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other Federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, "Antitrust Laws"). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by the Merger Agreement as violative of any Antitrust Law, and, if by mutual agreement, Calpine and the Company decide that litigation is in their best interests, each of Calpine and the Company have agreed, pursuant to the Merger Agreement, to cooperate and use all reasonable efforts vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents, or restricts consummation of the Merger or any such other transactions. Pursuant -23- 26 to the Merger Agreement, each of Calpine and the Company have agreed to use all commercially reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as possible after the execution of the Merger Agreement. Each of Calpine and the Company has agreed, pursuant to the Merger Agreement, to use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer, the Merger and the other transactions contemplated by the Merger Agreement. Notwithstanding the foregoing, the Merger Agreement provides that (i) neither Calpine nor any of its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, (ii) neither Calpine nor any of its subsidiaries shall be required to take or agree to take any other action or agree to any limitation that could reasonably be expected to have an adverse effect on the business, assets, financial condition, results of operations or prospects of Calpine and its subsidiaries or of Calpine combined with the Surviving Corporation after the Effective Time, (iii) neither the Company nor its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect (as defined in Section 15), (iv) no party shall be required to agree to the imposition of, or to comply with, any condition, obligation or restriction on Calpine or any of its subsidiaries or on the Surviving Corporation or any of its subsidiaries of the type described in clause (a) or (b) of Section 15 of this Offer and (v) neither Calpine nor Merger Subsidiary shall be required to waive any of the conditions to the Offer described in Section 15 of this Offer or any of the conditions to the Merger described in this Section 11. The Merger Agreement provides that the Company will give prompt notice to Calpine of (i) any material representation or warranty made by it contained in the Merger Agreement becoming untrue or inaccurate in any material respect, (ii) upon the Company's obtaining knowledge thereof, any representation or warranty made by it contained in the Merger Agreement and not covered by clause (i) above becoming untrue or inaccurate in any material respect, or (iii) the failure by it to comply with or satisfy in any respect any covenant, condition or agreement to be complied with or satisfied by it under the Merger Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under the Merger Agreement. The Merger Agreement provides that the Company will give prompt notice to Calpine, and Calpine or Merger Subsidiary will give prompt notice to the Company of (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by the Merger Agreement; (ii) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by the Merger Agreement; and (iii) 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 of the Merger Agreement would have been -24- 27 required to have been disclosed pursuant to the representations and warranties of the Company or which relate to the consummation of the transactions contemplated by the Merger Agreement. Stock Options. The Merger Agreement provides that, upon acceptance for payment of Shares pursuant to the Offer, each outstanding Company Option, whether vested or unvested, shall be canceled, and each holder of any such option shall be paid by the Company promptly after the acceptance for payment of Shares pursuant to the Offer for each such option an amount determined by multiplying (i) the excess, if any, of $5.50 per Share over the applicable exercise price of such option by (ii) the number of Shares such holder could have purchased had such holder exercised such option in full immediately prior to the acceptance for payment of Shares pursuant to the Offer (as if such Company Option was exercisable in full). Notwithstanding any other provisions of the Merger Agreement, immediately after the acceptance for payment of Shares pursuant to the Offer no Company Options will remain outstanding. "Company Option" means any option granted, whether or not exercisable, and not exercised or expired, to a current or former employee, director or independent contractor of the Company or any of its subsidiaries or any predecessor thereof to purchase Shares pursuant to any stock option, stock bonus, stock award, or stock purchase plan, program, or arrangement of the Company or any of its subsidiaries or any predecessor thereof or any other contract or agreement entered into by the Company or any of its subsidiaries. Pursuant to the Merger Agreement and as soon as practicable following the date of the Merger Agreement, the Company has agreed to use its commercially reasonable efforts to (i) obtain any consents from holders of Company Options and (ii) make any amendments to the terms of such stock option or compensation plans or arrangements that, in the case of either clauses (i) or (ii), are necessary to give effect to the transactions contemplated by the Merger Agreement. Notwithstanding any other provision of the Merger Agreement, payment may be withheld in respect of any Company Option until necessary consents are obtained. All amounts payable pursuant to the Merger Agreement in respect of Company Options will be subject to, and reduced by, any required withholding of taxes and will be paid without interest. Other Offers. Pursuant to the Merger Agreement, the Company has agreed that, until the termination of the Merger Agreement, the Company and its subsidiaries will not, and will not authorize or permit the officers, directors, employees or other agents of the Company and its subsidiaries to, directly or indirectly, (i) take any action to solicit, initiate or encourage any Acquisition Proposal (defined below) or (ii) subject to the fiduciary duties of the Board of Directors under applicable law, as advised by counsel to the Company, and in response to an unsolicited request that has been submitted to the Company's Board of Directors and determined to be a Superior Acquisition Proposal (defined below), engage in negotiations with, or disclose any nonpublic information relating to the Company or any of its subsidiaries or afford access to the properties, books or records of the Company or any of its subsidiaries to, any person that has advised the Company or otherwise publicized the fact that it may be considering making, or that has made, an Acquisition Proposal; provided, the foregoing does not prohibit the Company's Board of Directors from taking and disclosing to the Company's stockholders a position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. The Company has agreed to promptly notify Calpine after receipt of any Acquisition Proposal or any indication that any person is considering making an Acquisition Proposal or any request for nonpublic information relating to the Company or any of its subsidiaries or for access to the properties, books or records of -25- 28 the Company or any of its subsidiaries by any person that has advised the Company that it may be considering making, or that has made, an Acquisition Proposal and will keep Calpine fully informed of the status and details of any such Acquisition Proposal, indication or request. "Acquisition Proposal" means any offer or proposal for, or any indication of interest in, a merger or other business combination involving the Company or any of its subsidiaries or the acquisition of any significant equity interest in, or a significant portion of the assets of, the Company or any of its subsidiaries, other than the transactions contemplated by the Merger Agreement; and "Superior Acquisition Proposal" means an Acquisition Proposal which a majority of the Company's disinterested directors determines in its good faith judgment (after receiving the advice of the Company's independent financial advisor) to be more favorable to the Company's stockholders than the Offer or the Merger, and for which financing, to the extent required, is then committed or which a majority of the Company's disinterested directors reasonably believes will be available when required. Agreement with respect to Director and Officer Indemnification and Insurance. Pursuant to the Merger Agreement, Calpine will cause the Surviving Corporation to indemnify and hold harmless the present and former officers, directors, employees and agents of the Company (the "Indemnified Parties") in respect of acts or omissions occurring on or prior to the Effective Time to the extent provided under the Company's certificate of incorporation and by-laws in effect on the date of the Merger Agreement, provided that such indemnification shall be subject to any limitation imposed from time to time under applicable law. Calpine has further agreed that for three years after the Effective Time, Calpine will cause the Surviving Corporation to use its best efforts to provide officers' and directors' liability insurance in respect of acts or omissions occurring on or prior to the Effective Time covering each such person currently covered by the Company's officers' and directors' liability insurance policy on terms substantially similar to those of such policy in effect on the date of the Merger Agreement, provided that, in satisfying its obligation Calpine shall not be obligated to cause the Surviving Corporation to pay premiums in excess of 150% of the amount per annum the Company paid in its last full fiscal year, which amount has been disclosed to Calpine, and if the Surviving Corporation is unable to obtain the insurance required by the Merger Agreement, it shall obtain as much comparable insurance as possible for an annual premium equal to such maximum amount. Without limitation of the foregoing, in the event any such Indemnified Party is or becomes involved in any capacity in any action, proceeding or investigation in connection with any matter relating to the Merger, the Offer or the Merger Agreement occurring on or prior to the Effective Time, Calpine shall cause the Surviving Corporation to pay as incurred such Indemnified Party's reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. Calpine will ensure that, at all relevant times, the Surviving Corporation will have access to sufficient funds to fulfill its obligations, as to the Indemnified Parties, pursuant to the Merger Agreement. Other Agreements. Calpine has agreed that it will take all action necessary to cause Merger Subsidiary to perform its obligations under the Merger Agreement and to consummate the Offer and the Merger on the terms and conditions set forth in the Merger Agreement. Except as otherwise provided in the Merger Agreement, Calpine has agreed to honor (or to cause the Surviving Corporation to honor) in accordance with their terms all Company employee benefit plans previously delivered to Calpine and all accrued benefits vested thereunder; it being understood and agreed that nothing in this sentence shall prevent Calpine or the Surviving -26- 29 Corporation from terminating any such Company benefit plan in accordance with its terms. The Merger Agreement also provides that in the event that Calpine shall merge any Company benefit plan with any Company benefit plan of Calpine or otherwise modify any benefit plan, prior service with the Company will be counted for purposes of employee eligibility, seniority and vesting under such benefit plan, and any pre-existing condition shall be waived for each employee so long as such employee has had medical coverage under the applicable benefit plan for a least six months immediately prior to the Effective Time. Conditions to the Merger. Pursuant to the Merger Agreement, the respective obligations of each party to consummate the Merger are subject to the satisfaction of the following conditions: (i) Calpine or Merger Subsidiary shall have purchased Shares in an amount equal to at least the Minimum Condition pursuant to the Offer, (ii) if required by applicable law, the adoption of the Merger Agreement by the Stockholders of the Company in accordance with Delaware Law, (iii) no provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the Merger; (iv) any applicable waiting period under the HSR Act relating to the Merger shall have expired and (v) other than filing the certificate of merger in accordance with Delaware Law, all consents required to permit the consummation of the Merger shall have been filed, occurred or been obtained (other than those the failure to file, occur or obtain, in the aggregate, could not reasonably be expected to have a Material Adverse Effect or prevent or materially delay the consummation of the Merger). Termination. The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of the Merger Agreement by the Stockholders of the Company) (i) by mutual written consent of the Company and Calpine, (ii) by either the Company or Calpine, if there shall be any law or regulation that makes consummation of the Merger illegal or otherwise prohibited or if any judgement, injunction, order or decree enjoining Calpine or the Company from consummating the Merger is entered and such judgment, injunction, order or decree shall become final and nonappealable, (iii) by either the Company or Calpine (provided that Calpine shall not be entitled to terminate the Merger Agreement pursuant to this sub-clause (iii) as a result of its breach of the Merger Agreement), (x) if Calpine or Merger Subsidiary shall have failed to commence the Offer within five business days following the date of the announcement of the Merger Agreement, (y) if Calpine or Merger Subsidiary shall not have purchased any Shares pursuant to the Offer prior to December 1, 1999 or (z) the Offer shall have been terminated without Calpine or Merger Subsidiary having purchased any Shares pursuant to the Offer, (iv) by Calpine upon the occurrence of any Trigger Event described in clauses (i) through (iii) under the heading "Fees and Expenses" below, (v) by the Company, upon the occurrence of any Trigger Event described in clause (i) under the heading "Fees and Expenses" below and (vi) by either the Company or Calpine, if the Merger has not been consummated by June 30, 2000 (provided that the party seeking to terminate the Merger Agreement shall not have breached its obligations under the Merger Agreement in any material respect). Fees and Expenses. Each party to the Merger Agreement has agreed to pay its own fees and expenses and there are no provisions for payment by the Company of the fees and expenses of Calpine or Merger Subsidiary or vice versa or at any time prior to the consummation of the Offer as if made at and as of such time, if the Merger Agreement is terminated, except as stated below. The Company has agreed to pay Calpine a fee in immediately available funds equal to $2,000,000 -27- 30 promptly, but in no event later than one business day, after the termination of the Merger Agreement as a result of the occurrence of any of the events set forth below (a "Trigger Event"): (i) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or an agreement in principle with respect to any Acquisition Proposal, (ii) any representation or warranty made by the Company in, or pursuant to, the Merger Agreement that is qualified as to materiality shall not have been true and correct when made or at any time prior to the consummation of the Offer as if made at and as of such time, or any representation or warranty made by the Company in, or pursuant to, the Merger Agreement that is not so qualified shall not have been true and correct in all material respects when made or at any time prior to the consummation of the Offer as if made at and as of such time, or the Company shall have failed to observe or perform in any material respect any of its obligations under the Merger Agreement; provided that it shall not be a Trigger Event unless (x) the breaches of the representations and warranties without regard to any materiality qualifier or threshold, and failure to perform or breach of any obligation, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect and (y) with respect to breaches of representations and warranties, such breaches in significant part were intentional; provided further that it shall not be a Trigger Event if (1) such breaches and failures to perform are reasonably capable of being cured by December 1, 1999, (2) the Company diligently pursues such cure beginning as soon as it obtains knowledge of such breaches and failures to perform and (3) the Company cures all of such breaches and failures to perform that have given rise to the Trigger Event by December 1, 1999; or (iii) the Board of Directors of the Company (or any special committee thereof) shall have withdrawn or materially modified in a manner adverse to Calpine or Merger Subsidiary its approval or recommendation of the Offer, the Merger or the Merger Agreement or its approval of the entry by Calpine and Merger Subsidiary into the Stockholder Agreement, in any such case whether or not such withdrawal or modification is required by the fiduciary duties of the Company's Board of Directors (or any special committee thereof). Appraisal Rights. Stockholders do not have dissenters' rights as a result of the Offer. However, if the Merger is consummated, Stockholders at the time of the Merger who do not vote in favor of or consent in writing to the Merger will have the right under Delaware Law to dissent and demand appraisal of their Shares in accordance with Section 262 of Delaware Law. Under Delaware Law, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of the Shares could be based upon considerations other than or in addition to the price paid in the Offer (or the Merger) and the market value of the Shares. Stockholders should recognize that the value so determined could be higher or lower than the price per Share paid pursuant to the Offer or the Merger. Moreover, Calpine or Merger Subsidiary may argue in an appraisal proceeding that, for purposes of such a proceeding, the fair value of the Shares is less than the price paid in the Offer (or the Merger). -28- 31 THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE THEIR DISSENTERS' RIGHTS. Stockholder Agreement. The following description of the Agreement (the "Stockholder Agreement") dated as of August 25, 1999 among Calpine, Merger Subsidiary and the Stockholders named therein (each, a "Principal Stockholder") is qualified in its entirety by reference to the text of such agreement, a copy of which is attached as an exhibit to the Schedule 14D-1, is incorporated in this Offer to Purchase by reference and may be inspected in the same manner as set forth with respect to the Company in Section 7. The Principal Stockholders include affiliates of Enron Corporation, Jeffrey E. Susskind, the Chairman of the Board of Directors of the Company, B.A. Berilgen, the President and Chief Executive Officer of the Company, and certain other executive officers of the Company. Grant of Stock Option. Under the Stockholder Agreement, each Principal Stockholder has granted Merger Subsidiary an irrevocable option (the "Stock Option") to purchase, subject to the terms and conditions set forth in the Stockholder Agreement, for a price of $5.50 per Share in cash, or to cause to be tendered pursuant to the Offer, such Principal Stockholder's Shares. In addition, if the price to be paid by Merger Subsidiary pursuant to the Offer is increased, the purchase price payable upon exercise of the Stock Option shall similarly be increased. The Stockholder Agreement also provides that the number and kind of Shares subject to the Stock Option and the purchase price therefor shall be appropriately and equitably adjusted in the event of changes in the Company's capital stock. Exercise of Option. Subject to the terms of the Stockholder Agreement, Merger Subsidiary has the right to exercise the Stock Option, in whole but not in part, at any time up to the 20th business day after the termination of the Merger Agreement in accordance with the terms thereof if, but only if, the termination of the Merger Agreement did not result from the material breach thereof by Merger Subsidiary or Calpine. Agreement to Tender. Each Principal Stockholder has agreed, in the Stockholder Agreement, upon receipt of written instructions from Merger Subsidiary, to deliver to the Depositary (i) a Letter of Transmittal with respect to such Principal Stockholder's Shares complying with the terms of the Offer together with instructions directing the Depositary to make payment for such Shares directly to the Principal Stockholder (but if such Shares are not accepted for payment or are withdrawn and are to be returned pursuant to the Offer, to return such Shares to such Principal Stockholder whereupon they shall continue to be held by such Principal Stockholder subject to the terms and conditions of the Stockholder Agreement), (ii) the certificates evidencing such Principal Stockholder's Shares and (iii) all other documents or instruments required to be delivered pursuant to the terms of the Offer. Notwithstanding anything to the contrary set forth in the Stockholder Agreement, no Principal Stockholder shall be required to tender such Principal Stockholder's Shares in the Offer if the per Share consideration to be paid by Merger Subsidiary pursuant to the Offer is less than $5.50 per Share in cash. Conditions. The Principal Stockholders' obligations to sell their Shares (other than by tendering pursuant to the Offer) under the Stockholder Agreement are subject to the satisfaction of -29- 32 the following conditions: (i) the representations and warranties of Merger Subsidiary set forth in the Stockholder Agreement shall be true and correct in all material respects on the date of sale as if made on such date, (ii) if applicable, all waiting periods under the HSR Act to the exercise of the Stock Option shall have expired or been terminated, (iii) there shall be no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, nor any statute, rule, regulation or order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining such exercise of the Stock Option and (iv) Merger Subsidiary shall have commenced the Offer. No Shopping. Each Principal Stockholder has further agreed to not, directly or indirectly, solicit, initiate or encourage (or authorize any person to solicit) any inquiry, proposal or offer from any person to acquire the business, property or capital stock of the Company, or any direct or indirect subsidiary thereof, or any acquisition of a substantial equity interest in, or a substantial amount of assets of, the Company or any direct or indirect subsidiary thereof, whether by merger, purchase of assets, tender offer or other transaction (a "Business Combination Proposal") or, subject to a Principal Stockholder's fiduciary duty as a director of the Company, if applicable, as further provided in the Merger Agreement participate in any discussion or negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or participate in, facilitate or encourage any effort or attempt by any other person to make or seek any Business Combination Proposal. Each Principal Stockholder agreed to promptly advise Merger Subsidiary of the terms of any communication it may receive relating to a Business Combination Proposal if a representative of such Principal Stockholder having direct working knowledge of the Stockholder Agreement has knowledge of such communications. Proxy. In entering into the Stockholder Agreement, each Principal Stockholder granted Merger Subsidiary a proxy to vote or consent at every annual, special or adjourned meeting, or solicitation of consents, of the Stockholders of the Company (i) in favor of the adoption of the Merger Agreement and the Stockholder Agreement and approval of the Merger and the other transactions contemplated by the Merger Agreement and Stockholder Agreement, (ii) against any proposal for any recapitalization, merger, sale of assets or other business combination between the Company and any person or entity (other than the Merger) or any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement not being fulfilled and (iii) in favor of any other matter relating to consummation of the transactions contemplated by the Merger Agreement and the Stockholder Agreement. Each Stockholder also agreed to cause such Principal Stockholder's Shares that are outstanding and owned by it beneficially to be voted in accordance with the foregoing. The proxy granted under the Stockholder Agreement is irrevocable, but such proxy will be revoked upon the earlier of (i) termination of the Stockholder Agreement in accordance with its terms and (ii) the purchase of the Principal Stockholder Shares pursuant to the Offer. Pursuant to the Stockholder Agreement, the Principal Stockholders granted Merger Subsidiary an option to purchase, subject to certain conditions, for a price of $5.50 per Share, or to cause to be tendered pursuant to the Offer, an aggregate of up to 3,492,537 outstanding Shares, up to an additional 425,000 Shares issuable upon exercise of outstanding stock options and up to an additional 150,000 shares issuable upon exercise of the outstanding Warrants. Assuming that the -30- 33 full amount of Shares that are subject to the Stockholder Agreement are validly tendered and not withdrawn pursuant to a directive from Merger Subsidiary, no additional Shares would be required to be tendered under the Offer in order to satisfy the Minimum Condition (assuming the number of Fully Diluted Shares set forth in the Introduction hereto). Preferred Stock and Warrants. Enron Capital & Trade Resources Corp., a Principal Stockholder which holds all of the issued and outstanding Preferred Stock of the Company, has agreed, in the Stockholder Agreement, to sell and transfer to the Company, and the Merger Subsidiary has agreed to purchase or to cause the Company to purchase and redeem, all of the shares of Preferred Stock, at a price per share of Preferred Stock equal to $10.10, plus all accrued and unpaid dividends thereon (whether or not declared), promptly (but in no event more than one business day) following the consummation of the Offer. In addition, Joint Energy Development Investments Limited Partnership, a Principal Stockholder which holds all of the outstanding Warrants, has agreed, in the Stockholder Agreement, to transfer and surrender to the Company for cancellation for no additional consideration all of the Warrants, promptly (but in no event more than one business day) following consummation of the Offer; provided that, if Merger Subsidiary increases the consideration per Share to be paid pursuant to the Offer to an amount that exceeds the exercise price of the Warrants, Merger Subsidiary shall pay, or cause the Company to pay, to such Principal Stockholder an amount equal to the aggregate net in the money value of such Warrants, in connection with the transfer and surrender thereof. If Merger Subsidiary exercises the Stock Option, at the closing of the acquisition of the Principal Stockholders' Shares, Merger Subsidiary shall purchase from the relevant Principal Stockholder, and such Principal Stockholder will sell to Merger Subsidiary, all of the shares of Preferred Stock, at a price per share of Preferred Stock equal to $10.10, plus all accrued and unpaid dividends thereon (whether or not declared). Delaware Law. The Merger would have to comply with other applicable procedural and substantive requirements of Delaware Law. The Company is incorporated under the laws of the State of Delaware, which has adopted certain laws regarding business combinations. In general, Section 203 of Delaware Law prevents an "interested stockholder" (generally, a stockholder owning 15% or more of a corporation's outstanding voting stock or an affiliate or associate thereof) from engaging in a "business combination" (defined to include a merger and certain other transactions) with a Delaware corporation for a period of three years following the time that such stockholder became an interested stockholder unless (i) prior to such time the corporation's board of directors approved either the business combination or the transaction which resulted in such stockholder becoming an interested stockholder, (ii) upon consummation of the transaction which resulted in such stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the corporation's voting stock outstanding at the time the transaction commenced (excluding shares owned by certain employee stock plans and persons who are directors and also officers of the corporation) or (iii) at or subsequent to such time the business combination is approved by the corporation's board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock not owned by the interested stockholder. The Board of Directors of the Company has approved the Merger Agreement and the Stockholder Agreement and the transactions contemplated thereby, including the Offer and the -31- 34 Merger, for purposes of Section 203. Accordingly, the restrictions of Section 203 do not apply to the transactions contemplated by this Offer to Purchase. Other Matters. Any merger or other similar business combination proposed by Calpine would also have to comply with any applicable Federal law. In particular, the Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions. Calpine believes that Rule 13e-3 will not be applicable to the Merger unless the Merger is consummated more than one year after termination of the Offer or if an alternative merger transaction were to provide for stockholders to receive consideration for their Shares in an amount less than the price per Share paid pursuant to the Offer. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such a transaction be filed with the Commission and distributed to such stockholders prior to consummation of the transaction. If for any reason the Merger is not consummated, Calpine and Merger Subsidiary will evaluate their alternatives. Such alternatives could include purchasing additional Shares in the open market, in privately negotiated transactions, in another tender or exchange offer or otherwise, or taking no further action to acquire additional Shares. Any additional purchases of Shares could be at a price greater or less than the price to be paid for Shares in the Offer and could be for cash or other consideration. Alternatively, Merger Subsidiary may sell or otherwise dispose of any or all Shares acquired pursuant to the Offer or otherwise. Such transactions may be effected on terms and at prices then determined by Calpine or Merger Subsidiary, which may vary from the price to be paid for Shares in the Offer. Calpine intends to conduct a review of the Company and its assets, corporate structure, dividend policy, capitalization, operations, properties and policies and to consider, subject to the terms of the Merger Agreement, what, if any, changes would be desirable in light of the circumstances then existing, and reserves the right to take such actions or effect such changes as it deems desirable. Such changes could include changes in the Company's business, operations, corporate structure, capitalization, Board of Directors, policies or dividend policy. Except as otherwise described in this Offer to Purchase, Calpine and Merger Subsidiary have no current plans or proposals that would relate to, or result in, any extraordinary corporate transaction involving the Company, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries, a sale or transfer of a material amount of assets of the Company or any of its subsidiaries, any material change in the Company's capitalization or dividend policy or any other material change in the Company's business, corporate structure, Board of Directors or management. -32- 35 12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATIONS; REGISTRATION UNDER THE EXCHANGE ACT. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and may reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by Stockholders other than Calpine or Merger Subsidiary. Calpine cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer price. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the standards for continued inclusion on the Nasdaq SmallCap Market. If, as a result of the purchase of Shares pursuant to the Offer, the Shares no longer meet the standards for continued inclusion on the Nasdaq SmallCap Market, the market for the Shares could be adversely affected. The extent of the public market for the Shares and availability of quotations therefor would, however, depend upon such factors as the number of holders and/or the aggregate market value of the publicly-held Shares at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. Depending upon factors similar to those described above regarding listing and market quotations, the Shares might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations and, therefore, could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange and there are less than 300 holders of record. Termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the Commission and would make certain of the provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy or information statement in connection with stockholder action and the related requirement of an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933, as amended. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or eligible for Nasdaq reporting. Merger Subsidiary intends to seek to cause the Company to terminate registration of the Shares under the Exchange Act as soon after consummation of the Offer as the requirements for termination of registration of the Shares are met. -33- 36 13. DIVIDENDS AND DISTRIBUTIONS. If on or after August 25, 1999, the Company should (notwithstanding the fact that the following actions may be prohibited under the Merger Agreement) (i) split, combine or otherwise change the Shares or its capitalization, (ii) acquire or otherwise cause a reduction in the number of outstanding Shares or (iii) issue or sell any additional Shares (other than Shares issued pursuant to and in accordance with the terms in effect on August 25, 1999 of employee stock options outstanding prior to such date), shares of any other class or series of capital stock, other voting securities or any securities convertible into, or options, rights, or warrants, conditional or otherwise, to acquire, any of the foregoing, then, without prejudice to Merger Subsidiary's rights under Section 15, Merger Subsidiary may, in its sole discretion, make such adjustments in the purchase price and other terms of the Offer as it deems appropriate including the number or type of securities to be purchased. If, on or after August 25, 1999, the Company should (notwithstanding the fact that the following actions are prohibited under the Merger Agreement) declare or pay any dividend on the Shares or any distribution with respect to the Shares (including the issuance of additional Shares or other securities or rights to purchase of any securities) that is payable or distributable to Stockholders of record on a date prior to the transfer to the name of Merger Subsidiary or its nominee or transferee on the Company's stock transfer records of the Shares purchased pursuant to the Offer, then, without prejudice to Merger Subsidiary's rights under Section 15, (i) the purchase price per Share payable by Merger Subsidiary pursuant to the Offer may be reduced to the extent of any such cash dividend or distribution and (ii) the whole of any such non-cash dividend or distribution to be received by the tendering Stockholders will (a) be received and held by the tendering Stockholders for the account of Merger Subsidiary and will be required to be promptly remitted and transferred by each tendering Stockholder to the Depositary for the account of Merger Subsidiary, accompanied by appropriate documentation of transfer, or (b) at the direction of Merger Subsidiary, be exercised for the benefit of Merger Subsidiary, in which case the proceeds of such exercise will promptly be remitted to Merger Subsidiary. Pending such remittance and subject to applicable law, Merger Subsidiary will be entitled to all rights and privileges as owner of any such non-cash dividend or distribution or proceeds thereof and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Merger Subsidiary in its sole discretion. 14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT. Merger Subsidiary reserves the right, at any time or from time to time, (i) to extend the Offer if, at the scheduled Expiration Date, any of the conditions to the Offer have not been satisfied or waived, until such time as such conditions are satisfied or waived, and for a further period of time as described below in this paragraph, in any case by giving oral or written notice of such extension to the Depositary and by making a public announcement of such extension or (ii) except to the extent otherwise provided in the Merger Agreement, to amend the Offer in any respect by making a public announcement of such amendment. There can be no assurance that Merger Subsidiary will exercise its right to extend or amend the Offer. Subject to the terms of the Offer and the satisfaction (or -34- 37 waiver to the extent permitted by the Merger Agreement) of the conditions to the Offer, Merger Subsidiary shall accept for payment all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the expiration of the Offer and shall pay for all such Shares promptly after acceptance; provided, that Merger Subsidiary may, without the consent of the Company, extend the Offer for a period of time of not more than 20 business days beyond the initial Expiration Date if on the date of such extension less than 90% of the Fully Diluted Shares have been validly tendered and not withdrawn. Under certain circumstances Merger Subsidiary may be required under the Merger Agreement to extend the Offer. See Section 11 for a description of such provisions of the Merger Agreement. If Merger Subsidiary shall decide, in its sole discretion, subject to the terms of the Merger Agreement, to increase the consideration to be paid for Shares pursuant to the Offer and the Offer is scheduled to expire at any time before the expiration of a period of 10 business days from, and including, the date that notice of such increase is first published, sent or given in the manner specified below, the Offer will be extended until the expiration of such period of 10 business days. If Merger Subsidiary makes a material change in the terms of the Offer (other than a change in price or percentage of securities sought) or in the information concerning the Offer, or waives a material condition of the Offer, Merger Subsidiary will extend the Offer, if required by applicable law, for a period sufficient to allow stockholders to consider the amended terms of the Offer. Merger Subsidiary also reserves the right, in its sole discretion, subject to the terms of the Merger Agreement, in the event any of the conditions specified in Section 15 shall not have been satisfied and so long as Shares have not theretofore been accepted for payment, to delay (except as otherwise required by applicable law and the rules of the Commission including Rule 14e-1) acceptance for payment of or payment for Shares or to terminate the Offer and not accept for payment or pay for Shares. If Merger Subsidiary extends the period of time during which the Offer is open, is delayed in accepting for payment or paying for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Merger Subsidiary's rights under the Offer, the Depositary may, on behalf of Merger Subsidiary, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in Section 4. The reservation by Merger Subsidiary of the right to delay acceptance for payment of or payment for Shares is subject to applicable law, which requires that Merger Subsidiary pay the consideration offered or return the Shares deposited by or on behalf of Stockholders promptly after the termination or withdrawal of the Offer. Any extension, termination or amendment of the Offer will be followed as promptly as practicable by a public announcement thereof. In the case of an extension of the Offer, Merger Subsidiary will make a public announcement of such extension no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which Merger Subsidiary may choose to make any public announcement, Merger Subsidiary will have no obligation (except as otherwise required by applicable law) to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. -35- 38 15. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, Calpine and Merger Subsidiary shall not be required to accept for payment or (subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to Merger Subsidiary's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer)) pay for any Shares, and may terminate the Offer, if by the expiration of the Offer, the Minimum Condition shall not have been satisfied, or at any time on or after August 25, 1999 and prior to the acceptance for payment of Shares pursuant to the Offer, any of the following conditions exist: (a) there shall be instituted or pending any action or proceeding by any Governmental Entity or by any other person, domestic or foreign, before any Governmental Entity or arbitrator, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by Calpine or Merger Subsidiary or the consummation by Calpine or Merger Subsidiary of the Merger, seeking to obtain material damages or otherwise directly or indirectly relating to the transactions contemplated by the Stockholder Agreement, the Merger Agreement, the Offer or the Merger, (ii) seeking to restrain or prohibit Calpine's or Merger Subsidiary's ownership or operation (or that of their respective subsidiaries or affiliates) of all or any material portion of the business or assets of the Company or any of its subsidiaries or of Calpine and its subsidiaries or to compel Calpine or any of its subsidiaries or affiliates to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its subsidiaries or of Calpine and its subsidiaries, (iii) seeking to impose material limitations on the ability of Calpine or any of its subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote any Shares acquired or owned by Calpine or any of its subsidiaries or affiliates on all matters properly presented to the Company's stockholders, (iv) seeking to require divestiture by Calpine or any of its subsidiaries or affiliates of any Shares or (v) that otherwise, in the judgment of Calpine, is likely to materially adversely affect the business, assets, liabilities, operations, condition (financial or otherwise), results of operations or prospects of the Company or any of its subsidiaries, or Calpine and its subsidiaries, taken as a whole; or (b) there shall be any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the Stockholder Agreement, the Merger Agreement, the Offer or the Merger, by any Governmental Entity or arbitrator (other than the application of the waiting period provisions of the HSR Act to the Stockholder Agreement, the Merger Agreement, the Offer or the Merger), that, in the reasonable judgment of Calpine, is substantially likely, directly or indirectly, to result in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; or (c) any change shall have occurred (or any development shall have occurred involving a prospective change) in the business, assets, liabilities, financial condition, -36- 39 capitalization, operations, results of operations or prospects of the Company and its subsidiaries taken as a whole that, in the reasonable judgment of Calpine, is or is likely to be materially adverse to the Company and its subsidiaries taken as a whole or Calpine shall have become aware of any facts that, in the reasonable judgment of Calpine have or are likely to have or result in a Material Adverse Effect (defined below); or (d) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange or in the NASDAQ over-the-counter market in the United States that lasts or has lasted for at least two full consecutive trading days, (ii) a declaration of a general banking moratorium or any suspension of payments in respect of banks in the United States, (iii) any material limitation (whether or not mandatory) by any Governmental Entity on the extension of credit by banks or other lending institutions, (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which would reasonably be expected to have a Material Adverse Effect or prevent (or materially delay) the consummation of the Offer or (v) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; or (e) a tender or exchange offer for some or all of the Shares shall have been publicly proposed to be made or shall have been made by another person, or it shall have been publicly disclosed or Calpine shall have otherwise learned that (i) any person or "group" (defined in Section 13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire beneficial ownership of more than 50% of any class or series of capital stock of the Company (including the Shares), through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 50% of any class or series of capital stock of the Company (including the Shares) or (ii) any person shall have filed a Notification and Report Form under the HSR Act or made a public announcement reflecting an intent to acquire the Company or any of its subsidiaries or any assets or securities of the Company or any of its subsidiaries; or (f) any consent (other than the filing of a certificate of merger or approval by the stockholders of the Company of the Merger (if required by Delaware Law)) required to be filed, occurred or been obtained by the Company or any of its subsidiaries or Calpine or any of its subsidiaries (including Merger Subsidiary) in connection with the execution and delivery of the Merger Agreement, the Offer and the consummation of the transactions contemplated by the Merger Agreement shall not have been filed, occurred or been obtained (other than any such consents the failure to file, occur or obtain in the aggregate, could not reasonably be expected to (i) have a Material Adverse Effect or (ii) prevent or materially delay the consummation of the Offer or the Merger); or (g) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements under the Merger Agreement, or any of the representations and warranties of the Company set forth in the Merger Agreement that is qualified as to materiality shall not be true when made or at any time prior to the -37- 40 consummation of the Offer as if made at and as of such time or any of the representations and warranties set forth in the Merger Agreement that is not so qualified shall not be true in any material respect when made or at any time prior to consummation of the Offer as if made at and as of such time; provided that this condition shall not be deemed to exist unless, in the reasonable judgment of Calpine, such breaches or failures to perform any covenant, obligation or agreement, and any breach of representation or warranty without regard to any materiality qualifier or threshold, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; or (h) any party to the Stockholder Agreement (other than Merger Subsidiary or Calpine) shall have breached or failed to perform in any material respect any of its agreements under the Stockholder Agreement or any of the representations and warranties of any such party set forth in the Stockholder Agreement shall not be true in any material respect, in each case, when made or at any time prior to the consummation of the Offer as if made at and as of such time, or the Stockholder Agreement shall have been invalidated or terminated with respect to any Shares subject thereto; or (i) the Merger Agreement or the Stockholder Agreement shall have been terminated in accordance with its terms; or (j) the Board of Directors of the Company (or any special committee thereof) shall have withdrawn or materially modified in a manner adverse to Calpine or Merger Subsidiary its approval or recommendation of the Offer, the Merger or the Merger Agreement or its approval of the entry by Calpine and Merger Subsidiary into the Stockholder Agreement; or (k) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or agreement in principle with respect to any Acquisition Proposal; which, in the judgment of Calpine in any such case, and regardless of the circumstances (including any action or omission by Calpine or Merger Subsidiary) giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment or payment. The term "Material Adverse Effect" means a material adverse effect on (a) the assets, liabilities, condition (financial or otherwise), business, properties, results of operations or prospects of the Company and its subsidiaries taken as a whole or (b) the consummation of the transactions contemplated hereby; provided that occurrences or events resulting from (i) changes in the prices of oil, gas, natural gas liquids or other hydrocarbon products, (ii) changes in general economic conditions, including general stock market conditions and interest rate changes or (iii) the adverse determination of any pending litigation disclosed in the disclosure schedule to the Merger Agreement shall in each case be excluded from consideration for purposes of the effect of an occurrence or event on the Company and its subsidiaries taken as a whole. The foregoing conditions are for the sole benefit of Calpine and Merger Subsidiary and may be asserted by Calpine in its sole discretion regardless of the circumstances (including any action or omission by Calpine or Merger Subsidiary) giving rise to any such condition or (other than the -38- 41 Minimum Condition) may be waived by Calpine and Merger Subsidiary in their discretion in whole at any time or in part from time to time. The failure by Calpine or Merger Subsidiary at any time to exercise its rights under any of the foregoing conditions shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right which may be asserted at any time or from time to time. Any determination by Calpine concerning the events described above will be final and binding upon all parties. Notwithstanding anything to the contrary set forth in the Offer to Purchase, in response to any condition to the Offer not being satisfied, Merger Subsidiary may not upon expiration of the Offer (and without extending the period of time for which the Offer is open) delay acceptance for payment or payment for Shares until such time as such condition is satisfied or waived; provided that, subject to the applicable regulations of the Commission, Merger Subsidiary reserves the right (subject to the terms of the Merger Agreement), at any time and from time to time, to delay acceptance for payment of, or, regardless of whether such Shares were theretofore accepted for payment, pay for, any Shares in order to comply with applicable law. 16. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS. General. Except as set forth in this Section 16, based on its examination of publicly available information filed by the Company with the Commission and other publicly available information concerning the Company, Merger Subsidiary is not aware of any license or regulatory permit that appears to be material to the Company's business that might be adversely affected by Merger Subsidiary's acquisition of Shares as contemplated herein or of any approval or other action by any government or governmental authority or agency, domestic or foreign, that would be required for the acquisition or ownership of Shares by Merger Subsidiary or Calpine as contemplated herein. Should any such approval or other action be required, it is currently contemplated that, except as described below under "State Takeover Statutes", such approval or other action will be sought. However, there is no current intent to delay the purchase of Shares tendered pursuant to the Offer pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that if such approvals were not obtained or such other actions were not taken adverse consequences might not result to the Company's business or certain parts of the Company's business might not have to be disposed of, any of which could cause Merger Subsidiary to elect to terminate the Offer without the purchase of Shares thereunder. Merger Subsidiary's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions. See Section 15. State Takeover Statutes. A number of states have adopted laws which, to varying degrees, seek to regulate attempts to acquire corporations that are incorporated in, or have substantial connections with, the state. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted such laws. Based on publicly available information concerning the Company, Calpine does not believe that any of these laws will, by their terms, apply to the Offer or the Merger. -39- 42 In addition, the constitutional validity of state statutes regulating acquisition attempts has been the subject of considerable litigation. In its 1982 decision in Edgar v. MITE Corp., the Supreme Court of the United States invalidated an Illinois law that, among other things, gave Illinois officials authority to block a tender offer for any corporation having certain defined connections with the state. In 1987, however, the Supreme Court upheld an Indiana law that prevented acquirors of a controlling stake in certain Indiana corporations from voting the acquired shares until the other stockholders had approved the acquisition. The Court distinguished between state statutes that affect acquisitions of entities incorporated outside the state and those that address the internal governance, including the scope and exercise of stockholder voting rights, of in-state corporations. While the lower federal courts have relied on a similar distinction in subsequent cases, the precise extent to which an individual state may regulate acquisitions of out-of-state corporations remains unclear. If any government official or third party should seek to apply any state takeover law to the Offer or the Merger, Calpine will take such action as then appears desirable, which action may include challenging the applicability or validity of such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover statutes is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, Calpine or Merger Subsidiary might be required to file certain information with, or to receive approvals from, the relevant state authorities or holders of Shares, and Merger Subsidiary might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer or the Merger. In such case, Merger Subsidiary may not be obligated to accept for payment or pay for any tendered Shares. See Section 15. Antitrust. The transaction is exempt from the pre-merger notification and waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Margin Credit Regulations. Federal Reserve Board Regulations T, U and X (the "Margin Credit Regulations") restrict the extension or maintenance of credit for the purpose of buying or maintaining margin stock, if the credit is secured directly or indirectly thereby. Any borrowings under the Credit Agreement will not be directly secured by a pledge of the Shares. In addition, Calpine and Merger Subsidiary believe that such borrowings will not be "indirectly secured" within the meaning of the Margin Credit Regulations, as interpreted. Accordingly, Calpine and Merger Subsidiary believe that the Margin Credit Regulations are not applicable to any borrowings under the Credit Agreement. -40- 43 17. FEES AND EXPENSES. Merger Subsidiary has retained D.F. King & Co., Inc., to act as the Information Agent and American Stock Transfer & Trust Company to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners. The Information Agent and the Depositary each will receive reasonable and customary compensation for their respective services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities in connection therewith, including certain liabilities under the federal securities laws. Merger Subsidiary will not pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent and the Depositary) for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by Merger Subsidiary for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. 18. MISCELLANEOUS. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Merger Subsidiary may, in its discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF MERGER SUBSIDIARY NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. Merger Subsidiary has filed with the Commission a Tender Offer Statement on Schedule 14D-l, together with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer. The Schedule 14D-l and any amendments thereto, including exhibits, may be examined and copies may be obtained from the offices of the Commission in the manner set forth with respect to the Company in Section 7 of this Offer to Purchase (except that such information will not be available at the regional offices of the Commission). CPN Sheridan, Inc. -41- 44 SCHEDULE I INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF CALPINE AND MERGER SUBSIDIARY 1. DIRECTORS AND EXECUTIVE OFFICERS OF CALPINE. The following table sets forth the name, age, business address and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of Calpine. Each such person is a citizen of the United States of America. Unless otherwise indicated below, the business address of each person is c/o Calpine Corporation, 50 West San Fernando Street, San Jose, California, 95113. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Calpine.
Present Principal Occupation Name and or Employment; Material Positions Business Address Age Held During Past Five Years ---------------- --- --------------------------- Peter Cartwright..................... 69 Director of Calpine since 1984, Chairman of the Board since September 1996, President and Chief Executive Officer since 1984. Ann B. Curtis........................ 48 Director of Calpine since September 1996 and Executive Vice President since August 1998. From September 1992 until August 1998, Ms. Curtis was Senior Vice President. Jeffrey E. Garten.................... 52 Director of Calpine since January 1997. Dean of the Yale Dean, School of Management School of Management and William S. Beinecke Professor in Yale University the Practice of International Trade and Finance since Box 208200 November 1995. From November 1993 to October 1995, Mr. New Haven, CT. 06520-8200 Garten served as Undersecretary of Commerce of International Trade. Susan C. Schwab...................... 44 Director of Calpine since January 1997. Dean of the Dean, School of Public Affairs School of Public Affairs at the University of Maryland University of Maryland since August 1995. From July 1993 to August 1995, Dr. Room 2101 Van Munching Hall Schwab served as Director, Corporate Business Development College Park, MD 20742 at Motorola, Inc.
I-1 45 George J. Stathakis.................. 68 Director of Calpine since September 1996 and Senior Advisor since December 1994. Mr. Stathakis has been providing financial, business and management advisory services to numerous corporations since 1985. Chairman of the Board and Chief Executive Officer of Ramtron International Corporation, and advanced technology semiconductor company, from 1990 to 1994. John O. Wilson....................... 60 Director of Calpine since January 1997. Senior Research Senior Research Fellow Fellow, Berkeley Roundtable on the International Economy Berkeley Roundtable on the and Executive Vice President and Chief Economist, SDR International Economy (BRIE) Capital Management, Inc. since January 1999. Mr. Wilson 2234 Piedmont Avenue served as Executive Vice President and Chief Economist at University of California, Berkeley Bank of America from August 1984 to January 1999. Berkeley, CA 94720 V. Orville Wright..................... 78 Director of Calpine since January 1997. Mr. Wright served in various positions with MCI Communications Corp., including Vice Chairman and Co-Chief Executive Officer from 1988 to 1991, Vice Chairman and Chief Executive Officer from 1985 to 1987, and President and Chief Operating Officer from 1975 to 1985. Robert D. Kelly...................... 41 Senior Vice President - Finance of Calpine since January 1998. Vice President - Finance from April 1994 to January 1998.
I-2 46 2. DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUBSIDIARY. The following table sets forth the name, age, business address and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of Calpine. Each such person is a citizen of the United States of America. Unless otherwise indicated below, the business address of each person is c/o Calpine Corporation, 50 West San Fernando Street, San Jose, California, 95113. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Calpine.
Present Principal Occupation Name and or Employment; Material Positions Business Address Age Held During Past Five Years ---------------- --- --------------------------- Peter Cartwright................ 69 Chairman of Board, President and Chief Executive Officer of Merger Subsidiary since its incorporation on August 23, 1999. Director of Calpine since 1984, Chairman of the Board of Calpine since September 1996, President and Chief Executive Officer of Calpine since 1984. Ann B. Curtis................... 48 Vice President, Chief Financial Officer and Secretary of Merger Subsidiary since its incorporation on August 23, 1999. Director of Calpine since September 1996 and Executive Vice President of Calpine since August 1998. From September 1992 until August 1998, Ms. Curtis was Senior Vice President of Calpine. Thomas R. Mason................. 55 Executive Vice President of Merger Subsidiary since its incorporation on August 23, 1999. Executive Vice President of Calpine since August 1998. From March 1998 until August 1998, Mr. Mason was Senior Vice President of Calpine. Prior to joining Calpine, Mr. Mason was President and Chief Operating Officer of CalEnergy Operating Services, Inc., a wholly-owned subsidiary of MidAmerican Energy Holdings Company. John T. King.................... 34 Vice President of Merger Subsidiary since its incorporation on August 23, 1999. Vice President-Business Development since September 1997 and employee of Calpine since February 1995. From 1994 to February 1995, Mr. King was Chief Operating Officer of Charter Media, Inc. Robert D. Kelly................. 41 Vice President of Merger Subsidiary since its incorporation on August 23, 1999. Senior Vice President-Finance of Calpine since January 1998 and Vice President-Finance from April 1994 to January 1998.
I-3 47 Charles B. Clark, Jr............ 51 Controller of Merger Subsidiary since its incorporation on August 23, 1999. Vice President and Corporate Controller of Calpine since May 1999. From February 1999 to April 1999, Director of Business Services for Geysers, Calpine Corporation. From March 1998 to November 1998, Mr. Clark was Chief Financial Officer of Hobbs Group, LLC. From February 1997 to February 1998, Mr. Clark was Senior Vice President-Finance and Administration of CNF Industries, Inc. and from May 1988 to January 1997, Mr. Clark was Vice President and Chief Financial Officer of Century Contractors West, Inc. (a predecessor of CNF Industries, Inc.). Lisa M. Bodensteiner............ 37 Assistant Secretary of Merger Subsidiary since its incorporation on August 23, 1999. Vice President and General Counsel of Calpine since April 1999. From February 1998 to March 1999, Ms. Bodensteiner was Calpine's Assistant General Counsel and from February 1996 to February 1998 was Associate Counsel. Prior to joining Calpine, Ms. Bodensteiner was an attorney for Thelen, Marrin, Johnson & Bridges (now Thelen, Reid & Priest).
None of the executive officers and directors of Calpine or Merger Subsidiary currently is a director of, or holds any position with, the Company or any of its subsidiaries. To the knowledge of Calpine and Merger Subsidiary, none of Calpine's or Merger Subsidiary's directors, executive officers, affiliates or associates beneficially owns any equity securities, or rights to acquire any equity securities, of the Company and none has been involved in any transactions with the Company or any of its directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission. I-4 48 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent to the Depositary at one of the addresses set forth below: The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Facsimile Transmission: By Hand/Overnight Delivery: 40 Wall Street, 46th Floor (Eligible Institutions Only) 40 Wall Street, 46th Floor New York, NY 10005 (718) 234-5001 New York, NY 10005 (Attention: Reorganization (Attention: Reorganization Department) Department)
Confirm by Telephone: (718) 921-8200 For Information Call: (718) 921-8200 Questions or requests for assistance or additional copies of this Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent at the address and telephone numbers set forth below. Stockholders may also contact their broker, dealer, commercial bank or trust company for assistance concerning the Offer. The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Banks and Brokers call: (212) 269-5550 All others call toll-free: (800) 848-3094 EX-99.A.2 3 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99(a)(2) LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF SHERIDAN ENERGY, INC. PURSUANT TO THE OFFER TO PURCHASE DATED AUGUST 31, 1999 BY CPN SHERIDAN, INC. A WHOLLY OWNED SUBSIDIARY OF CALPINE CORPORATION THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, SEPTEMBER 28, 1999, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Facsimile Transmission: By Hand/Overnight Delivery: 40 Wall Street, 46th Floor (Eligible Institutions Only) 40 Wall Street, 46th Floor New York, NY 10005 (718) 234-5001 New York, NY 10005 (Attention: Reorganization (Attention: Reorganization Department) Confirm by Telephone: Department) (718) 921-8200 For Information Call: (718) 921-8200
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used either if certificates representing Shares (defined below) are to be forwarded with this Letter of Transmittal or, unless an Agent's Message (defined in Section 2 of the Offer to Purchase) is utilized, if delivery of Shares is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedure set forth in Section 3 of the Offer to Purchase. Stockholders who cannot deliver certificates for their Shares or who cannot deliver confirmation of the book-entry transfer of their Shares into the Depositary's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents required by this Letter of Transmittal to the Depositary by the Expiration Date (defined in Section 1 of the Offer to Purchase) must tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. 2
- ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) SHARES TENDERED APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES TOTAL NUMBER CERTIFICATE REPRESENTED BY OF SHARES NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2) ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ Total Shares - ------------------------------------------------------------------------------------------------------------------------ (1) Need not be completed by stockholders tendering by book-entry transfer. (2) Unless otherwise indicated, it will be assumed that all Shares described above are being tendered. See Instruction 4. - ------------------------------------------------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution ----------------------------------------------------------------------------- DTC Account Number ----------------------------------------------------------------------------- Transaction Code Number ----------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): ----------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: -------------------------------------------------------------------- Name of Institution that Guaranteed Delivery: --------------------------------------------------------------------------- If delivery is by book-entry transfer, give the following: DTC Account Number --------------------------------------------------------------------------- Transaction Code Number --------------------------------------------------------------------------- 2 3 Ladies and Gentlemen: The undersigned hereby tenders to CPN Sheridan, Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of Calpine Corporation, a Delaware corporation ("Calpine"), the above described shares of Common Stock (the "Shares"), par value $.01 per share, of Sheridan Energy, Inc., a Delaware corporation (the "Company"), pursuant to Merger Subsidiary's offer to purchase all outstanding Shares at a price of $5.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 31, 1999 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"). Merger Subsidiary reserves the right to transfer or assign, in whole or from time to time in part, to one or more of Calpine or any of its wholly-owned subsidiaries the right to purchase Shares tendered pursuant to the Offer. Subject to and effective upon acceptance for payment of the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer, the undersigned hereby sells, assigns, and transfers to, or upon the order of, Merger Subsidiary all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof on or after August 25, 1999) and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all such other Shares or securities), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and all such other Shares or securities), or transfer ownership of such Shares (and all such other Shares or securities) on the account books maintained by the Book-Entry Transfer Facility, together, in either such case with all accompanying evidences of transfer and authenticity, to or upon the order of Merger Subsidiary, (b) present such Shares (and all such other Shares or securities) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and all such other Shares or securities), all in accordance with the terms of the Offer. If, on or after August 25, 1999, the Company should declare or pay any cash or stock dividend or other distribution on or issue any rights with respect to the Shares, payable or distributable to stockholders of record on a date before the transfer to the name of Merger Subsidiary or its nominee or transferee on the Company's stock transfer records of the Shares accepted for payment pursuant to the Offer, then, subject to the provisions of the Offer to Purchase, (i) the purchase price per Share payable by Merger Subsidiary pursuant to the Offer will be reduced by the amount of any such cash dividend or cash distribution and (ii) the whole of any such non-cash dividend, distribution or right will be received and held by the tendering stockholder for the account of Merger Subsidiary and shall be required to be promptly remitted and transferred by each tendering stockholder to the Depositary for the account of Merger Subsidiary, accompanied by appropriate documentation of transfer. Pending such remittance, Merger Subsidiary will be entitled to all rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount of value thereof, as determined by Merger Subsidiary in its sole discretion. The undersigned hereby irrevocably appoints John T. King, Thomas R. Mason and Lisa M. Bodensteiner, and each of them, and any other designees of Merger Subsidiary as the attorneys and proxies of the undersigned, each with full power of substitution, to exercise all voting and other rights of the undersigned in such manner as each such attorney and proxy or its substitute shall in its sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney and proxy or its substitute shall in its sole discretion deem proper with respect to, and to otherwise act as such attorney and proxy or its substitute shall in its sole discretion deem proper with respect to, all of the Shares tendered hereby which have been accepted for payment by Merger Subsidiary prior to the time of any vote or other action (and any and all other Shares or other securities issued or issuable in respect thereof on or after August 25, 1999), at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned meeting), by written consent or otherwise. This proxy is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Merger Subsidiary in accordance with the terms of the Offer. Such acceptance for payment shall revoke any other proxy or written consent granted by the undersigned at any time with respect to such Shares (and all such other Shares or securities), and no subsequent proxies will be given or written consents will be executed by the undersigned (and if given or executed, will not be deemed to be effective). The undersigned acknowledges that in order for Shares to be deemed validly tendered, immediately upon the acceptance for 3 4 payment of such Shares, Merger Subsidiary or Merger Subsidiary's designee must be able to exercise full voting and other rights of a record and beneficial holder with respect to such Shares. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof on or after August 25, 1999), that the undersigned own(s) the Shares tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that such tender of Shares complies with Rule 14e-4 under the Exchange Act, and that when the same are accepted for payment by Merger Subsidiary, Merger Subsidiary will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Merger Subsidiary to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and all such other Shares or securities). All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors, assigns, administrators, trustees in bankruptcy, personal and legal representatives of the undersigned. Except as stated in the Offer, this tender is irrevocable, provided that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date or at any time on or after October 29, 1999, unless theretofore accepted for payment. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and Merger Subsidiary upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, Merger Subsidiary may not be required to accept for payment any Shares tendered hereby. Unless otherwise indicated under "Special Payment Instructions", please issue the check for the purchase price of any Shares purchased, and/or return any certificates for Shares not tendered or not accepted for payment, in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered" (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise indicated under "Special Delivery Instructions", please mail the check for the purchase price of any Shares purchased and any certificates for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered" shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Shares purchased and return any certificates for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) in the name(s) of, and mail said check and any certificates (and accompanying documents, as appropriate) to, the person(s) so indicated. The undersigned recognizes that Merger Subsidiary has no obligation, pursuant to the "Special Payment Instructions", to transfer any Shares from the name of the registered holder(s) thereof if Merger Subsidiary does not accept for payment any of the Shares so tendered. 4 5 ------------------------------------------------------------ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue check and/or certificates to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.) ------------------------------------------------------------ ------------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or certificates for Shares not tendered or not purchased are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown above. Mail check and/or certificates to: Name ---------------------------------------------------- (PLEASE PRINT) Address -------------------------------------------------- ------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------ (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.) ------------------------------------------------------------ 5 6 IMPORTANT SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) ----------------------------------------------------------------------------- SIGNATURE(S) OF HOLDER(S) OF SHARES ----------------------------------------------------------------------------- Dated: ------------------------------ , 1999 (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) Name(s) ----------------------------------------------------------------------------- (PLEASE PRINT) ----------------------------------------------------------------------------- Capacity (full title) (See Instruction 5) ---------------------------------------------------------------------------- Address ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No. ----------------------------------------------------------------------------- Tax Identification or Social Security No.: --------------------------------------------------------------------------- GUARANTEE OF SIGNATURE(S) (IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5) Authorized Signature ----------------------------------------------------------------------------- Name ----------------------------------------------------------------------------- Name of Firm ----------------------------------------------------------------------------- Address ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No. ----------------------------------------------------------------------------- Dated: ------------------------------ , 1999 6 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a bank, broker, dealer, credit union, savings association or other entity that is a member of a recognized Medallion Program approved by The Securities Transfer Association, Inc. (an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed the instruction entitled "Special Payment Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. 2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Shares is to be made by book-entry transfer pursuant to the procedure set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a Book-Entry Confirmation of all Shares delivered electronically, as the case may be, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or, in connection with a book-entry transfer, an Agent's Message, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date. If a stockholder's certificate for Shares is not immediately available or time will not permit all required documents to reach the Depositary by the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, such stockholder's Shares may nevertheless be tendered pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by Merger Subsidiary must be received by the Depositary by the Expiration Date and (c) the certificates for all physically delivered Shares, or a Book-Entry Confirmation, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. By executing this Letter of Transmittal (or facsimile thereof), the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. Partial Tenders (not applicable to stockholders who tender by book-entry transfer). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered". In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the appropriate box on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. 7 8 If any of the Shares tendered hereby is held of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made, or Shares not tendered or not purchased are to be returned, in the name of any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Merger Subsidiary of the authority of such person so to act must be submitted. 6. Stock Transfer Taxes. Except as set forth in this Instruction 6, Merger Subsidiary will pay any stock transfer taxes with respect to the sale and transfer of purchased Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 7. Special Payment and Delivery Instructions. If the check for the purchase price of any Shares purchased is to be issued, or any Shares not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. Waiver of Conditions. Subject to the terms of the Offer, Merger Subsidiary reserves the absolute right in its sole discretion to waive any of the specified conditions of the Offer (other than the Minimum Condition), in whole or in part, in the case of any Shares tendered. 9. 31% Backup Withholding; Substitute Form W-9. Under U.S. Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the Depositary is not provided with the correct TIN, the Internal Revenue Service may subject the stockholder or other payee to a $50 penalty. In addition, payments that are made to such stockholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to 31% backup withholding. Certain stockholders (including among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the stockholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to 8 9 backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service, provided that the required information is given to the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified Taxpayer Identification Number is provided to the Depositary. However, such amounts will be refunded to such Stockholder if a Taxpayer Identification Number is provided to the Depositary within 60 days. The stockholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. Requests for Assistance or Additional Copies. Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from the Information Agent at its address or telephone number set forth below. Questions may be directed to the Information Agent. 11. Lost, Destroyed or Stolen Certificates. If any certificate representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. 12. Acceptance of Tendered Shares. Upon the terms and subject to the conditions of the Offer, Merger Subsidiary will have accepted for payment (and thereby purchased) Shares validly tendered and not withdrawn when, as and if Merger Subsidiary gives oral or written notice to the Depositary of its acceptance of the tenders of such Shares pursuant to the Offer. 13. Withdrawal Rights. Tendered Shares may be withdrawn only pursuant to the procedure set forth in Section 4 of the Offer to Purchase. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY HEREOF OR, IN THE CASE OF A BOOK-ENTRY DELIVERY, AN AGENT'S MESSAGE (TOGETHER WITH CERTIFICATES FOR, OR A BOOK-ENTRY CONFIRMATION WITH RESPECT TO, TENDERED SHARES WITH ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, BY THE EXPIRATION DATE. 9 10 - -------------------------------------------------------------------------------- PAYOR'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY - --------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number or RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Employer Identification Number FORM W-9 ------------------------------- DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE ------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER Part 2 -- Certification -- Under penalties of perjury, I certify that: IDENTIFICATION NUMBER (1) The number shown on this form is my correct Taxpayer Identification Number (or I ("TIN") am waiting for a number to be issued to me) and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2). ---------------------------------------------------------------------------------------
SIGNATURE -------------------- DATE------------, 1999 Part 3 -- Awaiting TIN - ----------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver the application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature ----------------------------------------------- Date -----------, 1999 10 11 The Depositary for the Offer is AMERICAN STOCK TRANSFER & TRUST COMPANY By Mail: By Facsimile Transmission: By Hand/Overnight Delivery: 40 Wall Street, 46th Floor (Eligible Institutions Only) 40 Wall Street, 46th Floor New York, NY 10005 (718) 234-5001 New York, NY 10005 (Attention: Reorganization (Attention: Reorganization Department) Department)
Confirm by Telephone: (718) 921-8200 For Information Call: (718) 921-8200 The Information Agent for the Offer is: D.F. KING & CO., INC. 77 Water Street New York, NY 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll-Free: (800)-848-3094 EX-99.A.3 4 FORM OF NOTICE OF GUARANTEED DELIVERY 1 Exhibit 99 (a)(3) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF SHERIDAN ENERGY, INC. This Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer (defined below) if (i) certificates representing shares of Common Stock (the "Shares"), par value $.01 per share, of Sheridan Energy, Inc., a Delaware corporation (the "Company") are not immediately available, (ii) the procedure for book-entry transfer cannot be completed on a timely basis or (iii) time will not permit all required documents to reach American Stock Transfer & Trust Company (the "Depositary") prior to the expiration of the Offer. This Notice of Guaranteed Delivery may be delivered by hand, facsimile transmission or mail to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: AMERICAN STOCK TRANSFER & TRUST COMPANY
By Mail: By Facsimile Transmission: By Hand/Overnight Delivery: 40 Wall Street, 46th Floor (Eligible Institutions Only) 40 Wall Street, 46th Floor New York, NY 10005 (718) 234-5001 New York, NY 10005 (Attention: Reorganization Department) (Attention: Reorganization Confirm by Telephone: Department) (718) 921-8200 For Information Call: (718) 921-8200
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE APPROPRIATE LETTER OF TRANSMITTAL. 2 Ladies and Gentlemen: The undersigned hereby tenders to CPN Sheridan, Inc., a Delaware corporation and a wholly owned subsidiary of Calpine Corporation, a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated August 31, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of Common Stock (the "Shares"), par value $.01 per share, of Sheridan Energy, Inc., a Delaware corporation, specified below, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Number of Shares and Certificate No(s) Name(s) of Record Holder(s): (if available): - ---------------------------------- ----------------------------------- - ---------------------------------- ----------------------------------- (Please type or print) Address(es): ----------------------- ----------------------------------- (Zip Code) Area Code [ ] Check here if Shares will be and Tel. No.: tendered by book-entry transfer. ---------------------- (Daytime telephone number) DTC Account Number: Signature(s): --------------- ---------------------- Dated: , 1999 ----------------------------------- ------------------------- 3 GUARANTEE (Not to be used for signature guarantee) The undersigned, an Eligible Institution (defined in Section 3 of the Offer to Purchase), hereby (i) represents that the tender of shares effected hereby complies with Rule 14e-4 under the Securities Exchange Act of 1934, as amended and (ii) guarantees delivery to the Depositary, at one of its addresses set forth above, of certificates representing the Shares tendered hereby, in proper form for transfer, or a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (defined in Section 3 of the Offer to Purchase), in either case together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message (defined in Section 2 of the Offer to Purchase), together with any other documents required by the Letter of Transmittal, all within three Nasdaq National Market trading days after the date hereof. Name of Firm: ---------------------- ----------------------------------- (Authorized Signature) Address: --------------------------- Name: ------------------------------ (Please type or print) - ----------------------------------- (Zip Code) Title: ----------------------------- Area Code and Tel. No.: Date: , 1999 ------------------------ ---------------------- NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.A.4 5 FORM OF LETTER TO BROKERS, DEALERS 1 Exhibit 99 (a)(4) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF SHERIDAN ENERGY, INC. AT $5.50 NET PER SHARE BY CPN SHERIDAN, INC. a wholly owned subsidiary of CALPINE CORPORATION THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, SEPTEMBER 28, 1999, UNLESS THE OFFER IS EXTENDED. August 31, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We are enclosing the material listed below in connection with the offer by CPN Sheridan, Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of Calpine Corporation, a Delaware corporation, to purchase all outstanding shares of Common Stock (the "Shares"), par value $.01 per share, of Sheridan Energy, Inc., a Delaware corporation, at $5.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in Merger Subsidiary's Offer to Purchase, dated August 31, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"). For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. The Offer to Purchase; 2. The Letter of Transmittal for your use and for the information of your clients; Facsimile copies of the Letter of Transmittal may be used to Tender Shares; 3. The Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to the Depositary by the Expiration Date (defined in Section 1 of the Offer to Purchase) or if the procedure for book-entry transfer cannot be completed by the Expiration Date; 4. A form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 2 5. The Letter to Stockholders of the Company from the Chairman of the Board, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; and 7. Return envelope addressed to American Stock Transfer & Trust Company, the Depositary. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, SEPTEMBER 28, 1999, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, (i) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (defined in Section 2 of the Offer to Purchase) in connection with a book-entry delivery of Shares, and all other required documents should be sent to the Depositary, and (ii) either certificates representing the tendered Shares should be delivered to the Depositary, or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at the Book-Entry Transfer Facility (described in Section 3 of the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. Merger Subsidiary will not pay any fees or commissions to any broker or dealer or other person (other than the Information Agent and the Depositary as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Merger Subsidiary will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. Merger Subsidiary will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to, and additional copies of the enclosed materials may be obtained from, the Information Agent at the addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Very truly yours, CPN Sheridan, Inc. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF CPN SHERIDAN, INC., CALPINE CORPORATION, THE INFORMATION AGENT OR THE DEPOSITARY OR ANY AFFILIATE OF ANY OF THEM OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. -2- EX-99.A.5 6 FORM OF LETTER TO CLIENTS 1 Exhibit 99 (a)(5) OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF SHERIDAN ENERGY, INC. AT $5.50 NET PER SHARE BY CPN SHERIDAN, INC. a wholly owned subsidiary of CALPINE CORPORATION THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, SEPTEMBER 28, 1999, UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated August 31, 1999, (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to an offer by CPN Sheridan, Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of Calpine Corporation, a Delaware corporation ("Calpine"), to purchase all outstanding shares of Common Stock (the "Shares"), par value $.01 per share, of Sheridan Energy, Inc., a Delaware corporation (the "Company") at a purchase price of $5.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer. Holders of Shares whose certificates for such Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary, or complete the procedure for book-entry transfer set forth in Section 3 of the Offer to Purchase, prior to the Expiration Date (defined in Section 1 of the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The tender price is $5.50 per Share, net to you in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer. 2 2. The Board of Directors of the Company has unanimously determined that the Offer and the transactions contemplated by the Merger Agreement (defined in the Introduction to the Offer to Purchase) are fair to, and in the best interests of, the stockholders of the Company, has unanimously approved the Offer and the transactions contemplated by the Merger Agreement, and unanimously recommends that the stockholders of the Company accept the Offer and tender their Shares. 3. The Offer and withdrawal rights expire at 12:00 Midnight, New York City time, on Tuesday, September 28, 1999, unless the Offer is extended. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a confirmation of a book-entry transfer of such Shares as described in Section 2 of the Offer to Purchase), (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer and (iii) any other documents required by the Letter of Transmittal. 4. The Offer is conditioned upon, among other things, there being validly tendered by the Expiration Date and not withdrawn a number of Shares which, together with the Shares then owned by Merger Subsidiary and Calpine, would represent at least a majority of the Fully Diluted Shares (defined in the Introduction to the Offer to Purchase). 5. Merger Subsidiary will pay any stock transfer taxes applicable to the sale of Shares to Merger Subsidiary pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. 6. The Offer is made for all of the outstanding Shares. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form on the detachable part hereof. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified on the detachable part hereof. Your instructions should be forwarded promptly to permit us to submit a tender on your behalf by the expiration of the Offer. If you do not instruct us to tender your Shares, they will not be tendered. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. -2- 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF SHERIDAN ENERGY, INC. BY CPN SHERIDAN, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated August 31, 1999, and the related Letter of Transmittal, relating to the offer by CPN Sheridan, Inc., a Delaware corporation and a wholly owned subsidiary of Calpine Corporation, a Delaware corporation, to purchase all outstanding shares of Common Stock (the "Shares"), par value $.01 per share, of Sheridan Energy, Inc., a Delaware corporation. The undersigned instructs you to tender the number of Shares indicated below held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in such Offer to Purchase and the related Letter of Transmittal. Dated: _________________, 1999 SIGN HERE _____________________________________ Number of Shares (Signatures) to be Tendered: ______ Shares* _____________________________________ Please Print Name(s) _____________________________________ Address______________________________ _____________________________________ Include Zip Code Area Code and Telephone No._________________________ Taxpayer Identification or Social Security No.________________ _____________________________________ __________________________ * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.A.6 7 TEXT OF PRESS RELEASE 1 Exhibit 99 (a)(6) CALPINE CORPORATION TO ACQUIRE SHERIDAN ENERGY, INC. CALPINE TO ADD 148 bcf OF PROVEN GAS RESERVES SAN JOSE, CALIF. - August 25, 1999 - Calpine Corporation [NYSE:CPN], a leading U.S. power company, today announced it has entered into an agreement with Houston, Texas-based Sheridan Energy, Inc. [Nasdaq Small Cap Market:Shdn] (Sheridan), a natural gas exploration and production company, to acquire Sheridan through a $41 million cash tender offer. Calpine will offer to purchase all outstanding shares of Sheridan's common stock for $5.50 per share. Subject to customary conditions, the companies expect to complete the tender offer in September 1999. Sheridan's oil and gas properties are located in northern California and the Gulf Coast region, including 148 billion cubic feet equivalent of proven reserves, of which 90 percent are natural gas. These reserves are located in strategic markets where Calpine is developing low-cost natural gas supplies and proprietary pipeline systems in support of its highly efficient, natural gas-fired power plants. These fully integrated regional systems will provide Calpine with the flexibility to respond quickly and cost effectively to changing market conditions. In January 1999, Calpine acquired a 20 percent interest in Sheridan's northern California properties through an investment in Sheridan California Energy, Inc., an affiliate of Sheridan. "Sheridan is a strategic addition to Calpine's fuel capabilities and brings to Calpine a wealth of expertise in every facet of gas exploration and development," said Tom Mason, Calpine executive vice president. "In addition, Sheridan's portfolio of proven gas reserves will further strengthen our 'wellhead-to-burner tip' fuel program, giving Calpine a stronger competitive advantage as energy markets across the country deregulate." The Boards of Directors of Calpine and Sheridan have approved the transaction. In addition, certain Sheridan shareholders have agreed to tender their shares, representing an aggregate of approximately 51 percent of the outstanding shares, to Calpine. Calpine Corporation is national power company dedicated to providing customers with reliable and competitively priced electricity and thermal energy. Calpine currently has approximately 8,500 megawatts of capacity in operation, under construction or in announced development in 12 states - enough energy to power eight and a half million households. Calpine has headquarters in San Jose, Calif., with regional offices in Houston, Texas; Pleasanton, Calif.; and Boston, Mass. The company was founded in 1984 and is publicly traded on the New 2 York Stock Exchange under the symbol CPN. To learn more about Calpine, visit its website at www.calpine.com. The matters discussed in this news release may be considered "forward looking" statements within the meaning of Section 27A of the Securities and Exchange Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include declarations regarding the intent, belief or current expectations of the Company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties; actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause results to differ materially from those indicated by such forward-looking statements are: (i) that the information is of a preliminary nature and may be subject to further adjustments, (ii) risks associated with tender offers and mergers, (iii) changes in government regulation, (iv) general operating risks, (v) the dependence on third parties, (vi) the dependence on senior management, (vii) the successful exploitation of an oil or gas resource that ultimately depends upon the geology of the resource, the total amount and cost to develop recoverable reserves, and operational factors relating to the extraction of natural gas, and (viii) other risks identified from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission. Contact: Calpine Corporation, San Jose - - Katherine Potter, (408) 995-5115 Ext. 1168 Public Relations - - Rick Barraza, (408) 995-5115 Ext. 1125 Investor Relations EX-99.A.7 8 TAX GUIDELINES 1 Exhibit 99 (a)(7) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- ---------------------------------------------------------- -------------------------------------------------------- Give the name and Give the name and For this type of account: SOCIAL SECURITY number For this type of account: EMPLOYER IDENTIFICATION of -- number of -- - ---------------------------------------------------------- -------------------------------------------------------- 1. An individual's account The individual 6. A valid trust, estate The legal entity (Do or pension trust not furnish the 2. Two or more individuals The actual owner of the identifying number of (joint account) account or, if combined the personal funds, any one of the representative or individuals(1) trustee unless the legal entity itself is 3. Custodian account of a The minor(2) not designated in the minor (Uniform Gift to account title.)(4) Minors Act) 7. Corporate account The corporation 4. (a) The usual revocable The grantor-trustee(1) 8. Religious, charitable, The organization savings trust account or educational (grantor is also trustee) organization account (b) So-called trust The actual owner(1) 9. Partnership The partnership account that is not a legal or valid trust 10. Association, club, or The organization under State law other tax-exempt organization 5. Sole proprietorship The owner(3) account 11. A broker or registered The broker or nominee nominee 12. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments 13. Sole proprietorship The owner(3) account - ---------------------------------------------------------- ---------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the name of the owner. You may also enter your business name. You may use your Social Security Number or Employer Identification Number. (4) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - - A corporation. - - A financial institution. - - An organization exempt from tax under section 501(a), or an individual retirement plan or a custodial account under Section 403(b)(7). - - The United States or any agency or instrumentality thereof. - - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - - An international organization or any agency, or instrumentality thereof. - - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - - A real estate investment trust. - - A common trust fund operated by a bank under section 584(a). - - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - - An entity registered at all times under the Investment Company Act of 1940. - - A foreign central bank of issue. - - A futures commission merchant registered with the Commodity Futures Trading Commission. - - A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc. Nominee List. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441. - - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - - Payments of patronage dividends where the amount received is not paid in money. - - Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: - - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - - Payments described in section 6049(b)(5) to non-resident aliens. - - Payments on tax-free covenant bonds under section 1451. - - Payments made by certain foreign organizations. - - Mortgage interest paid to an individual. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments, other than interest, dividends, and patronage dividends, that are not subject to information reporting, are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.A.8 9 FORM OF SUMMARY ADVERTISEMENT 1 Exhibit 99(a)(8) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated August 31, 1999 and the related Letter of Transmittal and any amendments or supplements thereto and is being made to all holders of Shares. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require that the Offer be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Merger Subsidiary by one or more registered brokers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock of Sheridan Energy, Inc. at $5.50 Net Per Share by CPN Sheridan, Inc. a wholly owned subsidiary of Calpine Corporation CPN Sheridan, Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of Calpine Corporation, a Delaware corporation ("Calpine"), is offering to purchase all outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of Sheridan Energy, Inc., a Delaware corporation (the "Company"), at $5.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 31, 1999 (the "Offer to Purchase") and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering stockholders of the Company will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, SEPTEMBER 28, 1999, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, there being validly tendered by the expiration of the Offer and not withdrawn a number of Shares which, together with the Shares then owned by Calpine and Merger Subsidiary, would represent at least a majority of the total number of outstanding Shares on a fully diluted basis. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of August 25, 1999 (the "Merger Agreement"), among the Company, Calpine and Merger Subsidiary, which has been unanimously approved by the Company's Board of Directors. The Merger Agreement provides, among other things, that, after consummation of the Offer, and after satisfaction or waiver of all conditions to the Merger (defined below) set forth in the Merger Agreement, Merger Subsidiary will be merged into the Company (the "Merger"), with the Company continuing as the surviving corporation. Pursuant to the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each outstanding Share (other than Shares owned by Calpine, Merger Subsidiary or any subsidiary of either of them or held by the Company as treasury stock (which shall be canceled) or by stockholders exercising appraisal rights under the Delaware General Corporation Law) will be converted into the right to receive $5.50 in cash or any higher price paid for each Share in the Offer, without interest. The Board of Directors of the Company has unanimously determined that the Offer and the transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the stockholders of the Company, has unanimously approved the Offer and the transactions contemplated by the Merger Agreement and unanimously recommends that the stockholders of the Company accept the Offer and tender their Shares. The term "Expiration Date" means 12:00 midnight, New York City time, on Tuesday, September 28, 1999; unless Merger Subsidiary shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Merger Subsidiary, will expire. Merger Subsidiary may, without the consent of the Company, (i) extend the Offer, if at any scheduled Expiration Date any of the conditions set forth in Section 15 of the Offer to Purchase have not been satisfied or waived, until such time as such conditions are satisfied or waived, (ii) extend the Offer for a period of not more than 20 business days beyond the initial Expiration Date, if on the date of such extension less than 90% of the Shares on a fully diluted basis have been validly tendered and not withdrawn pursuant to the Offer and (iii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission or the staff applicable to the Offer. Under certain circumstances, Merger Subsidiary is required to extend the Offer as described in Section 11 of the Offer to Purchase. Any such extension will be followed as promptly as practicable by public announcement thereof, such announcement to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. For purposes of the Offer, Merger Subsidiary shall be deemed to have accepted for payment tendered Shares when, and if, Merger Subsidiary gives oral or written notice to American Stock Transfer & Trust Company (the "Depositary") of its acceptance of the tenders of such Shares. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or of a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (defined in the Offer to Purchase)), (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (defined in the Offer to Purchase) in connection with a book-entry transfer and (iii) any other required documents. Under no circumstance will interest be paid on the purchase price to be paid by Merger Subsidiary for such Shares, regardless of any extension of the Offer or any delay in making such payment. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the expiration of the Offer. Thereafter, such tenders are irrevocable, except that they may be withdrawn on or after October 29, 1999, unless theretofore accepted for payment as provided in the Offer to Purchase. If Merger Subsidiary extends the period of time during which the Offer is open, is delayed in accepting for payment or paying for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Merger Subsidiary's rights under the Offer, the Depositary may, on behalf of Merger Subsidiary, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in the Offer to Purchase. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth in the Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution (defined in the Offer to Purchase)) signatures guaranteed by an Eligible Institution must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in the Offer to Purchase at any time prior to the expiration of the Offer. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided Merger Subsidiary with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the related Letter of Transmittal contain important information which should be read carefully before any decision is made with respect to the Offer. Questions and requests for copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below, and copies will be furnished promptly at Merger Subsidiary's expense. No fees or commissions will be payable by Merger Subsidiary to brokers, dealers or other persons (other than the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent is: D.F. King & Co., Inc. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect (212) 269-5550 All Others Call Toll Free (800) 848-3094 August 31, 1999 EX-99.A.9 10 TEXT OF PRESS RELEASE 1 Exhibit 99 (a)(9) CALPINE CORPORATION COMMENCES TENDER OFFER FOR SHERIDAN ENERGY, INC. SAN JOSE, CALIF. - August 31, 1999 - Calpine Corporation (NYSE:CPN), a leading U.S. power company, today announced that CPN Sheridan, Inc., a wholly-owned subsidiary of Calpine, commenced a tender offer today for all of the outstanding shares of Sheridan Energy, Inc. (Nasdaq SmallCap Market:SHDN) common stock, at a price of $5.50 per share, net to the seller in cash. The offer is being made pursuant to the Agreement and Plan of Merger dated as of August 25, 1999 among Calpine, CPN Sheridan, Inc. and Sheridan. The offer is conditioned, among other things, upon a number of shares being tendered and not withdrawn such that, upon consummation of the offer, Calpine and its affiliates will beneficially own in the aggregate not less than a majority of the shares on a fully diluted basis. The offer will expire at 12:00 midnight, New York City time, on Tuesday, September 28, 1999, unless the offer is extended. The Boards of Directors of Calpine and Sheridan have approved the transaction. In addition, certain Sheridan shareholders have agreed to tender their shares, representing an aggregate of approximately 51 percent of the outstanding shares, to Calpine. The information agent for the offer is D.F. King & Co., Inc., 77 Water Street, 20th Floor, New York, NY, 10005, telephone (212) 929-5500. Sheridan's oil and gas properties are located in northern California and the Gulf Coast region, including 148 billion cubic feet equivalent of proven reserves, of which 90 percent are natural gas. Calpine is a national power company dedicated to providing customers with reliable and competitively priced electricity and thermal energy. Calpine currently has approximately 8,900 megawatts of capacity in operation, pending acquisition, under construction or in announced development in 14 states - enough energy to power nearly nine million households. Calpine has headquarters in San Jose, Calif., with regional offices in Houston, Texas; Pleasanton, Calif.; and Boston, Mass. The company was founded in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. To learn more about Calpine, visit its website at www.calpine.com 2 Calpine Corporation, San Jose - - Katherine Potter, (408) 995-5115 Ext. 1168 Public Relations - - Rick Barraza, (408) 995-5115 Ext. 1125 Investor Relations EX-99.C.1 11 AGREEMENT AND PLAN OF MERGER 1 Exhibit 99 (c)(1) - -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER dated as of August 25, 1999 among SHERIDAN ENERGY, INC., CALPINE CORPORATION, and CPN SHERIDAN, INC. - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- Introduction......................................................................................................1 ARTICLE I The Offer SECTION 1.1. The Offer...........................................................................................1 SECTION 1.2. Company Action......................................................................................3 SECTION 1.3. Directors...........................................................................................3 ARTICLE II The Merger SECTION 2.1. The Merger..........................................................................................4 SECTION 2.2. Conversion of Shares................................................................................5 SECTION 2.3. Surrender and Payment...............................................................................5 SECTION 2.4. Dissenting Shares...................................................................................6 SECTION 2.5. Stock Options.......................................................................................6 ARTICLE III The Surviving Corporation SECTION 3.1. Certificate of Incorporation........................................................................7 SECTION 3.2. Bylaws..............................................................................................7 SECTION 3.3. Directors and Officers..............................................................................7 ARTICLE IV Representations and Warranties SECTION 4.1. Representations and Warranties of the Company.......................................................8 (a) Organization, Standing and Corporate Power..............................................................8 (b) Subsidiaries............................................................................................8 (c) Capital Structure.......................................................................................8 (d) Authority; Noncontravention.............................................................................9 (e) SEC Documents; Financial Statements; No Undisclosed Liabilities........................................10 (f) Disclosure Documents...................................................................................11 (g) Absence of Certain Changes or Events...................................................................11 (h) Litigation.............................................................................................12 (i) Absence of Changes in Stock or Benefit Plans...........................................................13 (j) Participation and Coverage in Benefit Plans............................................................13
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Page ---- (k) ERISA Compliance.......................................................................................13 (l) Taxes..................................................................................................14 (m) State Takeover Statutes................................................................................15 (n) Brokers; Schedule of Fees and Expenses.................................................................16 (o) Permits; Compliance with Laws..........................................................................16 (p) Contracts; Debt Instruments............................................................................16 (q) Opinion of Financial Advisor...........................................................................18 (r) Interests of Officers and Directors....................................................................18 (s) Technology.............................................................................................18 (t) Change of Control......................................................................................19 (u) Environmental..........................................................................................19 (v) Title to Properties....................................................................................20 (w) Other Obligations......................................................................................21 (x) Public Utility Holding Company Act; Non-Utility Status.................................................22 (y) Year 2000..............................................................................................22 (z) Insurance..............................................................................................23 (aa) Disclosure.............................................................................................23 SECTION 4.2. Representations and Warranties of Parent and Merger Subsidiary.....................................23 (a) Organization, Standing and Corporate Power.............................................................23 (b) Authority; Noncontravention............................................................................23 (c) Disclosure Documents...................................................................................24 (d) Brokers................................................................................................24 ARTICLE V Covenants of the Company SECTION 5.1. Conduct of Business................................................................................25 SECTION 5.2. Stockholder Meeting; Proxy Material................................................................26 SECTION 5.3. Access to Information..............................................................................27 SECTION 5.4. Other Offers.......................................................................................27 SECTION 5.5. State Takeover Statutes............................................................................28 ARTICLE VI Covenants of Parent SECTION 6.1. Obligations of Merger Subsidiary...................................................................28 SECTION 6.2. Voting of Shares...................................................................................28 SECTION 6.3. Director and Officer Liability.....................................................................28 SECTION 6.4. Employees..........................................................................................29
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Page ---- ARTICLE VII Covenants of Parent and the Company SECTION 7.1. HSR Act Filings; Reasonable Efforts; Notification..................................................29 SECTION 7.2. Public Announcements...............................................................................31 ARTICLE VIII Conditions to the Merger SECTION 8.1. Conditions to the Obligations of Each Party........................................................31 ARTICLE IX Termination SECTION 9.1. Termination........................................................................................32 SECTION 9.2. Effect of Termination..............................................................................33 ARTICLE X Miscellaneous SECTION 10.1. Notices...........................................................................................33 SECTION 10.2. Survival of Representations and Warranties........................................................34 SECTION 10.3. Amendments; No Waivers............................................................................34 SECTION 10.4. Fees and Expenses.................................................................................34 SECTION 10.5. Successors and Assigns............................................................................35 SECTION 10.6. Governing Law.....................................................................................35 SECTION 10.7. Counterparts; Effectiveness; Interpretation.......................................................36 SECTION 10.8. Enforcement.......................................................................................36 SECTION 10.9. Severability......................................................................................36 SECTION 10.10. Entire Agreement; No Third Party Beneficiaries...................................................36 SECTION 10.11. Standstill.......................................................................................36
-iii- 5 AGREEMENT AND PLAN OF MERGER, dated as of August 25, 1999 (this "Agreement"), among SHERIDAN ENERGY, INC., a Delaware corporation (the "Company"), CALPINE CORPORATION, a Delaware corporation ("Parent"), and CPN SHERIDAN, INC., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Subsidiary"). INTRODUCTION WHEREAS, the respective Boards of Directors of the Company, Parent and Merger Subsidiary have determined that it is advisable and in the best interests of their respective stockholders for Parent to acquire the Company upon the terms and subject to the conditions set forth herein; WHEREAS, the Company, Parent and Merger Subsidiary desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; WHEREAS, in furtherance of such acquisition, Parent proposes to cause Merger Subsidiary to make the Offer (defined in Section 1.1) to purchase all of the issued and outstanding shares of common stock, par value $.01 per share, of the Company upon the terms and subject to the conditions of this Agreement, and the Board of Directors of the Company (the "Board" or the "Board of Directors") has unanimously approved the Offer and recommended that the stockholders of the Company accept the Offer; and WHEREAS, the respective Boards of Directors of the Company, Parent and Merger Subsidiary have deemed advisable and have approved the Offer and the Merger (defined in Section 2.1) of Merger Subsidiary with and into the Company upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the representations, warranties and agreements herein contained, and subject to the terms and conditions herein contained, the parties hereto do hereby agree as follows: ARTICLE I THE OFFER SECTION 1.1. The Offer. (a) Provided that nothing shall have occurred that would result in a failure to satisfy any of the conditions set forth in Annex I hereto, Merger Subsidiary shall, as promptly as practicable after the date hereof, but in no event later than one business day (as defined in Rule 14b-1(c)(6) promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")) following the execution of this Agreement, issue a public announcement of the execution of this Agreement and as promptly as practicable thereafter, but in no event later than five business days following such public announcement, commence an offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $.01 per share (the "Shares"), of the Company at a price of $5.50 per Share, net to the seller in cash. The initial expiration date (the "Initial Expiration Date") of the Offer shall be 20 business days following the 6 commencement of the Offer. The Offer shall be subject to the condition that there shall be validly tendered in accordance with the terms of the Offer prior to the expiration date of the Offer and not withdrawn a number of Shares which, together with the Shares then owned by Parent and Merger Subsidiary, represents at least a majority of the total number of outstanding Shares, assuming the exercise of all outstanding options, rights and convertible securities (if any) and the issuance of all Shares that the Company is obligated to issue (such total number of outstanding Shares being hereinafter referred to as the "Fully Diluted Shares") (the "Minimum Condition") and to the other conditions set forth in Annex I hereto. Parent and Merger Subsidiary expressly reserve the right to waive the conditions to the Offer and to make any change in the terms or conditions of the Offer; provided that, without the prior written consent of the Company, no change may be made which (i) except as provided in the next sentence, extends the Offer, (ii) changes the form of consideration to be paid, (iii) decreases the price per Share or the number of Shares sought in the Offer, (iv) imposes conditions to the Offer in addition to those set forth in Annex I, (v) changes or waives the Minimum Condition, or (vi) makes any other change to any condition to the Offer set forth in Annex I which is materially adverse to the holders of Shares. Notwithstanding the foregoing, Merger Subsidiary may, without the consent of the Company, (i) extend the Offer, if at any scheduled expiration date of the Offer any of the conditions to Merger Subsidiary's obligation to purchase Shares pursuant to the Offer shall not be satisfied or waived, until such time as such conditions are satisfied or waived, (ii) extend the Offer for a period of not more than 20 business days beyond the Initial Expiration Date, if on the date of such extension less than 90% of the Fully Diluted Shares have been validly tendered and not properly withdrawn pursuant to the Offer, and (iii) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer. Parent and Merger Subsidiary agree that if all of the conditions to Merger Subsidiary's obligation to purchase Shares pursuant to the Offer are not satisfied on any scheduled expiration date of the Offer then, provided that all such conditions are reasonably capable of being satisfied, Merger Subsidiary shall extend the Offer from time to time in increments of at least five business days each until the earliest to occur of (x) the satisfaction or waiver of the Minimum Condition or such other condition, (y) the termination of this Agreement in accordance with its terms and (z) December 1, 1999. Subject to the terms of the Offer in this Agreement and the satisfaction (or waiver to the extent permitted by this Agreement) of the conditions of the Offer, Merger Subsidiary shall accept for payment all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the applicable expiration of the Offer. (b) As soon as practicable on the date of commencement of the Offer, Parent and Merger Subsidiary shall (i) file with the SEC a Tender Offer Statement on Schedule 14D-l with respect to the Offer which will contain the offer to purchase and form of the related letter of transmittal (together with any supplements or amendments thereto, collectively the "Offer Documents") and (ii) cause the Offer Documents to be disseminated to holders of Shares. Parent, Merger Subsidiary and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect. Parent and Merger Subsidiary agree to take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Parent and Merger Subsidiary agree to provide the Company and its counsel in writing with any comments Parent, Merger Subsidiary or their counsel receive from the SEC or its staff with respect to the Offer Documents, promptly after receipt of such comments. The Company and its counsel shall be given a -2- 7 reasonable opportunity to review and comment upon the Offer Documents and all amendments and supplements thereto prior to their filing with the SEC. SECTION 1.2. Company Action. (a) The Company hereby consents to the Offer and represents that its Board of Directors, at a meeting duly called and held, has (i) unanimously determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger (defined below in Section 2.1), and the Stockholder Option Agreement, dated as of August 25, 1999 (the "Stockholder Option Agreement"), among the stockholders of the Company that are named therein ("Stockholders") and Merger Subsidiary, and the transactions contemplated thereby, are fair to and in the best interest of the Company's stockholders, (ii) unanimously approved this Agreement and the transactions contemplated hereby, including the Offer and the Merger, and the Stockholder Option Agreement and the transactions contemplated thereby, which approval satisfies in full the requirements of Section 203 of the General Corporation Law of the State of Delaware (the "Delaware Law"), and (iii) unanimously resolved to recommend acceptance of the Offer and approval and adoption of this Agreement and the Merger by its stockholders. The Company further represents that Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") has delivered to the Company's Board of Directors its opinion that the consideration to be paid in the Offer and the Merger is fair to the holders of Shares from a financial point of view. The Company has been advised that each of its directors and executive officers presently intend either to tender their Shares pursuant to the Offer or to vote in favor of the Merger. The Company will promptly furnish Parent and Merger Subsidiary with a list of its stockholders, mailing labels and any available listing or computer file containing the names and addresses of all record holders of Shares and lists of securities positions of Shares held in stock depositories, in each case as of the most recent practicable date, and will provide to Parent and Merger Subsidiary such additional information (including, without limitation, updated lists of stockholders, mailing labels and lists of securities positions) and such other assistance as Parent or Merger Subsidiary may reasonably request in connection with the Offer. (b) As soon as practicable on the day that the Offer is commenced the Company will file with the SEC and disseminate to holders of Shares a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") which shall reflect the recommendations of the Company's Board of Directors referred to above, subject to the fiduciary duties of the Board of Directors of the Company as advised by Winstead Sechrest & Minick P.C., counsel to the Company. The Company, Parent and Merger Subsidiary each agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect. The Company agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given an opportunity to review and comment on the Schedule 14D-9 prior to its being filed with the SEC. SECTION 1.3. Directors. (a) Effective upon the acceptance for payment by Merger Subsidiary of the Shares tendered pursuant to the Offer, Parent shall be entitled to designate the number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to this Section) and (ii) the percentage that the number of Shares owned by Parent or Merger Subsidiary (including Shares -3- 8 accepted for payment) bears to the total number of Shares outstanding, and the Company shall take all action necessary to cause Parent's designees to be elected or appointed to the Company's Board of Directors, including, without limitation, increasing the number of directors, or seeking and accepting resignations of incumbent directors, or both; provided that, prior to the Effective Time (defined below in Section 2.1), the Company's Board of Directors shall always have one member who is neither a designee nor an affiliate of Parent or Merger Subsidiary nor an employee of the Company (an "Independent Director"). If the number of Independent Directors is reduced below one for any reason prior to the Effective Time the departing Independent Director shall be entitled to designate a person to fill such vacancy. No action proposed to be taken by the Company to (i) amend or terminate this Agreement or the certificate of incorporation or by-laws of the Company or (ii) waive any action required to be taken by Parent or Merger Subsidiary hereunder or any rights of the Company hereunder shall be effective without the approval of the Independent Director. At such times, the Company will use its best efforts to cause individuals designated by Parent to constitute the same percentage as such individuals represent on the Company's Board of Directors of (x) each committee of the Board, (y) each board of directors of each subsidiary (defined below in Section 4.1(a)) and (z) each committee of each such board. (b) The Company's obligations to appoint designees to the Board of Directors shall be subject to Section 14(f) of the Exchange Act (defined below in Section 4.1(d)) and Rule 14f-l promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-l in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-l to fulfill its obligations under this Section 1.3. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. ARTICLE II THE MERGER SECTION 2.1. The Merger. (a) At the Effective Time, Merger Subsidiary shall be merged (the "Merger") with and into the Company in accordance with Delaware Law, whereupon the separate existence of Merger Subsidiary shall cease, and the Company shall be the surviving corporation (the "Surviving Corporation"). (b) As soon as practicable after satisfaction of or, to the extent permitted hereunder, waiver of all conditions to the Merger, the Company and Merger Subsidiary will file a certificate of merger with the Secretary of State of the State of Delaware and make all other filings or recordings required by Delaware Law in connection with the Merger. The Merger shall become effective at such time as the certificate of merger is duly filed with the Secretary of State of the State of Delaware or, with the consent of the Independent Director, at such later time as is specified in the certificate of merger (the "Effective Time"). (c) From and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of the Company and Merger Subsidiary, all as provided under Delaware Law. -4- 9 SECTION 2.2. Conversion of Shares. At the Effective Time: (a) each Share held by the Company as treasury stock or owned by Parent, Merger Subsidiary or any subsidiary of either of them immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto; (b) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation; and (c) each Share outstanding immediately prior to the Effective Time shall, except as otherwise provided in Section 2.2(a) or as provided in Section 2.4 with respect to Shares as to which appraisal rights have been exercised, be converted into the right to receive $5.50 in cash or any higher price paid for each Share in the Offer, without interest (the "Merger Consideration"). SECTION 2.3. Surrender and Payment. (a) Prior to the Effective Time, Parent shall appoint a bank or trust company (the "Exchange Agent") for the purpose of exchanging certificates representing Shares for the Merger Consideration. Parent will make available to the Exchange Agent, as needed, the Merger Consideration to be paid in respect of the Shares (the "Exchange Fund"). For purposes of determining the Merger Consideration to be made available, Parent shall assume that no holder of Shares will perfect his right to appraisal of his Shares. Promptly after the Effective Time, Parent will send, or will cause the Exchange Agent to send, to each holder of Shares at the Effective Time a letter of transmittal for use in such exchange (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the certificates representing Shares to the Exchange Agent). The Exchange Agent shall, pursuant to irrevocable instructions, make the payments provided in this Section 2.3. The Exchange Fund shall not be used for any other purpose, except as provided in this Agreement. (b) Each holder of Shares that have been converted into a right to receive the Merger Consideration, upon surrender to the Exchange Agent of a certificate or certificates representing such Shares, together with a properly completed letter of transmittal covering such Shares, and such other documents as shall be reasonably requested, will be entitled to receive the Merger Consideration payable in respect of such Shares. Until so surrendered, each such certificate shall, after the Effective Time, represent for all purposes, only the right to receive such Merger Consideration. (c) If any portion of the Merger Consideration is to be paid to a person other than the registered holder of the Shares represented by the certificate or certificates surrendered in exchange therefor, it shall be a condition to such payment that the certificate or certificates so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a person other than the registered holder of such Shares or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. For purposes of -5- 10 this Agreement, "person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof. (d) After the Effective Time, there shall be no further registration of transfers of Shares. If, after the Effective Time, certificates representing Shares are presented to the Surviving Corporation, they shall be canceled and exchanged for the consideration provided for, and in accordance with the procedures set forth, in this Article II. (e) Any portion of the Exchange Fund made available to the Exchange Agent pursuant to Section 2.3(a) that remains unclaimed by the holders of Shares six months after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged his Shares for the Merger Consideration in accordance with this Section 2.3 prior to that time shall thereafter look only to Parent for payment of the Merger Consideration in respect of his Shares. Notwithstanding the foregoing, Parent shall not be liable to any holder of Shares for any amount paid to a public official pursuant to applicable abandoned property laws. Any amounts remaining unclaimed by holders of Shares immediately prior to such time as such amounts would otherwise escheat to or become property of any governmental entity shall, to the extent permitted by applicable law, become the property of Parent, free and clear of any claims or interest of any person previously entitled thereto. (f) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.3(a) to pay for Shares for which appraisal rights have been perfected shall be returned to Parent, upon demand. SECTION 2.4. Dissenting Shares. Notwithstanding Section 2.2, Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with Delaware Law shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect or withdraws or otherwise loses his right to appraisal. If after the Effective Time such holder fails to perfect or withdraws or loses his right to appraisal, such Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Shares, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. SECTION 2.5. Stock Options. (a) Upon acceptance for payment of Shares pursuant to the Offer, each outstanding Company Option (defined below), whether vested or unvested, shall be canceled, and each holder of any such option shall be paid by the Company promptly after the acceptance for payment of Shares pursuant to the Offer for each such option an amount determined by multiplying (i) the excess, if any, of $5.50 per Share over the applicable exercise price of such option by (ii) the number of Shares such holder could have purchased had such holder exercised such option in full immediately prior to the acceptance for payment of Shares pursuant to the Offer (as if such Company Option was exercisable in full). Notwithstanding any other provisions of this Agreement, immediately after the acceptance for payment of Shares pursuant to the Offer no -6- 11 Company Options will remain outstanding. "Company Option" means any option granted, whether or not exercisable, and not exercised or expired, to a current or former employee, director or independent contractor of the Company or any of its subsidiaries or any predecessor thereof to purchase Shares pursuant to any stock option, stock bonus, stock award, or stock purchase plan, program, or arrangement of the Company or any of its subsidiaries or any predecessor thereof (collectively, the "Stock Plans") or any other contract or agreement entered into by the Company any of its subsidiaries. (b) As soon as practicable following the date of this Agreement, the Company shall use its commercially reasonable efforts to (i) obtain any consents from holders of Company Options and (ii) make any amendments to the terms of such stock option or compensation plans or arrangements that, in the case of either clauses (i) or (ii), are necessary to give effect to the transactions contemplated by Section 2.5(a). Notwithstanding any other provision of this Section 2.5, payment may be withheld in respect of any Company Option until necessary consents are obtained. All amounts payable pursuant to this Section 2.5 shall be subject to, and reduced by, any required withholding of taxes and shall be paid without interest. (c) The parties hereto acknowledge that consummation of the Offer shall constitute a "change in control" pursuant to the terms of, and for purposes of, the employment agreements and each of the Company's outstanding stock option plans, preferred stock designations, warrant agreements and any other agreements, in each case which are listed in Section 2.5(c) of the Disclosure Schedule (defined below in Section 4.1(b)). ARTICLE III THE SURVIVING CORPORATION SECTION 3.1. Certificate of Incorporation. The certificate of incorporation of Merger Subsidiary in effect at the Effective Time shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with applicable law, except that the name of the Surviving Corporation shall be changed to the name of the Company. SECTION 3.2. Bylaws. The bylaws of Merger Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable law. SECTION 3.3. Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, (i) the directors of Merger Subsidiary at the Effective Time shall be the directors of the Surviving Corporation, and (ii) the officers of the Merger Subsidiary at the Effective Time shall be the officers of the Surviving Corporation. -7- 12 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. Representations and Warranties of the Company. The Company represents and warrants to Parent and Merger Subsidiary as follows: (a) Organization, Standing and Corporate Power. Each of the Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Each of the Company and each of its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) could not reasonably be expected to have a Material Adverse Effect (defined below). The Company has made available to Parent complete and correct copies of its certificate of incorporation and by-laws and the certificates of incorporation and by-laws of its subsidiaries, in each case as amended to the date of this Agreement. For purposes of this Agreement, a "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. For the purposes hereof, "Material Adverse Effect" means a material adverse effect on (a) the assets, liabilities, condition (financial or otherwise), business, properties, results of operations or prospects of the Company and its subsidiaries taken as a whole or (b) the consummation of the transactions contemplated hereby; provided that occurrences or events resulting from (i) changes in the prices of oil, gas, natural gas liquids or other hydrocarbon products, (ii) changes in general economic conditions, including general stock market conditions and interest rate changes, or (iii) the adverse determination of any pending litigation disclosed in the Disclosure Schedule shall in each case be excluded from consideration for purposes of the effect of an occurrence or event on the Company and its subsidiaries taken as a whole. (b) Subsidiaries. Section 4.1(b) of the disclosure schedule delivered by the Company to Parent and Merger Subsidiary prior to the execution of this Agreement (the "Disclosure Schedule") lists each subsidiary of the Company and its respective jurisdiction of incorporation. Except as disclosed in Section 4.1(b) of the Disclosure Schedule, all the outstanding shares of capital stock of each such subsidiary have been validly issued and are fully paid and nonassessable and are owned by the Company, by another subsidiary of the Company or by the Company and another such subsidiary, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens") and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock). Except for the capital stock of its subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any person except as disclosed in Section 4.1(b) of the Disclosure Schedule. (c) Capital Structure. The authorized capital stock of the Company consists of 20,000,000 Shares and 5,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred -8- 13 Stock") of the Company. As of the date of this Agreement, (i) 6,733,770 Shares were issued and outstanding, (ii) no Shares were held by the Company in its treasury or by any of the Company's subsidiaries, (iii) 1,139,556.25 shares of Preferred Stock were issued and outstanding, (iv) 725,500 Shares were reserved for issuance pursuant to the outstanding Company Options, and (v) 150,000 Shares were reserved for issuance upon exercise of warrants to purchase Shares disclosed in Section 4.1(c) of the Disclosure Schedule (the "Warrants"). All outstanding shares of capital stock of the Company are, and all shares which may be issued pursuant to the Stock Plans will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as set forth in Section 4.1(c) of the Disclosure Schedule, there are not any bonds, debentures, notes or other indebtedness or securities of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote. Except as set forth above and in Section 4.1(c) of the Disclosure Schedule, there are not any securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or of any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. Except as set forth in Section 4.1(c) of the Disclosure Schedule, there are no outstanding rights, commitments, agreements, arrangements or undertakings of any kind obligating the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock or other voting securities of the Company or any of its subsidiaries or any securities of the type described in the two immediately preceding sentences. The Company has delivered to Parent complete and correct copies of the Stock Plans and all forms of Company Options. Section 4.1(c) of the Disclosure Schedule sets forth a complete and accurate list of all Company Options and Warrants outstanding as of the date of this Agreement and the exercise price of each outstanding Company Option and Warrant. (d) Authority; Noncontravention. The Company has the requisite corporate power and authority to enter into this Agreement and, except for any required approval by the Company's stockholders in connection with the consummation of the Merger, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company, except for any required approval by the Company's stockholders in connection with the consummation of the Merger. This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding agreement of Parent and Merger Subsidiary, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability in considered in a proceeding in equity or at law. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its -9- 14 subsidiaries under, (i) the Certificate of Incorporation or By-Laws of the Company or the comparable charter or organizational documents of any of its subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its subsidiaries or their respective properties or assets other than, in the case of clause (ii) or (iii) above, any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate could not reasonably be expected to (A) have a Material Adverse Effect, (B) impair the ability of the Company to perform its obligations under this Agreement or (C) prevent or materially delay consummation of any of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by (collectively, "Consents") any federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity"), is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (i) the filing of a certificate of merger in accordance with Delaware Law and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (ii) the filing of a premerger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), (iii) compliance with any applicable requirements of the Exchange Act, (iv) such notices, filings and consents as may be required under relevant state property transfer or environmental laws, and (v) such other consents, approvals, orders, authorizations, registrations, declarations and filings as to which the failure to obtain or make could not reasonably be expected to (x) have a Material Adverse Effect or (y) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement. (e) SEC Documents; Financial Statements; No Undisclosed Liabilities. The Company has filed all required reports, schedules, forms, statements and other documents with the SEC since January 1, 1997 (the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"), or the Exchange Act, as the case may be, applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted 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. The financial statements of the Company included in the SEC Documents (the "Financial Statements") comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-QSB of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, recurring year-end audit adjustments). Except as set forth in the Company Filed SEC Documents (defined below in Section 4.1(g)) or in Section 4.1(e), (g) or (h) of the Disclosure Schedule, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, -10- 15 contingent or otherwise) and there is no existing condition, situation or set of circumstances which are required by generally accepted accounting principles to be set forth on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto, except for liabilities which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (f) Disclosure Documents. (i) Each document required to be filed by the Company with the SEC in connection with the transactions contemplated by this Agreement (the "Company Disclosure Documents"), including, without limitation, the Schedule 14D-9, the proxy or information statement of the Company (the "Company Proxy Statement"), if any, to be filed with the SEC in connection with the Merger, and any amendments or supplements thereto will, when filed, comply as to form in all material respects with the applicable requirements of the Exchange Act. (ii) At the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to stockholders of the Company, and at the time such stockholders vote on adoption of this Agreement, the Company Proxy Statement, as supplemented or amended, if applicable, will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. At the time of the filing of any Company Disclosure Document other than the Company Proxy Statement and at the time of any distribution thereof, such Company Disclosure Document will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties contained in this Section 4.1(f)(ii) will not apply to statements or omissions included in the Company Disclosure Documents based upon information furnished to the Company in writing by Parent or Merger Subsidiary specifically for use therein. (iii) The information with respect to the Company or any subsidiary that the Company furnishes to Parent or Merger Subsidiary in writing specifically for use in the Offer Documents will not, at the time of the filing thereof, at the time of any distribution thereof and at the time of the consummation of the Offer, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (g) Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement (the "Company Filed SEC Documents") or in Section 4.1(g) of the Disclosure Schedule, since December 31, 1998, the Company has conducted its business only in the ordinary course consistent with past practice, and there has not been (i) any event, occurrence or development of a state of circumstances which has had or could reasonably be expected to have a Material Adverse Effect, (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's capital stock or any repurchase, redemption or other acquisition by the Company or any of its subsidiaries of any outstanding shares of capital stock or other securities of the Company or any of its subsidiaries, (iii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iv) (A) any granting by the Company or any of its subsidiaries to any current or former director, officer or employee of the Company or any -11- 16 of its subsidiaries of any increase in compensation or benefits, except in the ordinary course of business consistent with past practice, (B) any granting by the Company or any of its subsidiaries to any such director, officer or employee of any increase in severance or termination pay (including the acceleration in the exercisability of Company Options or in the vesting of Shares (or other property) or the provision of any tax gross-up), except as was required under employment, severance or termination agreements or plans in effect as of December 31, 1998 which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, or (C) any entry by the Company or any of its subsidiaries into any employment, deferred compensation, severance or termination agreement with any such current or former director, officer or employee, except in the ordinary course of business consistent with past practice, (v) any damage, destruction or loss, whether or not covered by insurance, that has had or could have a Material Adverse Effect, (vi) any change in accounting methods, principles or practices by the Company or any of its subsidiaries, except insofar as may have been required by a change in generally accepted accounting principles, (vii) any amendment of any material term of any outstanding security of the Company or any of its subsidiaries, (viii) any incurrence, assumption or guarantee by the Company or any of its subsidiaries of any material indebtedness for borrowed money other than in the ordinary course of business consistent with past practice, but in no event in the amount of more than $250,000 in the aggregate, (ix) any creation or assumption by the Company or any of its subsidiaries of any Lien on any asset other than in the ordinary course of business consistent with past practice, but in no event in the amount of more than $250,000 for any one transaction or $500,000 in the aggregate, (x) any making of any loan, advance or capital contributions to or investment in any person other than (A) made in the ordinary course of business consistent with past practice, but in no event in the amount of more than $100,000 for any one transaction or $150,000 in the aggregate and (B) investments in cash equivalents made in the ordinary course of business consistent with past practice, (xi) any transaction or commitment made, or any contract or agreement entered into, by the Company or any of its subsidiaries relating to its assets or business (including the acquisition or disposition of any assets or the merger or consolidation with any person) or any relinquishment by the Company or any of its subsidiaries of any contract or other right, in either case, material to the Company or any of its subsidiaries, other than transactions and commitments in the ordinary course of business consistent with past practice and those contemplated by this Agreement, but in no event representing commitments on behalf of the Company or any of its subsidiaries of more than $250,000 for any transaction or $500,000 for any series of transactions, (xii) any material labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Company or any of its subsidiaries, which employees were not subject to a collective bargaining agreement at December 31, 1998, or any material lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees or (xiii) any agreement, commitment, arrangement or undertaking by the Company or any of its subsidiaries to perform any action described in clauses (i) through (xii). (h) Litigation. Except as disclosed in the Company Filed SEC Documents or Section 4.1(h) of the Disclosure Schedule, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries that, individually or in the aggregate, could reasonably be expected to (i) have a Material Adverse Effect, (ii) impair the ability of the Company to perform its obligations under this Agreement or (iii) prevent or materially delay the consummation of the Offer, the Merger or any of the other transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its -12- 17 subsidiaries having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect. Section 4.1(h) of the Disclosure Schedule sets forth, with respect to any pending suit, action or proceeding to which the Company or any its subsidiaries is a party and which involves claims which could reasonably be expected to exceed $25,000, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed. (i) Absence of Changes in Stock or Benefit Plans. Except as disclosed in Section 4.1(i) or (g) of the Disclosure Schedule, since December 31, 1998, there has not been (i) any acceleration, amendment or change of the period of exercisability or vesting of any Company Options or restricted stock, stock bonus or other awards under the Stock Plans or any other options to purchase Shares or stock of any subsidiary of the Company (including any discretionary acceleration of the exercise periods or vesting by the Company's Board of Directors or any committee thereof or any other persons administering a Stock Plan) or authorization of cash payments in exchange for any Company Options, restricted stock, stock bonus or other awards granted under any of such Stock Plans or any other options to purchase Shares as stock of any subsidiary of the Company or (ii) any adoption or amendment by the Company or any of its subsidiaries of any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, stock appreciation right, retirement, vacation, severance, disability, death benefit, hospitalization, medical, workers' compensation, disability, supplementary unemployment benefits, or other plan, arrangement or understanding (whether or not legally binding) or any employment agreement providing compensation or benefits to any current or former employee, officer, director or independent contractor of the Company or any of its subsidiaries or any beneficiary thereof or entered into, maintained or contributed to, as the case may be, by the Company or any of its subsidiaries (collectively, "Benefit Plans") other than immaterial amendments to any such Benefit Plan. Section 4.1(i) of the Disclosure Schedule sets forth for each of the five most highly compensated employees of the Company, the aggregate maximum amount of all termination, severance or other similar benefits to which such employee is entitled in connection with the Merger and the other transactions contemplated by this Agreement. (j) Participation and Coverage in Benefit Plans. There has been no adoption of, or amendment to, or change in employee participation or coverage under, or written interpretation or announcement (whether or not written) by the Company or any of its subsidiaries relating to, any Benefit Plans which would increase materially the expense of maintaining such Benefit Plans above the level of the expense incurred in respect thereof for the fiscal year ended on December 31, 1998. (k) ERISA Compliance. (i) Section 4.1(k) of the Disclosure Schedule contains a list and brief description of all "employee pension benefit plans" (defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), "employee welfare benefit plans" (defined in Section 3(l) of ERISA) and all other Benefit Plans maintained, or contributed to, by the Company or any of its subsidiaries or ERISA affiliates (defined below) for the benefit of any current or former employees, officers or directors of the Company or any of its subsidiaries or ERISA affiliates or under which the Company or any of its subsidiaries or ERISA affiliates has any liability. The Company has made available to Parent complete and correct copies of (A) each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof) and all amendments thereto and written interpretations thereof, (B) the most recent annual report on Form 5500 filed with the Internal Revenue Service with respect to each Benefit Plan (if any such report was required), (C) the most recent summary plan description for each Benefit Plan for which such summary plan description is required -13- 18 and (D) each trust agreement and group annuity or insurance contract relating to any Benefit Plan. For purposes of this Agreement, "ERISA affiliate" of the Company means any person which, together with the Company or any of its subsidiaries, would be treated as a single employer under Section 414 of the Code. The only Benefit Plans which individually or collectively would constitute an "employee pension benefit plan" defined in Section 3(2) of ERISA (the "Pension Plans") are identified as such in Section 4.1(k) of the Disclosure Schedule. (ii) Each Benefit Plan has been maintained and administered in compliance in all material respects with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, and is, to the extent required by applicable law or contract, fully funded without having any deficit or unfunded actuarial liability. Any Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified and nothing has occurred to cause the loss of such qualified status. (iii) No Benefit Plan is covered by Title IV of ERISA or Section 412 of the Code. Neither the Company nor any of its subsidiaries has incurred or expects to incur any liability under Title IV of ERISA or any liability or penalty under Section 4975 or 4980B of the Code or Section 502(i) of ERISA. (iv) There are no pending or anticipated material claims against or otherwise involving any of the Benefit Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Benefit Plan activities) has been brought against or with respect to any Benefit Plan. (v) All material contributions, reserves or premium payments, required to be made as of the date hereof to or with respect to the Benefit Plans have been made or provided for. (vi) Except as required by law, neither the Company nor any of its subsidiaries has any obligations for post-retirement or post-termination health and life benefits under any Benefit Plan. (l) Taxes. As used in this Agreement, "tax" or "taxes" shall include all Federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or governmental charges or assessments of any nature whatsoever as well as any interest, penalties and additions thereto. (i) Except as set forth in Section 4.1(l) of the Disclosure Schedule, the Company and each of its subsidiaries have timely filed all tax returns, statements, reports and forms required to be filed with any tax authority and in accordance with all applicable laws (other than a failure in an immaterial matter). All such tax returns are correct and complete in all respects. Except as set forth in Section 4.1(l) of the Disclosure Schedule, the Company and each of its subsidiaries have paid (or the Company has paid on its behalf) all taxes required to be paid by it, and the most recent financial statements contained in the Company Filed SEC Documents reflect an adequate reserve for all taxes payable by the Company and its subsidiaries for all taxable periods and portions thereof through the date of such financial statements. There are no Liens on any of the assets of the Company or any of its subsidiaries that arose in connection with any failure (or alleged failure) to pay any tax. -14- 19 (ii) The Company and each of its subsidiaries has withheld and timely paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (iii) Neither the Company nor any of its subsidiaries expects any authority to assess any additional taxes against the Company or any of its subsidiaries for any period for which tax returns have been filed. Except as set forth in Section 4.1(l) of the Disclosure Schedule, no dispute or claim concerning any tax liability of the Company or any of its subsidiaries has been proposed or claimed in writing by any authority. The Company has provided Parent with a list of all Federal, state, local, and foreign income tax returns filed with respect to the Company and any of its subsidiaries for taxable periods ended on or after December 31, 1995, indicating those tax returns that have been audited, and indicating those tax returns that currently are the subject of audit. The Company has made available to Parent correct and complete copies of all its Federal income tax returns, and examination reports, and statements of deficiencies assessed against or agreed to by the Company and any of its subsidiaries since December 31, 1995. (iv) Neither the Company nor any of its subsidiaries has waived any statute of limitations in respect of taxes or agreed to any extension of time with respect to a tax assessment or deficiency. (v) Neither the Company nor any of its subsidiaries has filed a consent pursuant to Section 341(f) of the Code concerning collapsible corporations. Except as set forth in Section 4.1(l) of the Disclosure Schedule, neither the Company nor any of its subsidiaries is a party to any tax allocation or sharing agreement. Neither the Company nor any of its subsidiaries has any liability for the taxes of any person (other than the Company and any of its subsidiaries that is currently a member of the Company's affiliated group filing a consolidated federal income tax return) under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (vi) As of the date of the most recent financial statements included in the Company Filed SEC Documents, the unpaid taxes of the Company and its subsidiaries did not exceed the liability for taxes (rather than any reserve for deferred taxes established to reflect timing differences between book and tax income) set forth on the face of such financial statements. (vii) Neither the Company nor any of its subsidiaries is required to include in income any adjustment pursuant to Section 481(a) of the Code (or similar provisions of other law or regulations) in its current or in any future taxable period by reason of a change in accounting method; nor does the Company or any of its subsidiaries have any knowledge that the Internal Revenue Service (or other taxing authority) has proposed or is considering proposing, any such change in accounting method. Neither the Company nor any of its subsidiaries is a party to any agreement, contract, or arrangement that, individually or collectively, could give rise to the payment of any amount (whether in cash or property, including Company Stock) that would not be deductible pursuant to the terms of Sections 162(a)(1), 162(m), 162(n) or 280G of the Code. (m) State Takeover Statutes. The Board of Directors of the Company has approved the Offer, the Merger, the Stockholder Option Agreement and this Agreement, and such approval is sufficient to render inapplicable to the Offer, the Merger, the Stockholder Option -15- 20 Agreement, this Agreement, and the transactions contemplated hereby or thereby, the provisions of Section 203 of Delaware Law. To the Company's knowledge, no other "fair price", "moratorium", "control share acquisition", or other anti-takeover statute or similar statute or regulation, applies or purports to apply to the Offer, the Merger, the Stockholder Option Agreement, this Agreement, or any of the transactions contemplated hereby or thereby. (n) Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than DLJ, the fees and expenses of which will be paid by the Company (and a copy of whose engagement letter and a calculation of the fees that would be due thereunder has been provided to Parent), is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any of its subsidiaries. No such engagement letter obligates the Company to continue to use the services or pay fees or expenses in connection with any future transaction. (o) Permits; Compliance with Laws. Each of the Company and its subsidiaries has in effect all federal, state, local and foreign governmental approvals, authorizations, certificates, filings, franchises, licenses, notices, permits and rights ("Permits") necessary for it to own, lease or operate its properties and assets and to carry on its business as now conducted, and there has occurred no default under any such Permit, except for the absence of Permits and for defaults under Permits which absence or defaults, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. The Company and its subsidiaries have been, and are, in compliance in all material respects with all applicable statutes, laws, ordinances, regulations, rules, judgments, decrees or orders of any Governmental Entity, and neither the Company nor any of its subsidiaries has received any notice from any Governmental Entity or any other person that either the Company or any of its subsidiaries is in violation of, or has violated, in any material respect any applicable statutes, laws, ordinances, regulations, rules, judgments, decrees or orders. (p) Contracts; Debt Instruments; Leases. (i) Except as otherwise disclosed in Section 4.1(p)(i)(A)-(F) of the Disclosure Schedule, neither the Company nor any of its subsidiaries is a party to or subject to: (A) any union contract, or any employment consulting, severance, termination, or indemnification agreement, contract or arrangement providing for future payments, written or oral, with any current or former officer, consultant, director or employee which (1) exceeds $25,000 per annum or (2) requires aggregate annual payments or total payments over the life of such agreement, contract or arrangement to such current or former officer, consultant, director or employee in excess of $25,000 or $50,000, respectively, and is not terminable by it or its subsidiary on 30 days' notice or less without penalty or obligation to make payments related to such termination; (B) any joint venture contract or arrangement or any other agreement which has involved or is expected to involve a sharing of revenues that nets the Company $500,000 per annum or more of revenues; (C) any lease for real or personal property (including mineral leases (other than oil or gas leases)), "non-HBP" leases, take-or-pay arrangements, recoupment arrangements, -16- 21 Fixed Price Contracts (as defined below in Section 4.1(w)(ii)), agreements for the sale or production of Hydrocarbons (as defined below in Section 4.1(w)(iii)), gas gathering agreements, gas treatment agreements, gas compression agreements, transportation agreements, agreements to purchase pipes, facilities or equipment or other contracts or agreements relating to the Company's or any of its subsidiaries' Oil and Gas Interests (as defined below in Section 4.1(w)(i)); (D) any material agreement, contract, policy, license, Permit, document, instrument, arrangement or commitment which has not been terminated or performed in its entirety and not renewed which may be, by its terms, terminated, impaired or adversely affected by reason of the execution of this Agreement, the closing of the Offer or the Merger, or the consummation of the transactions contemplated hereby; (E) any agreement, contract, policy, license, Permit, document, instrument, arrangement or commitment that materially limits the freedom of the Company or any subsidiary of the Company to compete in any line of business or with any person or in any geographic area or which would so materially limit the freedom of the Company or any subsidiary of the Company after the Effective Time; or (F) any other agreement, contract, policy, license, Permit, document, instrument, arrangement or commitment not made in the ordinary course of business which is material to the Company or any of its subsidiaries. (ii) All contracts, policies, agreements, leases, licenses, Permits, documents, instruments, arrangements and other commitments listed in Section 4.1(p)(i)(A)-(F) and Section 4.1(p)(iv) of the Disclosure Schedule or otherwise disclosed in the Company Filed SEC Documents are valid and binding agreements of the Company or a subsidiary of the Company and are in full force and effect, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability in considered in a proceeding in equity or at law, and, except as set forth in Section 4.1(p) of the Disclosure Schedule, neither the Company, any of its subsidiaries nor, to the knowledge of the Company, any other party thereto, is in default in any material respect under the terms of any such contract, plan, arrangement, agreement, lease, license, Permit, instrument or other commitment. (iii) Except as set forth in Section 4.1(p) of the Disclosure Schedule, neither the Company nor any subsidiary of the Company is in default in any material respect under the terms of any exclusive license or distribution agreement or arrangement, true and complete copies or descriptions of all of which have been made available to Parent. To the knowledge of the Company, none of the parties to any of the contracts identified pursuant to the immediately proceeding sentence, in Section 4.1(p)(i)(A)-(F) of the Disclosure Schedule or otherwise disclosed in the Company Filed SEC Documents has terminated, or in any way expressed an intent to materially reduce or terminate the amount of, its business with the Company or any of its subsidiaries in the future. (iv) Set forth in Section 4.1(p)(iv) of the Disclosure Schedule is (A) a list of all loan or credit agreements, notes, bonds, mortgages, indentures and other agreements and instruments -17- 22 pursuant to which any indebtedness of the Company or any of its subsidiaries in an aggregate principal amount in excess of $100,000 is outstanding or may be incurred and (B) the respective principal amounts currently outstanding thereunder. For purposes of this Section 4.1(p)(iv), "indebtedness" shall mean, with respect to any person, without duplication, (A) all obligations of such person for borrowed money, or with respect to deposits or advances of any kind to such person, (B) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (C) all obligations of such person upon which interest charges are customarily paid, (D) all obligations of such person under conditional sale or other title retention agreements relating to property purchased by such person, (E) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding obligations of such person to creditors for raw materials, inventory, services and supplies incurred in the ordinary course of such person's business), (F) all capitalized lease obligations of such person, (G) all obligations of others secured by any Lien on property or assets owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (H) all obligations of such person under interest rate or currency swap transactions (valued at the termination value thereof), (I) all letters of credit issued for the account of such person (excluding letters of credit issued for the benefit of suppliers to support accounts payable to suppliers incurred in the ordinary course of business), (J) all obligations of such person to purchase securities (or other property) which arises out of or in connection with the sale of the same or substantially similar securities or property, and (K) all guarantees and arrangements having the economic effect of a guarantee of such person of any indebtedness of any other person. (q) Opinion of Financial Advisor. The Company has received the opinion of DLJ, dated the date hereof, a copy of which has been or, within two business days of the date hereof, will be provided to Parent, to the effect that, as of such date, the consideration to be paid in the Offer and the Merger is fair to the Company's stockholders from a financial point of view. (r) Interests of Officers and Directors. None of the Company's or any of its subsidiaries' officers or directors has any interest in any property, real or personal, tangible or intangible, including inventions, patents, copyrights, trademarks, trade names, trade secrets or know-how, used in or pertaining to the business of the Company or that of its subsidiaries, or any supplier, distributor or customer of the Company or any of its subsidiaries, except for the normal rights of a stockholder and rights under existing Benefit Plans and Stock Plans. (s) Technology. (i) Except as set forth in Section 4.1(s)(i) of the Disclosure Schedule, the Company exclusively owns, or is licensed to use, without restriction, the rights to all patents, trademarks, trade names, service marks, copyrights and any applications therefor, inventories, technology, trade secrets, know-how, 3-D seismic data, computer software programs or applications and tangible or intangible proprietary information or material that in any material respect are used or proposed to be used in the business of the Company and any of its subsidiaries as currently conducted or proposed to be conducted (the "Company Intellectual Property Rights"). Section 4.1(s)(i) of the Disclosure Schedule lists: (A) all patents, trademarks, trade names, service marks, registered and unregistered copyrights, and any applications therefor included in the Company Intellectual Property Rights; (B) all licenses and other agreements to which the Company or any of its subsidiaries is a party and pursuant to which the Company or any of its subsidiaries is authorized to use any Company Intellectual Property Right, and includes the identities of the parties thereto, a description of the nature and subject matter thereof, the applicable royalty and the term thereof; and (C) all 3-D seismic data included in the Company Intellectual Property Rights. Neither the Company nor any of its subsidiaries -18- 23 is, or as a result of the execution, delivery or performance of the Company's obligations hereunder will be, in violation in any material respect of, or lose any rights (other than immaterial rights) pursuant to, any license or agreement described in Section 4.1(s) of the Disclosure Schedule. (ii) No claims with respect to the Company Intellectual Property Rights have been asserted or, to the knowledge of the Company, are threatened by any person nor does the Company or any subsidiary of the Company know of any valid grounds for any bona fide claims (A) to the effect that the manufacture, sale or use of any product or process as now used or offered or proposed for use or sale by the Company or any subsidiary of the Company infringes on any copyright, trade secret, patent or other intellectual property right of any person, (B) against the use by the Company or any subsidiary of the Company of any Company Intellectual Property Rights, or (C) challenging the ownership, validity or effectiveness of any of the Company Intellectual Property Rights. All granted and issued patents and all registered trademarks and service marks listed in Section 4.1(s) of the Disclosure Schedule and all copyrights held by the Company or any of its subsidiaries are valid, enforceable and subsisting. To the Company's knowledge, there has not been and there is not any material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property Rights by any third party, employee or former employee. (t) Change of Control. Except as disclosed in Section 2.5(c), 4.1(i) or 4.1(t) of the Disclosure Schedule, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of the Company or any of its subsidiaries, from the Company or any of its subsidiaries under any Stock Plan, Benefit Plan, agreement or otherwise, (ii) materially increase any benefits otherwise payable under any Stock Plan, Benefit Plan, agreement or otherwise or (iii) result in the acceleration of the time of payment, exercise or vesting of any such benefits, in each case, that could reasonably be expected to have a Material Adverse Effect. (u) Environmental. Except as set forth in Section 4.1(u) of the Disclosure Schedule, (i) the businesses as presently or formerly engaged in by the Company and its subsidiaries are and have been conducted in compliance in all material respects with all applicable Environmental Laws (defined below), including having all permits, licenses and other approvals and authorizations, during the time the Company (or such subsidiary) engaged in such businesses, (ii) the properties presently or formerly owned or operated by the Company or any subsidiary of the Company (including soil, groundwater or surface water on, under or adjacent to the properties, and buildings thereon) ("Company Properties") do not contain any Hazardous Substance (defined below) other than as permitted under applicable Environmental Laws, (iii) neither the Company nor any subsidiary of the Company has received any notices, demand letters or requests for information from any federal, state, local or foreign governmental entity or any third party indicating that the Company or any subsidiary of the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of the Company's or any of its subsidiaries' businesses, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or threatened against the Company or any subsidiary of the Company with respect to the Company or any subsidiary of the Company or the Company Properties relating to any violation, or alleged violation, of any Environmental Law, (v) no reports have been filed, or are required to be filed, by the Company or any subsidiary of the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law on or at Company Properties, (vi) no Hazardous Substance -19- 24 has been disposed of, transferred, released or transported from any Company Property during the time such Company Property was owned or operated by the Company or any subsidiary of the Company, other than as permitted under applicable Environmental Law, (vii) there have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by or which are in the possession of the Company or any subsidiary of the Company relating to the Company or any subsidiary of the Company or the Company Properties which have not been delivered to Parent prior to the date hereof, (viii) there are no underground storage tanks on, in or under any of the Company Properties and no underground storage tanks have been closed or removed from any Company Properties while such Company Property was in the ownership of the Company or any subsidiary of the Company, (ix) there is no asbestos present in any Company Property presently owned or operated by the Company or any subsidiary of the Company, and no asbestos has been removed from any Company Property while such Company Property was owned or operated by the Company or any subsidiary of the Company, (x) none of the Company Properties has been used at any time by the Company or any subsidiary of the Company as a sanitary landfill or hazardous waste disposal site, and (xi) neither the Company nor any subsidiary of the Company has incurred, and none of the Company Properties are presently subject to, any liabilities (fixed or contingent) relating to any suit, settlement, court order, administrative order, judgment or claim asserted or arising under any Environmental Law. "Environmental Law" means (i) any federal, state, foreign and local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, legal doctrine, order, judgment, decree, injunction, requirement or agreement with any governmental entity, (A) relating to the protection, preservation or restoration of the environment (including air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety or (B) relating to the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of, Hazardous Substances, in each case as amended and as now or hereafter in effect and (ii) any common law or equitable doctrine (including injunctive relief) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Substance. "Hazardous Substance" means any substance presently or hereafter listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any substance containing any such substance as a component. The term "Hazardous Substance" includes any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, industrial substance or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos, asbestos containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl. (v) Title to Properties. Except as set forth in Section 4.1(v) of the Disclosure Schedule, (i) each of the Company and its subsidiaries has good and indefeasible title to, or valid leasehold interests in, all its properties and assets (including all oil and gas interests), free and clear of all Liens, except for defects in title, easements, restrictive covenants and similar encumbrances or impediments that, in the aggregate, do not and will not materially interfere with the use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties; -20- 25 (ii) each of the Company and its subsidiaries has complied in all material respects with the terms of all leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect and each of the Company and each of its subsidiaries enjoys peaceful and undisturbed possession under all such leases; (iii) all royalties, rentals, shut-in gas payments and other payments due with respect to the Company's and its subsidiaries' Oil and Gas Interests (as defined in Section 4.1(w)(i)) have been properly and timely paid, except (A) for payments held in suspense for title or other reasons which are customary in the industry and which will not result in grounds for cancellation of the Company's or its subsidiaries' rights in such Oil and Gas Interests and (B) such failures as would not have a Material Adverse Effect; and (iv) neither the Company nor any of its subsidiaries is in default (and there exists no event or circumstance which with notice or the passage of time or both could constitute a default by the Company or its Subsidiaries) under the terms of any leases, farmout agreements or other contracts or agreements respecting the Company's or its subsidiaries' Oil and Gas Interests which could (A) interfere in any material respect with the operation or use thereof, (B) prevent the Company or its subsidiaries from receiving the proceeds of production attributable to their interest therein, (C) result in cancellation of the Company's interest therein, or (D) impair the value of the Company's or its subsidiaries' interest therein. (w) Other Obligations. (i) Except as set forth in Section 4.1 (w) of the Disclosure Schedule, (i) none of the Company's or its subsidiaries' Oil and Gas Interests are subject to any contract or agreement providing for recoupment of sums paid in respect of take or pay gas purchase contracts or other similar provision such that the owner of such assets will not receive the full amount of revenue from the sale of production attributable to the ownership interest therein; and (ii) there exists no imbalance regarding production taken or marketed from such assets or any portion thereof which could result in (1) a portion of the interest in production therefrom to be taken or delivered after the Effective Time without the Company or any of its subsidiaries receiving payment therefor and at the price it would have received absent such imbalance; (2) the Company or any of its subsidiaries, after the Effective Time, being obligated to make payment to any person or entity as a result of such imbalance; or (3) production being shut-in or curtailed after the Effective Time due to non-compliance with allowables, production quotas, proration rules or similar orders or regulations of any governmental authorities. "Oil and Gas Interests" means direct and indirect interests in and rights with respect to oil, gas, helium, carbon dioxide, mineral, and related properties and assets of any kind and nature, direct or indirect, including leasehold, working, royalty and overriding royalty interests, production payments, operating rights, net profit interests, other non-working interests, and non-operating interests. (ii) Except as disclosed in Section 4.1(w) of the Disclosure Schedule, none of the Company and its subsidiaries engages in any natural gas or other futures or options trading or is a party to any price swaps, hedges, futures or similar instruments. Section 4.1(w) of the Disclosure Schedule discloses a true and correct statement of the position, as of the date hereof, of the Company and its subsidiaries with respect to obligations under Fixed Price Contracts (including, with respect to each Fixed Price Contract, location of delivery and variations in the obligation to take or deliver) -21- 26 and related Hydrocarbon (as defined in Section 4.1(w)(iii)) price swaps, hedges, futures or similar instruments to which the Company or any of its subsidiaries is a party and that are material to the Company. "Fixed Price Contracts" shall mean any contracts, commitments or agreements for the purchase or sale of Hydrocarbons (x) having a remaining term of more than sixty (60) days, wherein the purchase or sale price thereunder throughout part of the remaining life of such contract, commitment or agreement is a fixed amount or an amount that is otherwise reasonably determinable as of the date hereof pursuant to the terms of such contract, commitment or agreement, or (y) which has been hedged with futures contracts or otherwise; provided, however, that the term Fixed Price Contracts will not include any contract, commitment or agreement under which the purchase or sales price throughout the remaining life of the contract, commitment or agreement is based on a market responsive reference price for a Hydrocarbon. (iii) Neither the Company nor any of its subsidiaries has entered into, or is a party to, or has any obligations under, any contract for the purchase of Hydrocarbons or other property or services that require payment to be made by the Company or its subsidiaries regardless of whether or not delivery is ever made of such Hydrocarbons or other property or services. "Hydrocarbons" shall mean crude oil, natural gas, natural gas liquids and other hydrocarbons produced from crude oil or natural gas. (x) Public Utility Holding Company Act; Non-Utility Status. Except as set forth in Section 4.1(x) of the Disclosure Schedule, (i) neither the Company nor any of its subsidiaries is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" as such terms are defined in the Public Utility Holding Company Act of 1935, as amended; (ii) neither the Company nor any of its subsidiaries is a regulated utility under the laws of any state; (iii) no claim or complaint to the effect that the Company or any of its subsidiaries is a regulated utility under the laws of any state has been made to the Company or any of its subsidiaries or by or, to the knowledge of the Company, to any public utilities commission of any state; and (iv) neither the Company nor any of its subsidiaries has offered pipeline service or gas transportation services to the general public or to any significant segment thereof or has dedicated its pipelines or related facilities in any manner to public use. Section 4.1(x) of the Disclosure Schedule discloses all persons or entities for whom gas has been transported by the Company or any of its subsidiaries. (y) Year 2000. Except as disclosed in Section 4.1(y) of the Disclosure Schedule, all of the MIS Systems (other than immaterial Systems), fuel operations and the Facilities (other than immaterial Facilities) are, or prior to December 31, 1999 are reasonably expected to be, Year 2000 Compliant. To the knowledge of the Company, all material vendors of products or services to the Company and its subsidiaries will continue to furnish its products or services to the Company and its subsidiaries (other than immaterial products and services) without interruption or material delay, on and after January 1, 2000 and such products and services are Year 2000 compliant. Section 4.1(y) of the Disclosure Schedule sets forth a list of all vendor and supplier Year 2000 compliance certificates received by the Company. "Year 2000 Compliant" means that (i) the MIS Systems accurately process, provide and/or receive all date/time data (including calculating, comparing, sequencing, processing and outputting) within, from, into, and between centuries (including the twentieth and twenty-first centuries and the years 1999 and 2000), including leap year calculations, and (ii) neither the performance nor the functionality nor the Company's or any of its subsidiaries' provision of the products, services, and other item(s) at issue will be affected by any dates/times prior to, on, after, or spanning January 1, 2000. "Facilities" means any facilities or equipment used by the Company or -22- 27 any of its subsidiaries' in any location, including HVAC systems, mechanical systems, elevators, security systems, fire suppression systems, telecommunications systems, and equipment, whether or not owned by the Company or any of its subsidiaries. "MIS Systems" means any computer software and systems (including hardware, firmware, operating system software, utilities, and applications software) used in the ordinary course of business by or on behalf of the Company or any of its subsidiaries, including the Company's or any of its subsidiaries' payroll, accounting, billing/receivables, inventory, asset tracking, customer service, human resources, and e-mail systems. (z) Insurance. Schedule 4.1(z) of the Disclosure Schedule contains a true and complete list of all insurance policies held by either the Company or any of its subsidiaries. All such policies held by the Company or its subsidiaries, are in full force and effect and all related premiums have been paid to date. To the knowledge of the Company, there are no pending or threatened disputes or communications with or from any insurance carrier denying or disputing any claim or regarding cancellation or nonrenewal of any such policy. (aa) Disclosure. No representation or warranty of the Company contained in this Agreement, and no statement contained in the Disclosure Schedule, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained herein or therein, in light of the circumstances under which they were made, not misleading. SECTION 4.2. Representations and Warranties of Parent and Merger Subsidiary. Parent and Merger Subsidiary represent and warrant to the Company as follows: (a) Organization, Standing and Corporate Power. Each of Parent and Merger Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted. (b) Authority; Noncontravention. Parent and Merger Subsidiary have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Merger Subsidiary. This Agreement has been duly executed and delivered by Parent and Merger Subsidiary and, assuming this Agreement constitutes a valid and binding agreement of the Company, constitutes a valid and binding obligation of such party, enforceable against such party in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or any of its subsidiaries under, (i) the certificate of incorporation or by-laws of Parent or Merger Subsidiary or the comparable charter or organizational documents of any other subsidiary of -23- 28 Parent, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or Merger Subsidiary or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent, Merger Subsidiary or any other subsidiary of Parent or their respective properties or assets, other than, in the case of clause (ii) or (iii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (A) have a material adverse effect on Parent or any of its subsidiaries, (B) impair the ability of Parent and Merger Subsidiary to perform their respective obligations under this Agreement or (C) prevent the consummation of any of the transactions contemplated by this Agreement. No Consent is required by or with respect to Parent, Merger Subsidiary or any other subsidiary of Parent in connection with the execution and delivery of this Agreement or the consummation by Parent or Merger Subsidiary, as the case may be, of any of the transactions contemplated by this Agreement, except for (i) the filing of a certificate of merger in accordance with Delaware Law and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (ii) the filing of a premerger notification and report form under the HSR Act, (iii) compliance with any applicable requirements of the Exchange Act, (iv) such notices, filings and consents as may be required under relevant state property transfer or environmental laws and (v) such other consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the laws of any foreign country in which the Company or any of its subsidiaries conducts any business or owns any property or assets. (c) Disclosure Documents. (i) The information with respect to Parent and its subsidiaries that Parent furnishes to the Company in writing specifically for use in any Company Disclosure Document will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading (A) in the case of the Company Proxy Statement at the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to stockholders of the Company, at the time the stockholders vote on adoption of this Agreement and at the Effective Time, and (B) in the case of any Company Disclosure Document other than the Company Proxy Statement, at the time of the filing thereof and at the time of any distribution thereof. (ii) The Offer Documents, when filed, will comply as to form in all material respects with the applicable requirements of the Exchange Act and will not at the time of the filing thereof, at the time of any distribution thereof or at the time of consummation of the Offer, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading, provided, that this representation and warranty will not apply to statements or omissions in the Offer Documents based upon information furnished to Parent or Merger Subsidiary in writing by the Company specifically for use therein. (d) Brokers. 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 in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Merger Subsidiary. -24- 29 ARTICLE V COVENANTS OF THE COMPANY The Company agrees that: SECTION 5.1. Conduct of Business. During the period from the date of this Agreement to the Effective Time, the Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing business shall be unimpaired at the Effective Time. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, the Company shall not, and shall not permit any of its subsidiaries to, without the prior written approval of Parent (which determination by Parent shall not be unreasonably delayed): (a) (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly owned subsidiary of the Company to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than in connection with the exercise of Company Options); (b) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Shares upon the exercise of Company Options); (c) amend its certificate of incorporation, by-laws or other comparable charter or organizational documents; (d) except as set forth in Section 5.1(d) of the Disclosure Schedule, acquire or agree to acquire (including, without limitation, by merger, consolidation or acquisitions of stock or assets) any business, including through the acquisition of any interest in any corporation, partnership, limited liability company, joint venture, association or other business organization or division thereof; (e) mortgage or otherwise encumber or subject to any Lien or, except in the ordinary course of business consistent with past practice and pursuant to existing contracts or commitments, sell, lease, license, transfer or otherwise dispose of any of the Company Intellectual Property Rights or any other material properties or assets, except as disclosed in Section 5.1(e) of the Disclosure Schedule; -25- 30 (f) except as set forth in Section 5.1(f) of the Disclosure Schedule, make or agree to make any new capital expenditures in excess of $500,000; (g) make any material tax election (unless required by law) or settle or compromise any material income tax liability; (h) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice and in accordance with their terms, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; (i) commence a lawsuit other than (i) for the routine collection of bills or (ii) in such cases where the Company in good faith determines that the failure to commence suit would result in a material impairment of a valuable aspect of the Company's business, provided that the Company consults with Parent prior to filing such suit; (j) (i) enter into or amend any employment or severance agreement or similar arrangements, (ii) make any determination as to amounts payable under any plan, arrangement, or agreement, providing for discretionary incentive compensation or bonus to any officer, director, employee or independent contractor of the Company or any of its subsidiaries or (iii) enter into, adopt, or amend any agreement, arrangement, or Benefit Plan so as to increase the liability (whether or not contingent) of the Company or the Parent or any of their subsidiaries in respect of compensation or benefits except as may be required by law; (k) incur any additional indebtedness (as defined in Section 4.1(p)(iv)) other than borrowings under the Company's senior bank credit facilities as in effect on the date hereof; or (l) authorize any of, or commit or agree to take any of, the foregoing actions; or (m) (i) take or agree or commit to take any action that would make any representation or warranty of the Company hereunder inaccurate in any material respect at, or as of any time prior to, the Effective Time or (ii) omit or agree or commit to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time. SECTION 5.2. Stockholder Meeting; Proxy Material. The Company shall cause a meeting of its stockholders (the "Company Stockholder Meeting") to be duly called and held as soon as reasonably practicable following Merger Subsidiary's acquisition of Shares in the Offer for the purpose of voting on the approval and adoption of this Agreement and the Merger unless a vote of stockholders of the Company is not required by Delaware Law. The Directors of the Company shall, subject to their fiduciary duties as advised by Winstead Sechrest & Minick P.C., counsel to the Company, recommend approval and adoption of this Agreement and the Merger by the Company's stockholders. In connection with such meeting, the Company (i) will promptly prepare and file with the SEC, will use its best efforts to have cleared by the SEC and will thereafter mail to its stockholders as promptly as practicable the Company Proxy Statement and all other proxy materials for such meeting, (ii) subject to the fiduciary duties of the Board of Directors of the Company as -26- 31 advised by Winstead Sechrest & Minick P.C., counsel to the Company, will use its best efforts to obtain the necessary approvals by its stockholders of this Agreement and the transactions contemplated hereby and (iii) will otherwise comply with all legal requirements applicable to such meeting. SECTION 5.3. Access to Information. Subject to the terms of that certain Confidentiality Agreement dated June 15, 1999, (a) from the date hereof until the Effective Time, the Company shall, and shall cause each of its subsidiaries to, give Parent, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours and upon reasonable notice) to the offices, properties, books and records of the Company and the subsidiaries, will furnish to Parent, its counsel, financial advisors, auditors and other authorized representatives all their respective properties, books, contracts, commitments, personnel and records and, during such period, the Company shall, and shall cause each of its subsidiaries to, furnish (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of Federal or state securities laws, (ii) a copy of each tax return, report and information statement filed by it during such period, and (iii) all other information concerning its business, assets, properties and personnel (including financial and operating data) as such persons may reasonably request and will instruct the Company's employees, counsel and financial advisors to cooperate with Parent in its investigation of the business of the Company and the subsidiaries; provided that no investigation pursuant to this Section 5.3 shall affect any representation or warranty given by the Company hereunder. (b) from the date hereof until the Effective Time, the Company will give Parent, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours and upon reasonable notice) to all abstracts of title, title opinions, title files, ownership maps, lease files, assignments, division orders, check vouchers and payment statements as the same may now be in existence and in the possession of the Company. (c) from the date hereof until the Effective Time, the Company will give Parent, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours at their actual location) to all accounting, revenue, marketing, transportation, processing, environmental, geological, geophysical, production and engineering books, records and data in possession of Company, except such records or data which Company is prevented by contractual obligations with third parties from disclosing; provided that in the event Seller is prohibited from making files or records available because of provisions of third party agreements, then Company shall inform Parent of the existence of such records, the parties thereto and the subject matter of such records. SECTION 5.4. Other Offers. Until the termination of this Agreement, the Company and its subsidiaries will not, and will not authorize or permit the officers, directors, employees or other agents of the Company and its subsidiaries to, directly or indirectly, (i) take any action to solicit, initiate or encourage any Acquisition Proposal (defined below) or (ii) subject to the fiduciary duties of the Board of Directors under applicable law, as advised by Winstead Sechrest & Minick P.C., counsel to the Company, and in response to an unsolicited request that has been submitted to the Company's Board of Directors and determined to be a Superior Acquisition Proposal (defined below), engage in negotiations with, or disclose any nonpublic information relating to the Company or any of its subsidiaries or afford access to the properties, books or records of the Company or any -27- 32 of its subsidiaries to, any person that has advised the Company that it may be considering making, or that has made, an Acquisition Proposal, provided, nothing herein shall prohibit the Company's Board of Directors from taking and disclosing to the Company's stockholders a position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. The Company will promptly notify Parent after receipt of any Acquisition Proposal or any indication that any person is considering making an Acquisition Proposal or any request for nonpublic information relating to the Company or any of its subsidiaries or for access to the properties, books or records of the Company or any of its subsidiaries by any person that has advised the Company that it may be considering making, or that has made, an Acquisition Proposal and will keep Parent fully informed of the status and details of any such Acquisition Proposal, notice or request. For purposes of this Agreement, "Acquisition Proposal" means any offer or proposal for, or any indication of interest in, a merger or other business combination involving the Company or any of its subsidiaries or the acquisition of any significant equity interest in, or a significant portion of the assets of, the Company or any of its subsidiaries, other than the transactions contemplated by this Agreement. "Superior Acquisition Proposal" means an acquisition proposal which a majority of the Company's disinterested directors determines in its good faith judgment (after receiving the advice of the Company's independent financial advisor) to be more favorable to the Company's stockholders than the Offer or the Merger, and for which financing, to the extent required, is then committed or which a majority of the Company's disinterested directors reasonably believes will be available when required. For purposes of this Section 5.4, direct or indirect ownership of Shares shall not by itself cause a director to not be deemed to be disinterested. SECTION 5.5. State Takeover Statutes. If any "fair price", "control share acquisition", "moratorium" or other anti-takeover statute, or similar statute or regulation shall become applicable to this Agreement, the Stockholder Option Agreement or any of the transactions contemplated hereby or thereby, including, without limitation, the Offer or the Merger, the Company and its Board of Directors shall take all action necessary to ensure that the Offer, the Merger and the other transactions contemplated hereby and thereby, may be consummated as promptly as practicable on the terms contemplated hereby and otherwise to minimize the effect of such statute or regulation on the Offer, the Merger and the other transactions contemplated hereby or thereby. ARTICLE VI COVENANTS OF PARENT Parent agrees that: SECTION 6.1. Obligations of Merger Subsidiary. Parent will take all action necessary to cause Merger Subsidiary to perform its obligations under this Agreement and to consummate the Offer and the Merger on the terms and conditions set forth in this Agreement. SECTION 6.2. Voting of Shares. Parent agrees to make a quorum and vote all Shares acquired in the Offer or otherwise beneficially owned by it in favor of adoption of this Agreement at the Company Stockholder Meeting. SECTION 6.3. Director and Officer Liability. Parent will cause the Surviving Corporation to indemnify and hold harmless the present and former officers, directors, employees -28- 33 and agents of the Company (the "Indemnified Parties") in respect of acts or omissions occurring on or prior to the Effective Time to the extent provided under the Company's certificate of incorporation and bylaws in effect on the date hereof; provided that such indemnification shall be subject to any limitation imposed from time to time under applicable law. For three years after the Effective Time, Parent will cause the Surviving Corporation to use its best efforts to provide officers' and directors' liability insurance in respect of acts or omissions occurring on or prior to the Effective Time covering each such person currently covered by the Company's officers' and directors' liability insurance policy on terms substantially similar to those of such policy in effect on the date hereof, provided that in satisfying its obligation under this Section, Parent shall not be obligated to cause the Surviving Corporation to pay premiums in excess of 150% of the amount per annum the Company paid in its last full fiscal year, which amount has been disclosed to Parent, and if the Surviving Corporation is unable to obtain the insurance required by this Section 6.3, it shall obtain as much comparable insurance as possible for an annual premium equal to such maximum amount. Without limitation of the foregoing, in the event any such Indemnified Party is or becomes involved in any capacity in any action, proceeding or investigation in connection with any matter relating to the Merger, the Offer or this Agreement occurring on or prior to the Effective Time, Parent shall cause the Surviving Corporation to pay as incurred such Indemnified Party's reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. Parent shall ensure that, at all relevant times, the Surviving Corporation will have access to sufficient funds to fulfill its obligations pursuant to this Section 6.3. SECTION 6.4. Employees. Parent agrees to honor (or cause the Surviving Corporation to honor) in accordance with their terms all Benefit Plans previously delivered to Parent and all accrued benefits vested thereunder; it being understood and agreed that nothing in this Section 6.4 shall prevent Parent from terminating any such Benefit Plan in accordance with its terms. For purposes of this Section 6.4, any Benefit Plan that is a Company Filed SEC Document shall be deemed to have been delivered to Parent. In the event that Parent shall merge any Benefit Plan with any benefit plan of Parent or otherwise modify any Benefit Plan, prior service with the Company will be counted for purposes of employee eligibility, seniority and vesting under such benefit plan, and any pre-existing condition shall be waived for each employee so long as such employee has had medical coverage under the applicable Benefit Plan for at least six months immediately prior to the Effective Time. ARTICLE VII COVENANTS OF PARENT AND THE COMPANY The parties hereto agree that: SECTION 7.1. HSR Act Filings; Reasonable Efforts; Notification. (a) Each of Parent and the Company shall, if applicable, (i) promptly make or cause to be made the filings required of such party or any of its subsidiaries under the HSR Act with respect to the transactions contemplated by this Agreement, (ii) comply at the earliest practicable date with any request under the HSR Act for additional information, documents, or other material received by such party or any of its subsidiaries from the Federal Trade Commission or the Department of Justice or any other Governmental Entity in respect of such filings or such transactions, and (iii) cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other -29- 34 inquiry of any such agency or other Governmental Entity under any Antitrust Laws (defined below) with respect to any such filing or any such transaction. Each party shall promptly inform the other party of any communication with, and any proposed understanding, undertaking, or agreement with, any Governmental Entity regarding any such filings or any such transaction. Neither party shall participate in any meeting with any Governmental Entity in respect of any such filings, investigation, or other inquiry without giving the other party notice of the meeting and, to the extent permitted by such Governmental Entity, the opportunity to attend and participate. (b) Each of Parent and the Company shall use all commercially reasonable efforts to resolve such objections, if any, as may be asserted by any Governmental Entity with respect to the transactions contemplated by this Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other Federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, "Antitrust Laws"). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any Antitrust Law, and, if by mutual agreement, Parent and the Company decide that litigation is in their best interests, each of Parent and the Company shall cooperate and use all reasonable efforts vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent (each an "Order"), that is in effect and that prohibits, prevents, or restricts consummation of any such transaction. Each of Parent and the Company shall use all commercially reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as possible after the execution of this Agreement. (c) Each of the parties agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer, the Merger, and the other transactions contemplated by this Agreement, including (i) the obtaining of all other necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all other necessary registrations and filings (including other filings with Governmental Entities, if any), (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the preparation of the Company Disclosure Documents and the Offer Documents, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. (d) Notwithstanding anything to the contrary in Section 7.1(a), (b) or (c), (i) neither Parent nor any of its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a material adverse effect on the business, assets, financial condition, results of operations or prospects of Parent or any of its subsidiaries or the Surviving Corporation after the Effective Time, (ii) neither the Company nor its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect, (iii) no party shall be required to agree to the imposition of, or to comply with, any condition, -30- 35 obligation or restriction on Parent or any of its subsidiaries or on the Surviving Corporation or any of its subsidiaries of the type referred to in clause (a) or (b) of Annex I and (iv) neither Parent nor Merger Subsidiary shall be required to waive any of the conditions to the Offer set forth in Annex I or any of the conditions to the Merger set forth in Section VIII. (e) The Company shall give prompt notice to Parent of (i) any material representation or warranty made by it contained in this Agreement becoming untrue or inaccurate in any material respect, (ii) upon the Company's obtaining knowledge thereof, any representation or warranty made by it contained in this Agreement and not covered by clause (i) above becoming untrue or inaccurate in any material respect, or (iii) the failure by it to comply with or satisfy in any respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. (f) The Company shall give prompt notice to Parent, and Parent or Merger Subsidiary shall give prompt notice to the Company, of: (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; and (iii) 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 of this Agreement would have been required to have been disclosed pursuant to Section 4.1(g), 4.1(h), 4.1(k) or 4.1(l) or which relate to the consummation of the transactions contemplated by this Agreement. SECTION 7.2. Public Announcements. Parent and Merger Subsidiary, on the one hand, and the Company, on the other hand, will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement and the Stockholder Option Agreement, including the Offer and the Merger, and shall not issue any such press release or make any such public statement prior to such consultation. ARTICLE VIII CONDITIONS TO THE MERGER SECTION 8.1. Conditions to the Obligations of Each Party. The obligations of the Company, Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction of the following conditions: -31- 36 (i) if required by Delaware Law, this Agreement shall have been adopted by the stockholders of the Company in accordance with such Law; (ii) any applicable waiting period under the HSR Act relating to the Merger shall have expired; (iii) no provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the Merger; (iv) Parent or Merger Subsidiary shall have purchased Shares in an amount equal to at least the Minimum Condition pursuant to the Offer; and (v) other than the filing of the certificate of merger in accordance with Delaware Law, all Consents required to permit the consummation of the Merger including those set forth in Sections 4.1(d) and 4.2(b) shall have been filed, occurred or been obtained (other than any such Consents the failure to file, occur or obtain, in the aggregate, could not reasonably be expected to (i) have a Material Adverse Effect or (ii) prevent or materially delay the consummation of the Merger). ARTICLE IX TERMINATION SECTION 9.1. Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement by the stockholders of the Company): (i) by mutual written consent of the Company and Parent; (ii) by either the Company or Parent, if the Merger has not been consummated by June 30, 2000 (provided that the party seeking to terminate the Agreement shall not have breached its obligations under this Agreement in any material respect); (iii) by either the Company or Parent, if there shall be any law or regulation that makes consummation of the Merger illegal or otherwise prohibited or if any judgment, injunction, order or decree enjoining Parent or the Company from consummating the Merger is entered and such judgment, injunction, order or decree shall become final and nonappealable; (iv) by either the Company or Parent (provided that Parent shall not be entitled to terminate this Agreement pursuant to this clause (iv) as a result of its breach of this Agreement), (x) if Parent or Merger Subsidiary shall have failed to commence the Offer within five business days following the date of the announcement of this Agreement, (y) if Parent or Merger Subsidiary shall not have purchased any Shares pursuant to the Offer prior to December 1, 1999 or (z) the Offer shall have been terminated without Parent or Merger Subsidiary having purchased any Shares pursuant to the Offer; -32- 37 (v) by Parent, upon the occurrence of any Trigger Event described in clauses (i) through (iii) of Section 10.4(b); or (vi) by the Company, upon the occurrence of any Trigger Event described in clause (i) of Section 10.4(b). SECTION 9.2. Effect of Termination. If this Agreement is terminated pursuant to Section 9.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto or their respective officers and directors, except that the agreements contained in Sections 10.4 and 10.6 shall survive the termination hereof and except to the extent that such termination results from the material breach by a party of any representations, warranties, covenants or agreements set forth in this Agreement. ARTICLE X MISCELLANEOUS SECTION 10.1. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given, if to Parent or Merger Subsidiary, to: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Telecopy: 408-995-0505 Attention: John T. King with a copy (which shall not constitute notice) to: Howard, Smith & Levin LLP 1330 Avenue of the Americas New York, New York 10019 Telecopy: (212) 841-1010 Attention: William R. Collins if to the Company, to: Sheridan Energy, Inc. 1000 Louisiana Suite 800 Houston, Texas 77002 Telecopy: 713-651-3056 Attention: Michael A. Gerlich -33- 38 with a copy (which shall not constitute notice) to: Winstead Sechrest & Minick P.C. 910 Travis, Suite 2400 Houston, Texas 77002 Telecopy: 713-650-2400 Attention: Arthur S. Berner or such other address or telecopy number as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective when delivered at the address specified in this Section. SECTION 10.2. Survival of Representations and Warranties. The representations and warranties and agreements contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time or the termination of this Agreement except for the representations, warranties and agreements set forth in Sections 10.4 and 10.6. SECTION 10.3. Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived prior to the Effective Time if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company, Parent and Merger Subsidiary or in the case of a waiver, by the party against whom the waiver is to be effective; provided that after the adoption of this Agreement by the stockholders of the Company, no such amendment or waiver shall, without the further approval of such stockholders, alter or change (i) the amount or kind of consideration to be received in exchange for any shares of capital stock of the Company, (ii) any term of the certificate of incorporation of the Surviving Corporation or (iii) any of the terms or conditions of this Agreement if such alteration or change would adversely affect the holders of any shares of capital stock of the Company. (b) No failure or delay by any party in exercising any right, power or privilege 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, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 10.4. Fees and Expenses. (a) Except as otherwise provided in this Section, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. (b) The Company agrees to pay the Parent a fee in immediately available funds, promptly, but in no event later than one business day, after the termination of this Agreement as a result of the occurrence of any of the events set forth below (a "Trigger Event") in an amount equal to $2,000,000 in the case of the occurrence of a Trigger Event described below: (i) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or an agreement in principle with respect to any Acquisition Proposal; -34- 39 (ii) any representation or warranty made by the Company in, or pursuant to, this Agreement that is qualified as to materiality shall not have been true and correct when made or at any time prior to the consummation of the Offer as if made at and as of such time, or any representation or warranty made by the Company in, or pursuant to, this Agreement that is not so qualified shall not have been true and correct in all material respects when made or at any time prior to the consummation of the Offer as if made at and as of such time, or the Company shall have failed to observe or perform in any material respect any of its obligations under this Agreement; provided that it shall not be a Trigger Event unless (x) the breaches of the representations and warranties without regard to any materiality qualifier or threshold, and failure to perform or breach of any obligation, individually or in the aggregate, have had or could reasonably be expected to have or result in a Material Adverse Effect and (y) with respect to breaches of representations and warranties, such breaches in significant part were intentional; provided further that it shall not be a Trigger Event if (1) such breaches and failures to perform are reasonably capable of being cured by December 1, 1999, (2) the Company diligently pursues such cure beginning as soon as it obtains knowledge of such breaches and failures to perform, and (3) the Company cures all of such breaches and failures to perform that have given rise to the Trigger Event by December 1, 1999; or (iii) the Board of Directors of the Company (or any special committee thereof) shall have withdrawn or materially modified in a manner adverse to Parent or Merger Subsidiary its approval or recommendation of the Offer, the Merger or this Agreement or its approval of the entry by Parent and Merger Subsidiary into the Stockholder Option Agreement, in any such case whether or not such withdrawal or modification is required by the fiduciary duties of the Board of Directors (or any special committee thereof). If (x) this Agreement is terminated as a result of the occurrence of the Trigger Events described in clauses (i) and (iii) above, (y) prior to such termination the Company was in material compliance with its obligations set forth herein, and (z) the Company has paid to Parent the fee described in this Section 10.4(b), the Company shall have no further obligation or liability to Parent or Merger Subsidiary hereunder. SECTION 10.5. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto except that Merger Subsidiary may transfer or assign, in whole or from time to time in part, to one or more of Parent or any of its wholly-owned subsidiaries, the right to purchase Shares pursuant to the Offer, but any such transfer or assignment will not relieve Merger Subsidiary of its obligations under the Offer or prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. SECTION 10.6. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of Delaware, without giving effect to the principles of conflicts of laws thereof. -35- 40 SECTION 10.7. Counterparts; Effectiveness; Interpretation. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". Any representation or warranty in this Agreement which is expressed as made to the Company's knowledge or to the knowledge of the Company means the knowledge, after reasonable investigation and due inquiry, of the directors and executive officers of the Company. SECTION 10.8. Enforcement. The parties agree that irreparable damage would occur 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 parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 10.9. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. SECTION 10.10. Entire Agreement; No Third Party Beneficiaries. This Agreement (including the Disclosure Schedule) and, subject to Section 10.11 hereof, the Confidentiality Agreement dated as of June 15, 1999 (the "Confidentiality Agreement") between Parent and the Company (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof, and (b) are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder other than rights to indemnity under Section 6.3. SECTION 10.11. Standstill. If (x) this Agreement is terminated by either Parent or the Company in accordance with the terms of Section 9.1(i), (iii) or (iv), (y) such termination was not related to the material breach by the Company of any of its representations, warranties, covenants or agreements set forth herein, and (z) Merger Subsidiary fails to exercise the Option (defined in the Stockholder Option Agreement) prior to the expiration thereof, neither Parent, Merger Subsidiary nor any subsidiary of either of them shall for a period of two years following such expiration (i) acquire, offer to acquire or agree to acquire directly or indirectly by purchase or otherwise any voting securities of the Company, (ii) make or in any way participate directly or indirectly, in any "solicitation" of "proxies" to vote (in such terms as used in the proxy rules of the SEC) or seek to advise or influence any person or entity with respect to the voting of any voting securities of the -36- 41 Company, (iii) form, join or in any way participate in a "group" within the meaning of Section 13(d)(iv) of the Exchange Act with respect to any voting securities of the Company or (iv) otherwise act alone or in concert with others to seek to control or influence the management, Board of Directors, or policies of the Company. Notwithstanding anything to the contrary set forth herein, as of the date of this Agreement, Section 9 of the Confidentiality Agreement is hereby terminated and of no further force or effect. -37- 42 The parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. SHERIDAN ENERGY, INC. By: /s/ B.A. Berilgen ------------------------------ Name: B.A. Berilgen Title: President and CEO CALPINE CORPORATION By: /s/ John T. King ------------------------------ Name: John T. King Title: Vice-President - Business Development CPN SHERIDAN, INC. By: /s/ John T. King ------------------------------ Name: John T. King Title: Vice-President - Business Development -38- 43 ANNEX I Notwithstanding any other provision of the Offer, Parent and Merger Subsidiary shall not be required to accept for payment or (subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Merger Subsidiary's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer)) to pay for any Shares, and may terminate the Offer, if (i) by the expiration of the Offer, the Minimum Condition shall not have been satisfied, or (ii) at any time on or after August 25, 1999 and prior to the acceptance for payment of Shares pursuant to the Offer, any of the following conditions exist: (a) there shall be instituted or pending any action or proceeding by any Governmental Entity or by any other person, domestic or foreign, before any Governmental Entity or arbitrator, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by Parent or Merger Subsidiary or the consummation by Parent or Merger Subsidiary of the Merger, seeking to obtain material damages or otherwise directly or indirectly relating to the transactions contemplated by the Stockholder Option Agreement, this Agreement, the Offer or the Merger, (ii) seeking to restrain or prohibit Parent's or Merger Subsidiary's ownership or operation (or that of their respective subsidiaries or affiliates) of all or any material portion of the business or assets of the Company or any of its subsidiaries or of Parent and its subsidiaries or to compel Parent or any of its subsidiaries or affiliates to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its subsidiaries or of Parent and its subsidiaries (iii) seeking to impose material limitations on the ability of Parent or any of its subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote any Shares acquired or owned by Parent or any of its subsidiaries or affiliates on all matters properly presented to the Company's stockholders, (iv) seeking to require divestiture by Parent or any of its subsidiaries or affiliates of any Shares, or (v) that otherwise, in the judgment of Parent, is likely to materially adversely affect the business, assets, liabilities, operations, condition (financial or otherwise), results of operations or prospects of the Company or any of its subsidiaries, or Parent and its subsidiaries, taken as a whole; or (b) there shall be any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the Stockholder Option Agreement, this Agreement, the Offer or the Merger, by any Governmental Entity or arbitrator (other than the application of the waiting period provisions of the HSR Act to the Stockholder Option Agreement, this Agreement, the Offer or the Merger), that, in the reasonable judgment of Parent, is substantially likely, directly or indirectly, to result in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; or 44 (c) any change shall have occurred (or any development shall have occurred involving a prospective change) in the business, assets, liabilities, financial condition, capitalization, operations, results of operations or prospects of the Company and its subsidiaries taken as a whole that, in the reasonable judgment of Parent, is or is likely to be materially adverse to the Company and its subsidiaries taken as a whole or Parent shall have become aware of any facts that, in the reasonable judgment of Parent, have or are likely to have or result in a Material Adverse Effect; or (d) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange or in the NASDAQ over-the-counter market in the United States that lasts or has lasted for at least two full consecutive trading days, (ii) a declaration of a general banking moratorium or any suspension of payments in respect of banks in the United States, (iii) any material limitation (whether or not mandatory) by any Governmental Entity on the extension of credit by banks or other lending institutions, (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which would reasonably be expected to have a Material Adverse Effect or prevent (or materially delay) the consummation of the Offer or (v) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; or (e) a tender or exchange offer for some or all of the Shares shall have been publicly proposed to be made or shall have been made by another person, or it shall have been publicly disclosed or Parent shall have otherwise learned that (i) any person or "group" (defined in Section 13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire beneficial ownership of more than 50% of any class or series of capital stock of the Company (including the Shares), through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 50% of any class or series of capital stock of the Company (including the Shares) or (ii) any person shall have filed a Notification and Report Form under the HSR Act or made a public announcement reflecting an intent to acquire the Company or any of its subsidiaries or any assets or securities of the Company or any of its subsidiaries; or (f) any Consent (other than the filing of certificate of merger or approval by the stockholders of the Company of the Merger (if required by Delaware law)) required to be filed, occurred or been obtained by the Company or any of its subsidiaries or Parent of any of its subsidiaries (including Merger Subsidiary) in connection with the execution and delivery of this Agreement, the Offer and the consummation of the transactions contemplated by this Agreement shall not have been filed, occurred or been obtained (other than any such Consents the failure to file, occur or obtain in the aggregate, could not reasonably be expected to (i) have a -2- 45 Material Adverse Effect or (ii) prevent or materially delay the consummation of the Offer or the Merger); or (g) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements under this Agreement, or any of the representations and warranties of the Company set forth in this Agreement that is qualified as to materiality shall not be true when made or at any time prior to consummation of the Offer as if made at and as of such time, or any of the representations and warranties set forth in this Agreement that is not so qualified shall not be true in any material respect when made or at any time prior to the consummation of the Offer as if made at and as of such time; provided that this condition shall not be deemed to exist unless, in the reasonable judgment of Parent, such breaches or failures to perform any covenant, obligation or agreement, and any breach of representation or warranty without regard to any materiality qualifier or threshold, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; or (h) any party to the Stockholder Option Agreement (other than Merger Subsidiary or Parent) shall have breached or failed to perform in any material respect any of its agreements under the Stockholder Option Agreement or any of the representations and warranties of any such party set forth in the Stockholder Option Agreement shall not be true in any material respect, in each case, when made or at any time prior to the consummation of the Offer as if made at and as of such time, or the Stockholder Option Agreement shall have been invalidated or terminated with respect to any Shares subject thereto; or (i) this Agreement or the Stockholder Option Agreement shall have been terminated in accordance with its terms; or (j) the Board of Directors of the Company (or any special committee thereof) shall have withdrawn or materially modified in a manner adverse to Parent or Merger Subsidiary its approval or recommendation of the Offer, the Merger or this Agreement or its approval of the entry by Parent and Merger Subsidiary into the Stock Option Agreement; or (k) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or agreement in principle with respect to any Acquisition Proposal; which, in the judgment of Parent in any such case, and regardless of the circumstances (including any action or omission by Parent or Merger Subsidiary) giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment or payment. The foregoing conditions are for the sole benefit of Parent and Merger Subsidiary and may be asserted by Parent in its sole discretion regardless of the circumstances (including any action or omission by Parent or Merger Subsidiary) giving rise to any such condition or (other than the -3- 46 Minimum Condition) may be waived by Parent and Merger Subsidiary in their discretion in whole at any time or in part from time to time. The failure by Parent or Merger Subsidiary at any time to exercise its rights under any of the foregoing conditions shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right which may be asserted at any time or from time to time. Any determination by Parent concerning the events described in this Section will be final and binding upon all parties. -4- EX-99.C.2 12 STOCKHOLDER AGREEMENT 1 Exhibit 99 (c)(2) AGREEMENT, dated as of August 25, 1999, among CPN SHERIDAN, INC., a Delaware corporation ("Buyer"), CALPINE CORPORATION, a Delaware corporation ("Parent") and the parent of Buyer, and the holders (the "Stockholders") of the shares of common stock, $0.01 par value (the "Shares"), of SHERIDAN ENERGY, INC., a Delaware corporation (the "Company"), listed on the signature pages hereof. In order to induce Buyer and certain of its affiliates to enter into an agreement and plan of merger, dated as of the date hereof (the "Merger Agreement"), with the Company, Buyer has requested the Stockholders, and the Stockholders have agreed, to enter into this Agreement. The parties hereto agree as follows: ARTICLE I STOCK OPTION SECTION 1.1. Grant of Stock Option. Subject to the terms and conditions set forth herein, each of the Stockholders hereby grants to Buyer an irrevocable option (collectively, the "Option") to purchase the number of shares opposite such Stockholder's name on the signature pages hereto and any additional Shares acquired by such Stockholder in any capacity (whether by exercise of options, warrants or rights, the conversion or exchange of convertible or exchangeable securities or by means of a purchase, dividend, distribution or otherwise) (such "Stockholder's Shares" and, collectively, the "Stockholder Shares") at a purchase price of $5.50 per Stockholder Share (as adjusted pursuant to Section 1.6, the "Purchase Price"). SECTION 1.2. Exercise of Option. (a) Subject to the conditions set forth in Section 1.5 hereof, the Option may be exercised by Buyer, in whole but not in part, at any time after the date hereof and prior to the 20th business day after the termination of the Merger Agreement in accordance with the terms thereof if, but only if, the termination of the Merger Agreement did not result from the material breach thereof by Buyer or Parent. In the event Buyer wishes to exercise the Option other than pursuant to the Offer (as defined in the Merger Agreement), Buyer shall send a written notice (the "Exercise Notice") to the Stockholders stating that it will purchase pursuant to such exercise all of the Stockholder Shares and the place, the date (not less than one nor more than five business days from the date of the Exercise Notice) and the time for the closing of such purchase; provided that such date and time may be earlier than one day after the Exercise Notice if reasonably practicable. The closing of the purchase of the Stockholder Shares pursuant to this Section 1.2(a) (the "Closing") shall take place at the place, on the date and at the time designated by Buyer in its Exercise Notice, provided that if, at the date of the Closing herein provided for, the conditions set forth in Section 1.5(ii) or (iii) shall not have been satisfied (or waived), Buyer may postpone the Closing until a date within five 2 business days after such conditions are satisfied but in no event to a date beyond June 30, 2000; provided further that, if (1) Buyer exercises the Option and postpones the Closing on account of the condition set forth in Section 1.5(iii) not being satisfied and (2) a governmental entity has issued a final, nonappealable permanent injunction prohibiting exercise of the Option or the condition set forth in subclause (y) of Section 1.5(iii) exists, Buyer may not further postpone the Closing and the Option shall automatically terminate. (b) Buyer shall not be under any obligation to deliver any Exercise Notice and may allow the Option to terminate without purchasing any Stockholder Shares hereunder; provided however that once Buyer has delivered to the Stockholders an Exercise Notice, subject to the terms and conditions of this Agreement, Buyer shall be bound to effect the purchase as described in such Exercise Notice. SECTION 1.3. Closing. At the Closing, (a) each Stockholder shall deliver to Buyer (in accordance with Buyer's instructions) a certificate or certificates (the "Certificates") representing all of such Stockholder's Shares, duly endorsed or accompanied by stock powers duly executed in blank and (b) Buyer shall pay to such Stockholder, by wire transfer in immediately available funds to the account such Stockholder specifies in writing no less than two business days prior to the Closing, an amount equal to (i) the number of such Stockholder's Shares being purchased at such Closing multiplied by (ii) the Purchase Price (the "Purchase Amount"). SECTION 1.4. Agreement to Tender. Each of the Stockholders hereby agrees to validly tender (or cause the record owner of such shares to validly tender) in the Offer (defined in the Merger Agreement) within 20 days of the receipt of Buyer's offer to purchase relating to the Offer such Stockholder's Shares. Upon receipt of written instructions from the Buyer, each Stockholder shall promptly deliver to the depositary (the "Depositary") designated in the Offer (i) a letter of transmittal with respect to such Stockholder's Shares complying with the terms of the Offer together with instructions directing the Depositary to make payment for such Shares directly to the Stockholder (but if such Shares are not accepted for payment or are withdrawn and are to be returned pursuant to the Offer, to return such Shares to such Stockholder whereupon they shall continue to be held by such Stockholder subject to the terms and conditions of this Agreement), (ii) the Certificates representing such Stockholder's Shares and (iii) all other documents or instruments required to be delivered pursuant to the terms of the Offer (such documents in clauses (i) through (iii) collectively being hereinafter referred to as the "Tender Documents"). No tender pursuant to this Section 1.4 will excuse any of the obligations of the Stockholders hereunder. Notwithstanding anything to the contrary set forth herein, no Stockholder shall be required to tender such Stockholder's Shares in the Offer if the per Share consideration to be paid by Buyer pursuant to the Offer is less than $5.50 per Share in cash. SECTION 1.5. Conditions. The obligation of each Stockholder to sell such Stockholder's Shares at any Closing is subject to the following conditions: (i) The representations and warranties of Buyer contained in Article IV shall be true and correct in all material respects on the date thereof as if made on such date; -2- 3 (ii) If applicable, all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act") applicable to such exercise of the Option shall have expired or been terminated; (iii) (x) There shall be no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, (y) nor any statute, rule, regulation or order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining such exercise of the Option; and (iv) The Buyer shall have commenced the Offer. SECTION 1.6. Adjustment Upon Changes in Capitalization or Merger. (a) In the event of any change in the Company's capital stock by reason of stock dividends, stock splits, mergers, consolidations, recapitalizations, combinations, conversions, exchanges of shares, extraordinary or liquidating dividends, or other changes in the corporate or capital structure of the Company which would have the effect of diluting or changing the Buyer's rights hereunder, the number and kind of shares or securities subject to the Option and the purchase price per Stockholder Share (but not the total purchase price) shall be appropriately and equitably adjusted so that the Buyer shall receive upon exercise of the Option the number and class of shares or other securities or property that the Buyer would have received in respect of the Stockholder Shares purchasable upon exercise of the Option if the Option had been exercised immediately prior to such event. Each Stockholder shall take such steps in connection with such consolidation, merger, liquidation or other such action as may be necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any securities or property thereafter deliverable upon exercise of the Option. (b) In the event the consideration per Share to be paid by Buyer pursuant to the Offer is increased, the Purchase Price shall be similarly increased and in the event the Closing hereunder shall have occurred, Buyer shall promptly pay to each Stockholder the product of the amount of such increase in the Purchase Price multiplied by the number of such Stockholder's Shares as to which the Option has been exercised. ARTICLE II GRANT OF PROXY SECTION 2.1. Proxy. Each Stockholder hereby revokes any and all previous proxies granted with respect to such Stockholder's Shares. Each Stockholder, by this Agreement, with respect to such Stockholder's Shares, does hereby constitute and appoint Buyer, or any nominee of Buyer, with full power of substitution, as its true and lawful attorney and proxy, for and in its name, place and stead, to vote each of such Stockholder's Shares as its proxy, at every annual, special or adjourned meeting, or solicitation of consents, of the stockholders of the Company (including the right to sign its name (as stockholder) to any consent, certificate or other document relating to the Company that the law of the State of -3- 4 Delaware may permit or require) (i) in favor of the adoption of the Merger Agreement and this Agreement and approval of the Merger and the other transactions contemplated hereby and by the Merger Agreement, (ii) against any proposal for any recapitalization, merger, sale of assets or other business combination between the Company and any person or entity (other than the Merger) or any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement not being fulfilled, and (iii) in favor of any other matter relating to consummation of the transactions contemplated by the Merger Agreement and this Agreement. Each Stockholder further agrees to cause such Stockholder's Shares that are outstanding and owned by it beneficially to be voted in accordance with the foregoing. The proxy granted by each Stockholder pursuant to this Article II is irrevocable and is granted in consideration of Buyer's entering into this Agreement and the Merger Agreement; provided, however, that such proxy shall be revoked upon the earlier of (i) termination of this Agreement in accordance with its terms and (ii) the purchase of the Stockholder Shares pursuant to the Offer. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each of the Stockholders severally represents and warrants to the Buyer that: SECTION 3.1. Valid Title. Such Stockholder is the sole, true, lawful and beneficial owner of such Stockholder's Shares with no restrictions on such Stockholder's voting rights or rights of disposition pertaining thereto. At any Closing, such Stockholder will convey good and valid title to such Stockholder's Shares being purchased free and clear of any and all claims, liens, charges, encumbrances and security interests. None of such Stockholder's Shares is subject to any voting trust or other agreement or arrangement with respect to the voting of such Shares (other than, to the extent applicable to such Stockholder, the Shareholders' Agreement dated as of December 15, 1997 among the Company and certain of the Stockholders). SECTION 3.2. Non-Contravention. The execution, delivery and performance by such Stockholder of this Agreement and the consummation of the transactions contemplated hereby (i) are within such Stockholder's powers, have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person), (ii) require no action by or in respect of, or filing with, any governmental body, agency, official or authority (except as required under the HSR Act), and (iii) do not and will not contravene or constitute a default under, or give rise to a right of termination, cancellation or acceleration of any right or obligation of such Stockholder or to a loss of any benefit of such Stockholder under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on such Stockholder or result in the imposition of any lien on any asset of such Stockholder except, in the case of clause (iii) above, any such contraventions, defaults, rights, losses or liens that, individually or in the aggregate, could not reasonably be expected to (A) have a material adverse effect on such Stockholder, (B) impair the ability of such Stockholder to perform its obligations hereunder or (C) prevent or materially delay the consummation of any of the transactions contemplated hereby. -4- 5 SECTION 3.3. Binding Effect. This Agreement has been duly executed and delivered by such Stockholder and is the valid and binding agreement of such Stockholder, enforceable against such Stockholder in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights generally. If this Agreement is being executed in a representative or fiduciary capacity, the person signing this Agreement has full power and authority to enter into and perform such Agreement. SECTION 3.4. Total Shares. Such Stockholder is the record and Beneficial Owner of the number of Shares, the number of shares of Preferred Stock (defined in the Merger Agreement) and the number of Warrants (defined in the Merger Agreement) set forth next to such Stockholder's name on the signature pages hereto. Such Shares, such shares of Preferred Stock and such Warrants constitute all of the Shares, all of the shares of Preferred Stock and all of the Warrants owned of record or Beneficially Owned by such Stockholder. Except as set forth on such signature pages, neither such Stockholder nor any beneficial owner or owners of such Stockholder's Shares own any options to purchase or rights to subscribe for or otherwise acquire any securities of the Company. Each Stockholder has sole voting power and sole power to issue instructions with respect to the matters set forth in Article II of this Agreement, sole power of disposition, sole power of conversion, sole power to demand appraisal rights and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Shares, and, to the extent applicable, all shares of Preferred Stock and all Warrants, beneficially owned by such Stockholder with no limitations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement. The terms "Beneficially Own" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended. SECTION 3.5. Finder's Fees. No investment banker, broker or finder is entitled to a commission or fee from Buyer or the Company in respect of this Agreement based upon any arrangement or agreement made by or on behalf of such Stockholder. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT Each of Parent and Buyer represents and warrants to each of the Stockholders: SECTION 4.1. Corporate Power and Authority. Such entity has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution, delivery and performance by such entity of this Agreement and the consummation by such entity of the transactions contemplated hereby have been duly authorized by the board of directors of such entity and no other corporate action on the part of such entity is necessary to authorize the execution, delivery or performance by such entity of this Agreement and the consummation by such entity of the transactions contemplated hereby. This Agreement has been duly executed and delivered by such entity and is a valid and binding agreement of such -5- 6 entity, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights generally. SECTION 4.2. Acquisition for Buyer's Account. The Stockholder Shares to be acquired upon exercise of the Option will be acquired by Buyer for its own account and not with a view to the public distribution thereof and will not be transferred except in compliance with the Securities Act of 1933, as amended, and other applicable securities laws. Parent and Buyer acknowledge and agree that no Stockholder has or is making any representations or warranties concerning the Company, including by reason of such Stockholder's execution of this Agreement or otherwise. ARTICLE V COVENANTS OF THE STOCKHOLDERS Each of the Stockholders hereby covenants and agrees that: SECTION 5.1. No Proxies for or Encumbrances on Stockholder Shares. Except pursuant to the terms of this Agreement, such Stockholder shall not, without the prior written consent of Buyer, directly or indirectly, (i) grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of any Shares or (ii) acquire, sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect acquisition or sale, assignment, transfer, encumbrance or other disposition of, any Shares, any shares of Preferred Stock or any Warrants during the term of this Agreement. Such Stockholder shall not seek or solicit any such acquisition or sale, assignment, transfer, encumbrance or other disposition or any such contract, option or other arrangement or assignment or understanding and agrees to notify Buyer promptly and to provide all details requested by Buyer if (x) such Stockholder shall be approached or solicited, directly or indirectly, by any person with respect to any of the foregoing and (y) a representative of such Stockholder having direct working knowledge of this Agreement has knowledge of such third party approach or solicitation. SECTION 5.2. No Shopping. Such Stockholder shall not directly or indirectly (i) solicit, initiate or encourage (or authorize any person to solicit, initiate or encourage) any inquiry, proposal or offer from any person to acquire the business, property or capital stock of the Company or any direct or indirect subsidiary thereof, or any acquisition of a substantial equity interest in, or a substantial amount of the assets of, the Company or any direct or indirect subsidiary thereof, whether by merger, purchase of assets, tender offer or other transaction or (ii) subject to the fiduciary duties under applicable law of such Stockholder as a director of the Company (if such Stockholder is such a director), participate in any discussion or negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or participate in, facilitate or encourage any effort or attempt by any other person to do or seek any of the foregoing. Such Stockholder shall promptly advise Buyer of the terms of any communications it may receive relating to any of the foregoing if a representative of -6- 7 such Stockholder having direct working knowledge of this Agreement has knowledge of such communications. SECTION 5.3. Conduct of Stockholders. Such Stockholder will not (i) take, agree or commit to take any action that would make any representation and warranty of such Stockholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (ii) omit, or agree or commit to omit, to take any commercially reasonable action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. SECTION 5.4. Disclosure. Each Stockholder hereby permits Buyer to publish and disclose in the offer documents and, if approval of the Company's shareholders is required under applicable law, a proxy statement (including all documents and schedules filed with the SEC) their identity and ownership of the Shares and the nature of their commitments, arrangements and understandings under this Agreement. SECTION 5.5. Preferred Stock; Warrants. Such Stockholder will sell and transfer, and the Buyer agrees to purchase or to cause the Company to purchase and redeem, all of the shares of Preferred Stock, if any, owned of record or Beneficially Owned by such Stockholder, at a price per share of Preferred Stock equal to $10.10, plus all accrued and unpaid dividends thereon (whether or not declared), promptly (but in no event more than one business day) following the consummation of the Offer. In addition, such Stockholder will transfer and surrender to the Company for cancellation for no additional consideration all of the Warrants, if any, owned of record or Beneficially Owned by such Stockholder, promptly (but in no event more than one business day) following consummation of the Offer; provided that, if Buyer increases the consideration per Share to be paid pursuant to the Offer to an amount that exceeds the exercise price of the Warrants, Buyer shall pay, or cause the Company to pay, to such Stockholder an amount equal to the aggregate net in the money value of such Warrants, in connection with the transfer and surrender thereof. If Buyer exercises the Option, at the Closing and in addition to purchasing such Stockholder's Shares, Buyer shall purchase from such Stockholder, and such Stockholder shall sell to Buyer, simultaneously with the purchase of such Stockholder's Shares, all of the shares of Preferred Stock, if any, owned of record or Beneficially Owned by such Stockholder, at a price per share of Preferred Stock equal to $10.10, plus all accrued and unpaid dividends thereon (whether or not declared). ARTICLE VI MISCELLANEOUS SECTION 6.1. Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. SECTION 6.2. Further Assurances. In the event the Buyer exercises the Option, the Buyer and the Stockholders will each execute and deliver or cause to be executed and delivered all further documents and instruments and use its commercially reasonable efforts to secure such consents and take all such further action as may be reasonably necessary in order to -7- 8 consummate the transactions contemplated hereby or to enable the Buyer and any assignee to exercise and enjoy all benefits and rights of the Stockholders with respect to the Option and the Stockholder Shares. SECTION 6.3. Additional Agreements. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use all commercially 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 and which may be required under any agreements, contracts, commitments, instruments, understandings, arrangements or restrictions of any kind to which such party is a party or by which such party is governed or bound, to consummate and make effective the transactions contemplated by this Agreement. SECTION 6.4. Specific Performance. The parties hereto agree that the Buyer may be irreparably damaged if for any reason any Stockholder failed to sell such Stockholder's Shares (or other securities deliverable pursuant to Section 1.5 or Section 5.5) upon exercise of the Option or to perform any of its other obligations under this Agreement, and that the Buyer would not have an adequate remedy at law for money damages in such event. Accordingly, the Buyer shall be entitled to specific performance and injunctive and other equitable relief to enforce the performance of this Agreement by each Stockholder. This provision is without prejudice to any other rights that the Buyer may have against any Stockholder for any failure to perform its obligations under this Agreement. SECTION 6.5. Notices. All notices, requests, claims, demands and other communications hereunder shall be deemed to have been duly given when delivered in person, by telecopy, or by registered or certified mail (postage prepaid, return receipt requested) to such party at its address set forth on the signature page hereto. SECTION 6.6. Survival of Representations and Warranties. All representations and warranties contained in this Agreement shall survive delivery of and payment for the Stockholder Shares. SECTION 6.7. Amendments. This Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. SECTION 6.8. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that Buyer may assign its rights and obligations to any affiliate of Buyer and provided, further, that no Stockholder may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the Buyer. SECTION 6.9. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of Delaware without giving effect to the principles of conflicts of laws thereof. -8- 9 SECTION 6.10. Obligations of Buyer. Parent will take all action necessary to cause Buyer to perform its obligations hereunder and, if the Option is exercised, to consummate the purchase by Buyer of the Stockholder Shares on the terms and conditions set forth in this Agreement. SECTION 6.11. Counterparts; Effectiveness; Termination. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. This Agreement shall terminate and be of no further force or effect upon the earlier of (i) the twentieth business day following the termination of the Merger Agreement unless the Option has been properly exercised on or prior to such date, and (ii) December 31, 1999 unless the Option has been properly exercised prior to such date. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -9- 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. CALPINE CORPORATION By: /s/ John T. King --------------------------------------- Name: John T. King Title: Vice-President - Business Development 50 West San Fernando Street San Jose, CA 95113 Attention: John King Fax: (408) 995-0505 CPN SHERIDAN, INC. By: /s/ John T. King --------------------------------------- Name: John T. King Title: Vice-President - Business Development 50 West San Fernando Street San Jose, CA 95113 Attention: John King Fax: (408) 995-0505
Preferred Shares Options Stock Warrants THE SUSSKIND FAMILY TRUST - ------ ------- ----- -------- ------------------------- 1,000,037 - - - By: /s/ Jeffrey E. Susskind, Trustee -------------------------------- Name: Jeffrey E. Susskind By: /s/ Janis Susskind, Trustee -------------------------------- Name: Janis Susskind 282 N. Saltair Ave. Los Angeles, CA 90049 Attention: Jeffrey E. Susskind and Janis Susskind Fax: (310) 472-9567
-10- 11
Preferred JOINT ENERGY DEVELOPMENT INVESTMENTS Shares Options Stock Warrants LIMITED PARTNERSHIP - ------ ------- ----- -------- ------------------- 850,000* 150,000* By: Enron Capital Management Limited Partnership, its General Partner By: Enron Capital Corp., its General Partner By: /s/ William W. Brown -------------------------------- Name: William W. Brown Title: Vice President 1400 Smith Street Houston, TX 77002 Attention: Donna M. Lowry Fax: (713) 646-4039 (*) Includes 382,500 shares and 67,500 Warrants held of record by JEDI Hydrocarbon Investments I Limited Partnership ("JEDI Hydrocarbon"), which has been dissolved. All assets of JEDI Hydrocarbon, including such Shares and Warrants, were transferred to Joint Energy Development Investments Limited Partnership upon JEDI Hydrocarbon's dissolution.
-11- 12
Preferred SUNDANCE ASSETS, L.P. Shares Options Stock Warrants - ------ ------- ----- -------- 1,600,000* 1,139,586.25* By: Ponderosa Assets, L.P., its General Partner By: Enron Ponderosa Management Holdings, Inc., its General Partner By: /s/ William W. Brown ---------------------------------- Name: William W. Brown Title: Vice President 1400 Smith Street Houston, TX 77002 Attention: Donna M. Lowry Fax: (713) 646-4039 ENRON CAPITAL & TRADE RESOURCES CORP. By: /s/ Douglas B. Dunn ---------------------------------- Name: Douglas B. Dunn Title: Vice President 1400 Smith Street Houston, TX 77002 Attention: Donna M. Lowry Fax: (713) 646-4039
(*) These shares and the Preferred Stock are beneficially owned by Sundance Assets, L.P. and are owned of record by Enron Capital & Trade Resources Corp. -12- 13
Preferred Shares Options Stock Warrants - ------ ------- ----- -------- 25,000 60,000 - - /s/ Michael A. Gerlich ---------------------- Name: Michael A. Gerlich 1000 Louisiana, Suite 800 Houston, TX 77002 Attention: Michael A. Gerlich Fax: (713) 651-3056
Preferred Shares Options Stock Warrants - ------ ------- ----- -------- 13,000 300,000 - - /s/ B.A. Berilgen ----------------- Name: B.A. Berilgen 1000 Louisiana, Suite 800 Houston, TX 77002 Attention: B.A. Berilgen Fax: (713) 651-3056
Preferred Shares Options Stock Warrants - ------ ------- ----- -------- 4,500 40,000 - - /s/ Charles F. Chambers ----------------------- Name: Charles F. Chambers 1000 Louisiana, Suite 800 Houston, TX 77002 Attention: Charles F. Chambers Fax: (713) 651-3056
Preferred Shares Options Stock Warrants - ------ ------- ----- -------- - 25,000 - - /s/ Jeffrey E. Susskind ----------------------- Name: Jeffrey E. Susskind 282 N. Saltair Ave. Los Angeles, CA 90049 Attention: Jeffrey E. Susskind Fax: (310) 472-9517
-13- EX-99.C.3 13 CONFIDENTIALITY AGREEMENT 1 Exhibit 99 (c)(3) SHERIDAN ENERGY, INC. 1000 LOUISIANA, SUITE 800 HOUSTON, TEXAS 77002 June 15, 1999 PERSONAL AND CONFIDENTIAL Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Attention: President Re: Confidentiality Agreement Gentlemen: In connection with the consideration by Calpine Corporation, a Delaware corporation ("Calpine"), and Sheridan Energy, Inc., a Delaware corporation ("SEI") of a possible transaction involving the acquisition by Calpine of all of the capital stock of SEI, SEI may disclose certain information relating to their businesses which is proprietary, confidential and not otherwise publicly available. Such proprietary and confidential information may include, but is not limited to, financial data, business strategies, ideas, concepts, customer lists, vendor lists, development plans for new or improved products or processes, data, formulae, techniques, designs, know-how, photographs, plans, drawings, specifications, samples, test specimens, reports, price lists, findings, studies, inventions, reserves, oil and gas exploration and development prospects, and product sales prices (the "Confidential Information"). In consideration of the furnishing of the information as contemplated in this letter agreement (the "Agreement"), the parties hereto agree to the following: 1. Calpine agrees to treat any Confidential Information concerning SEI delivered in connection with this Agreement or otherwise obtained (whether in written, oral or any other form and whether prepared by SEI, its advisors, or otherwise) in accordance with the provisions of this Agreement, and Calpine agrees to take or abstain from taking certain other actions as set forth herein. Such Confidential Information, along with all analyses, compilations, data, studies or other documents prepared by Calpine based in whole or in part on the Confidential Information provided by SEI, is collectively referred to as the "Evaluation Material." The term "Evaluation Material" shall not include information that (i) is already in Calpine's possession as reflected by its written records, provided that such information is not known by Calpine to be subject to another confidentiality agreement with, or other obligation of secrecy to, SEI or another party, or (ii) is or becomes generally available to the public other than as a result of a 2 Calpine Corporation June 15, 1999 Page 2 disclosure by Calpine or its directors, officers, employees, agents or advisors, or (iii) becomes available to Calpine on a non-confidential basis from a source other than SEI or its directors, officers, employees, agents or advisors, provided that such source is not known by Calpine to be bound by a confidentiality agreement with or other obligation of secrecy to Calpine or another party. 2. Calpine agrees that the Evaluation Material made available to it will be used solely for the purpose of evaluating a possible transaction between SEI and Calpine, and that such information shall be kept confidential and shall not be disclosed in whole or in part by Calpine or permitted by Calpine to be used in any manner adverse or detrimental to SEI. Calpine further agrees not to, directly or indirectly, use, sell, lease, license or otherwise commercially use the Evaluation Material, unless express, prior written authorization is obtained from the Board of Directors of SEI. Notwithstanding the foregoing, the Evaluation Material may be disclosed to Calpine's directors, officers, employees, agents, advisors and representatives of such advisors (the persons to whom such disclosure is permissible being collectively called "Representatives") who need to know such information for the sole purpose of evaluating any possible transaction between SEI and Calpine (it being understood that prior to the receipt of any Evaluation Material by Representatives of Calpine, such Representatives shall be informed by Calpine of the confidential nature of such information and directed by Calpine to treat such information confidentially, and such Representatives shall agree, in writing, to comply with and be bound by the confidentiality provisions of this Agreement), and are approved on behalf of SEI by Jeffrey E. Susskind (the "SEI Contact"). In addition, without the prior written consent of SEI, Calpine will not, and will direct its Representatives not to (i) copy or otherwise reproduce for, or distribute to, third parties (except for copying or other reproduction for, or distribution to, those of its Representatives directly involved in the confidential review of the Evaluation Material) any Evaluation Material, and (ii) disclose to any person, other than the foregoing Representatives, by any means (including but not limited to any press release or other public dissemination) any of the following: the fact that the Evaluation Material has been made available to it or that discussions or negotiations are taking place concerning a possible transaction between SEI and Calpine, or any of the terms, conditions or other facts with respect to any such possible transaction, including the status thereof, except as may be required by U.S. securities laws or other applicable laws. Calpine agrees to be responsible for any breach of this Agreement by its Representatives. All requests by Calpine or Calpine's Representatives for Evaluation Material, meetings with SEI personnel, or inspection of SEI's properties shall be made to the SEI Contact. As used herein, the Calpine "Contact" shall be the President of Calpine. 3. In the event that Calpine or any of its Representatives is requested or required as part of a legal or administrative proceeding by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demands or similar processes to disclose any Evaluation Material or any of the matters set forth herein (to the extent such matters are not 3 Calpine Corporation June 15, 1999 Page 3 then publicly known or available), it is agreed that Calpine will (a) provide SEI with prompt written notice of such request(s) and the documents or information requested so that SEI may seek an appropriate protective order at its expense and/or waive Calpine's compliance with the provisions of this Agreement, and (b) consult with SEI as to the advisability of taking legally available steps to resist or narrow such request. It is further agreed that if in the absence of a protective order or the receipt of a written waiver from SEI, Calpine is nonetheless compelled to disclose any of the Evaluation Material or others matters set forth in this Agreement to any tribunal or else stand liable for contempt or suffer other censure or penalty, Calpine agrees to disclose to such tribunal only such Evaluation Material as is legally required, which disclosure shall be without liability hereunder; provided however, that Calpine shall give written notice of the Evaluation Material or other matters to be so disclosed as far in advance of its disclosure as is practicable and shall use reasonable efforts to obtain an order or other reliable assurance that confidential treatment will be given to such portion of the Evaluation Material or other matters required to be disclosed. 4. Calpine acknowledges that neither SEI nor any of its Representatives has made or are making any representation or warranty as to the accuracy or completeness of the Evaluation Material provided, and Calpine acknowledges that only those specific representations and warranties that may be expressly made in a definitive agreement regarding the contemplated transaction (when, as and if any is executed, and subject to such limitations and restrictions as may be specified in such definitive agreement) shall have any legal effect. Calpine understands and agrees that neither SEI nor any of its Representatives shall have any liabilities to Calpine or any of its Representatives pursuant to this Agreement based on any inaccuracies, omissions or misstatements contained in, or inadequacies of, the Evaluation Material. 5. SEI and Calpine each agrees that either party shall have the right, at any time, in its sole discretion without giving any reason therefor, to terminate discussions with the other concerning a possible transaction. In the event of such termination or upon SEI's request, as may be indicated in a writing (a "Request") delivered by SEI to Calpine, Calpine shall promptly collect from all of its Representatives all written Evaluation Material regarding SEI and either (1) deliver such materials to SEI, or (2) destroy such materials, without retaining any copies, extracts or other reproductions in whole or in part of such written material, and further, shall cause written certification by an authorized officer of Calpine of the delivery or destruction of the materials to be delivered to SEI no later than ten (10) business days following delivery of the Request by SEI. In addition to the foregoing, all documents, memoranda, notes and other writings whatsoever prepared by Calpine or its Representatives based on the information in the Evaluation Material provided to Calpine shall be destroyed, and such destruction shall be certified in writing to SEI by an authorized officer of Calpine supervising such destruction. 6. SEI and Calpine each agrees that unless and until a definitive agreement between 4 Calpine Corporation June 15, 1999 Page 4 SEI and Calpine regarding any transaction has been executed and delivered, the parties hereto will be under no legal obligation of any kind whatsoever with respect to such a transaction by virtue of this or other written or oral expression by them or by any of their directors, officers, employees, agents or any other Representatives thereof except, in the case of this Agreement, for the matters specifically agreed to herein. 7. Without the prior written consent of the other party's Contact, for a period of six months from the date of this Agreement, no party will employ the other party's employees; provided, that neither party shall be prohibited from (i) employing any such person who is engaged in secretarial or clerical work or (ii) conducting generalized solicitations for employees and hiring such person (except persons employed by SEI in executive endeavors) identified through such means. 8. Calpine hereby acknowledge that it is aware, and it will advise its Representatives who are informed as to the matters which are the subject of this Agreement, that the United States securities laws prohibit any person who has received from an issuer material, non-public information concerning the matters which are the subject of this Agreement from purchasing or selling the securities of such issuer or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. 9. Calpine agrees that for a period of two years from the date hereof, neither it nor any Affiliate (as that term is defined in Rule 405 under the Securities Act of 1933) of Calpine (regardless of whether such person or entity is an Affiliate on the date hereof) will (i) acquire, offer to acquire, or agree to acquire, directly or indirectly, by purchase or otherwise, any voting securities or direct or indirect rights or options to acquire any voting securities of SEI, (ii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" to vote (as such terms are used in the proxy rules of the Securities and Exchange Commission), or seek to advise or influence any person or entity with respect to the voting of any voting securities of SEI, (iii) form, join or in any way participate in a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 with respect to any voting securities of SEI, or (iv) otherwise act, alone or in the concert with others, to seek to control or influence the management, board of directors or policies of SEI. Notwithstanding the foregoing, Calpine may take any and all actions in connection with its rights associated with the interests it holds in Sheridan California Energy, Inc. ("SCEI"). Nothing in this Agreement is intended to modify such rights or interests in SCEI. 10. Calpine agrees to indemnify and hold SEI harmless for any damages, loss, cost or liability (including legal fees and the cost of enforcing this indemnity) arising out of or resulting from any unauthorized use or disclosure by Calpine or its Representatives of Evaluation Material 5 Calpine Corporation June 15, 1999 Page 5 or other violation of this Agreement. In addition, because an award of money damages (whether pursuant to the foregoing sentence or otherwise) would be inadequate for any breach of this Agreement by Calpine or its Representatives and any such breach would cause SEI irreparable harm, Calpine agrees that in the event of any breach or threatened breach of this Agreement, SEI shall also be entitled, without the requirements of posting a bond or other security, to equitable relief, including injunctive relief and specific performance. Such remedies shall not be the exclusive remedies for any breach of this Agreement but shall be in addition to all other remedies available at law or equity to the non-breaching party. 11. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any applicable laws, the legality, validity, and enforceability of the remaining provisions of this Agreement shall not be affected thereby, and in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and no provision hereof may be amended, modified or waived except by a written agreement signed by the party against whom enforcement or any amendment, modification or waiver is sought. This Agreement may be executed in any number of counterparts, all of which shall be considered one and the same instrument. 12. All notices required or permitted to be given hereunder shall be personally delivered, sent by overnight courier or delivery service, or by telefax to the parties as follows, or to such other address or telefax number as may be subsequently provided: If to SEI: Sheridan Energy, Inc. 1000 Louisiana, Suite 800 Houston, Texas 77002 Attention: Jeffrey E. Susskind If to Calpine: Calpine Corporation 50 West San Fernando Street San Jose, California 95113 Attention: General Counsel 13. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflict of laws. EFFECTIVE AS OF THE DATE FIRST WRITTEN ABOVE. 6 Calpine Corporation June 15, 1999 Page 6 SHERIDAN ENERGY, INC. By: /s/ Jeffrey Susskind ------------------------------- Name: Jeffrey Susskind ----------------------------- Title: Chairman of the Board ----------------------------- ACCEPTED AND AGREED: CALPINE CORPORATION By: /s/ John T. King ------------------------------ Name: John T. King ------------------------------ Title: Vice-President - Business Development ------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----