SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 22, 2002 (April 22, 2002)
CHESAPEAKE ENERGY CORPORATION
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(Exact name of Registrant as specified in its Charter)
Oklahoma 1-13726 73-1395733
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
6100 North Western Avenue, Oklahoma City, Oklahoma 73118
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(Address of principal executive offices) (Zip Code)
(405) 848-8000
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(Registrant's telephone number, including area code)
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
Chesapeake Energy Corporation ("Chesapeake") issued a Press Release on
April 22, 2002 announcing the execution of an Agreement and Plan of Merger among
Chesapeake, CHK Acquisition, Inc., a wholly-owned subsidiary of Chesapeake, and
Canaan Energy Corporation on April 19, 2002. The following was included in the
Press Release:
"CHESAPEAKE ENERGY CORPORATION ANNOUNCES AGREEMENT
TO ACQUIRE CANAAN ENERGY CORPORATION
FOR $18.00 PER SHARE IN CASH
Company Acquires 100 Bcfe of Proved Reserves, 50 Bcfe of
Probable and Possible Reserves and 22,000 Mcfe Per
Day of Gas Production for $118 Million
Chesapeake and Canaan Energy Corporation (Nasdaq:KNAN) today jointly announced
that Chesapeake has agreed to acquire the 4.5 million shares of fully diluted
Canaan common stock not already owned by Chesapeake for $18.00 per share in
cash. Including assumed debt (net of stock option proceeds and working capital)
of approximately $33 million and $4 million of Canaan common stock previously
acquired by Chesapeake at $12.00 per share, the estimated total cost of the
transaction will be $118 million. Chesapeake intends to pay for the transaction
by using cash on hand.
Chesapeake values Canaan's estimated 100 billion cubic feet of natural gas
equivalent (bcfe) of proved reserves at $1.14 per mcfe after allocation of $4
million of the purchase price to Canaan's undeveloped leasehold inventory and
other assets. Canaan's proved reserves are 91% natural gas, 74% proved developed
and are located almost exclusively in Chesapeake's core Mid-Continent operating
area. Based on current production rates of 22,000 thousand cubic feet of natural
gas equivalent (mcfe) per day (8 bcfe per year), Canaan's reserves-to-production
ratio is an attractive 12.5.
Management Comments
Aubrey K. McClendon, Chesapeake's Chairman and Chief Executive Officer
commented, "We are pleased to announce this negotiated acquisition of Canaan.
This acquisition fits perfectly with Chesapeake's business strategy of creating
value by acquiring and developing low-cost, long-lived natural gas assets in the
Mid-Continent region of the U.S. Canaan has built a strong foundation of gas
production and an attractive inventory of drilling projects, which Chesapeake
intends to develop more aggressively than Canaan could have.
Although we originally offered $12.00 per share, we were provided the
opportunity to review Canaan's assets through negotiation with Canaan's
management. We were impressed with what we saw and agreed to increase our offer
to the mutually acceptable price of $18.00 per share. The transaction will be
accretive to Chesapeake's asset value, cash flow and ebitda in the second half
of 2002, in 2003 and beyond."
John K. Penton, Canaan's President and Chief Operating Officer, commented, "We
are pleased to enter into this transaction with Chesapeake. This transaction
creates value for both companies and we enthusiastically recommend that our
shareholders join us in voting for this merger."
Terms and Conditions
Although definitive purchase documents have been signed and both Boards of
Directors have unanimously approved the transaction, the agreement is subject to
normal regulatory approvals and a Canaan shareholder vote. Completion of the
transaction is expected in the third quarter of 2002.
Canaan presently has 4.4 million common shares outstanding, plus employee and
director options of 0.5 million shares. Of the outstanding shares, Chesapeake
owns 0.3 million shares. Canaan's management and directors have agreed to vote
their 1.2 million common shares in favor of the agreement.
Chesapeake will record the transaction using purchase accounting. In addition,
under certain circumstances, Canaan has agreed to provide Chesapeake with a $5.0
million break-up fee in the event the transaction is not completed. CIBC World
Markets advised Canaan in the transaction.
Conference Call Information
Chesapeake's management invites your participation in its regularly scheduled
earnings release conference call on Tuesday, April 30, 2002 at 9:00 am EDT. In
addition to discussing first quarter results and the outlook for the remainder
of 2002, the company will discuss the Canaan transaction and other important
operational developments. You may participate in the call by dialing
913-981-5533 or listen to the call on the Internet by visiting our home page at
chkenergy.com and clicking on the link under Shareholder Information or by going
directly to Vcall.com. In addition, a replay of the call will be available by
dialing 719-457-0820 through May 13. The passcode for the replay is 563827.
Canaan Energy Corporation ("Canaan") and the Directors and Executive Officers of
Canaan may be deemed to be participants in any solicitation of proxies in
connection with seeking approval of holders of common stock of Canaan of the
proposed acquisition of Canaan by Chesapeake Energy Corporation. A description
of the interests of the Directors and Executive Officers of Canaan is set forth
in the proxy statement on Schedule 14A for Canaan's 2001 annual meeting of
shareholders filed with the Securities and Exchange Commission. The Directors
and Executive Officers as a group beneficially own approximately 1,167,000
shares of Canaan common stock, which constitutes approximately 27% of the shares
outstanding. All of such Directors and Executive Officers have agreed to vote in
favor of the merger. For additional information about the interest of the
foregoing participants in the transaction, please refer to the preliminary and
definitive proxy statements, which will be filed with the SEC, in connection
with the solicitation described above. Securityholders are urged to read the
proxy statement when it is available because it will contain important
information. Investors and securityholders can obtain a free copy of the proxy
statement (when it is available) and other relevant documents on the SEC's web
site at www.sec.gov. The proxy statement and related materials may also be
obtained for free, when filed and available, by directing such request to Canaan
at 405-604-9200.
Chesapeake Energy Corporation is one of the largest independent natural gas
producers in the U.S. Headquartered in Oklahoma City, the company's operations
are focused on developmental drilling and property acquisitions in the
Mid-Continent region of the United States. The company's Internet address is
www.chkenergy.com.
Canaan Energy Corporation is an independent oil and gas exploration and
production company headquartered in Oklahoma City, Oklahoma. Canaan trades on
the NASDAQ NMS under the symbol KNAN. The company's Internet address is
www.canaanenergy.com"
The following are included as exhibits to this Form 8-K: Agreement and
Plan of Merger dated April 19, 2002; form of Agreement and Limited Irrevocable
Proxy; and form of Goodwill Protection Agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits. The following exhibits are filed herewith:
99. (a) Agreement and Plan of Merger, dated as of April 19,
2002, by and among Canaan Energy Corporation,
Chesapeake Energy Corporation and CHK Acquisition, Inc;
(b) Form of Agreement and Limited Irrevocable Proxy,
executed on April 19, 2002, in connection with the
Agreement and Plan of Merger by John K. Penton,
Leo E. Woodard, Michael S. Mewbourn, Thomas Henson, and
Mischa Gorkuscha; and
(c) Form of Goodwill Protection Agreement to be executed
by John K. Penton, Leo E. Woodward, and Michael S.
Mewbourn on consummation of the Agreement and Plan
of Merger.
ITEM 9. REGULATION FD DISCLOSURE
The following was included in the Press Release:
"Chesapeake's estimated proved reserves at the end of 2001 were 1.8 tcfe.
Because of successful drilling during the first quarter and increased commodity
prices, Chesapeake's estimated proved reserves at March 31, 2002 have increased
to 1.9 tcfe. The Canaan transaction will increase Chesapeake's proved reserves
by 5% to 2.0 tcfe and will increase Chesapeake's previously projected production
for 2002 by 4 bcfe to 172 bcfe (assuming the transaction closes in the third
quarter). Chesapeake's previously projected production for 2003 of 175 bcfe will
increase by 8 bcfe to 183 bcfe."
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHESAPEAKE ENERGY CORPORATION
By: /s/ Aubrey K. McClendon
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Aubrey K. McClendon
Chairman of the Board and
Chief Executive Officer
Dated: April 22, 2002
EXHIBIT 99(a)
AGREEMENT AND PLAN OF MERGER
among
CANAAN ENERGY CORPORATION,
CHK ACQUISITION, INC.
and
CHESAPEAKE ENERGY CORPORATION
COMMERCIAL LAW GROUP, P.C.
ATTORNEYS & COUNSELORS
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102-5604
Telephone (405)232-3001
Telecopier (405) 232-5553
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
1. Definitions..........................................................1
1.1 Affiliate(s).........................................................1
1.2 Agreement............................................................2
1.3 Alternative Proposal.................................................2
1.4 Bank Credit Agreement................................................2
1.5 Canaan 2
1.6 Canaan Area..........................................................2
1.7 Canaan Certificate...................................................2
1.8 Canaan Common Stock..................................................2
1.9 Canaan Disclosure Schedule...........................................2
1.10 Canaan Employee(s)...................................................2
1.11 Canaan Employee Benefit Plans........................................2
1.12 Canaan Financial Statements..........................................2
1.13 Canaan Material Agreements...........................................2
1.14 Canaan Permits.......................................................2
1.15 Canaan Plans.........................................................2
1.16 Canaan Predecessor...................................................2
1.17 Canaan Representative................................................3
1.18 Canaan Rights........................................................3
1.19 Canaan Rights Agreement..............................................3
1.20 Canaan SEC Documents.................................................3
1.21 Canaan Severance Policy..............................................3
1.23 Canaan Stock Option(s)...............................................3
1.24 Canaan Stockholder Meeting...........................................3
1.25 Canaan Termination Fee...............................................3
1.26 CERCLA 3
1.27 Certificate of Merger................................................3
1.28 Closing..............................................................3
1.29 Closing Date.........................................................3
1.30 COBRA 3
1.31 Code 4
1.32 Confidentiality Agreement............................................4
1.33 Contract Employee....................................................4
1.34 Defensible Title.....................................................4
1.35 Dissenting Stockholders..............................................4
1.36 Effective Time.......................................................4
1.37 Environmental Law....................................................4
1.38 ERISA 4
1.39 Exchange Act.........................................................4
1.40 Exchange Agent.......................................................4
1.41 Exchange Fund........................................................4
1.42 GAAP 4
1.43 Goodwill Protection Agreement........................................5
1.44 Governmental Authority...............................................5
1.45 Hazardous Material...................................................5
1.46 HSR Act..............................................................5
1.47 Hydrocarbons.........................................................5
1.48 Indemnified Parties..................................................5
1.49 Irrevocable Proxy....................................................5
1.50 Lien(s)..............................................................5
1.51 Material Adverse Effect..............................................5
1.52 Merger 6
1.53 Merger Consideration.................................................6
1.54 Net Revenue Interests................................................6
1.55 Office Space Agreement...............................................6
1.56 OGCA 6
1.57 Oil and Gas Interests................................................6
1.58 Ownership Interests..................................................7
1.59 Parent 7
1.60 Parent Companies.....................................................7
1.61 Parent Representative................................................7
1.62 Parent Subsidiaries..................................................7
1.63 Parties..............................................................7
1.64 Payout Balance.......................................................7
1.65 Permitted Encumbrances...............................................7
1.66 Per Share Merger Consideration.......................................8
1.67 Person(s)............................................................8
1.68 Proxy Statement......................................................8
1.69 Returns..............................................................8
1.70 SEC 8
1.71 Securities Act.......................................................8
1.72 Sub 8
1.73 Sub Common Stock.....................................................8
1.74 Superior Proposal....................................................8
1.75 Surviving Corporation................................................8
1.76 Tax(es)..............................................................9
1.77 Third-Party Consent..................................................9
1.78 Transaction Documents................................................9
1.79 Working Interest.....................................................9
2. Consummation of the Merger...........................................9
2.1 The Merger...........................................................9
2.2 Effect of the Merger.................................................9
2.3 Governing Instruments, Directors and Officers of the Surviving
Corporation..........................................................9
2.3.1 Certificate of Incorporation..................................9
2.3.2 Bylaws 9
2.3.3 Name 10
2.3.4 Directors and Officers.......................................10
2.4 Effect on Securities................................................10
2.4.1 Sub Common Stock.............................................10
2.4.2 Canaan Common Stock..........................................10
2.4.3 Canaan Stock Options.........................................10
2.4.4 Treasury Stock and Parent Owned Stock........................11
2.4.5 Dissenting Stockholder Shares................................11
2.5 Exchange of Certificates............................................12
2.5.1 Exchange Fund................................................12
2.5.2 Notice and Surrender.........................................12
2.5.3 Full Satisfaction............................................13
2.5.4 Unclaimed Exchange Fund......................................13
2.5.5 No Liability.................................................13
2.5.6 Lost, Stolen or Destroyed Certificates.......................14
2.5.7 Investment of Exchange Fund..................................14
2.6 Closing.............................................................14
2.7 Effective Time of the Merger........................................14
2.8 Taking of Necessary or Further Action...............................14
3. Canaan Representations and Warranties...............................15
3.1 Corporate Organization..............................................15
3.2 Authority and Enforceability........................................15
3.3 No Violations.......................................................16
3.4 Consents and Approvals..............................................16
3.5 Canaan SEC Documents................................................16
3.6 Financial Statements................................................17
3.7 Capital Structure...................................................17
3.8 Governmental Regulation.............................................18
3.9 Litigation..........................................................18
3.10 Brokers.............................................................18
3.11 Absence of Certain Changes or Events................................18
3.12 Compliance with Laws, Material Agreements and Permits...............18
3.13 No Restrictions.....................................................19
3.14 Taxes 19
3.15 Employee Benefit Plans..............................................21
3.16 Environmental Matters...............................................23
3.17 Vote Required.......................................................24
3.18 Canaan Board of Directors Actions...................................24
3.19 Employment Contracts and Benefits...................................24
3.20 Labor Matters.......................................................24
3.21 Insurance...........................................................25
3.22 Intangible Property.................................................25
3.23 Title to Assets.....................................................25
3.24 Opinion of Financial Advisor........................................26
3.25 Oil and Gas Operations..............................................26
3.26 Financial and Commodity Hedging.....................................26
3.27 Books and Records...................................................26
3.28 Other Entities......................................................26
3.29 Account Information.................................................26
3.30 Powers of Attorney..................................................26
3.31 Plugging Status.....................................................27
3.32 No Knowledge of Breach of Representations...........................27
3.33 Proxy Statement.....................................................27
3.34 Equipment...........................................................27
3.35 Current Commitments.................................................27
3.36 Payout Balances, Gas Imbalances and Take or Pay.....................28
3.37 Full Disclosure.....................................................28
3.38 Certain Agreements..................................................28
3.39 Affiliate Transactions..............................................28
4. Parent and Sub Representations and Warranties.......................28
4.1 Organization and Standing...........................................28
4.2 Authority and Enforceability........................................28
4.3 No Restriction......................................................29
4.4 Consents and Approvals..............................................29
4.5 Authorization.......................................................29
4.6 Litigation..........................................................29
4.7 Broker's or Finder's Fees...........................................30
4.8 Funding.............................................................30
4.9 Interim Operations of Sub...........................................30
4.10 Proxy Statement.....................................................30
4.11 No Knowledge of Breach of Representations...........................30
4.12 Prior Purchases.....................................................30
5. Covenants...........................................................31
5.1 Conduct of Canaan Business Pending Closing..........................31
5.2 Access to Information...............................................33
5.3 No Solicitation.....................................................34
5.4 Canaan Stockholder Meeting..........................................35
5.5 Proxy Statement.....................................................35
5.6 Public Announcements................................................36
5.7 Notification of Certain Matters.....................................36
5.8 Indemnification.....................................................37
5.9 Employee and Severance Matters......................................38
5.10 Reasonable Best Efforts.............................................41
5.11 Stock Options.......................................................41
5.12 Stockholder Litigation..............................................42
5.13 Further Assurances..................................................42
5.14 Rights Agreement; Consequences if Rights Triggered..................42
5.15 Payment of Expenses.................................................43
5.16 Canaan Termination Fee..............................................43
5.17 Dissenting Stockholder Payments.....................................43
5.18 Name 43
5.19 Related Agreements..................................................43
6. Conditions Precedent................................................44
6.1 Conditions to Each Party's Obligation to Effect the Merger..........44
6.1.1 Stockholder Approval.........................................44
6.1.2 Other Approvals..............................................44
6.1.3 No Injunctions or Restraints.................................44
6.2 Conditions to Obligations of Parent and Sub.........................44
6.2.1 Representations and Warranties...............................44
6.2.2 Performance of Covenants and Agreements by Canaan............45
6.2.3 No Adverse Change............................................45
6.2.4 Dissenting Stockholders......................................45
6.2.5 Releases 45
6.2.6 Opinion of Counsel...........................................45
6.3 Conditions to Obligation of Canaan..................................45
6.3.1 Representations and Warranties...............................45
6.3.2 Performance of Covenants and Agreements by Parent and Sub....46
7. Termination.........................................................46
7.1 Termination Rights..................................................46
7.1.1 Mutual Consent...............................................46
7.1.2 Date Certain.................................................46
7.1.3 By Parent 46
7.1.4 By Canaan 47
7.1.5 Superior Proposal............................................47
7.2 Effect of Termination...............................................47
8. Miscellaneous.......................................................47
8.1 Nonsurvival of Representations and Warranties.......................47
8.2 Amendment...........................................................48
8.3 Notices.............................................................48
8.4 Counterparts........................................................49
8.5 Severability........................................................49
8.6 Entire Agreement; No Third Party Beneficiaries......................49
8.7 Applicable Law......................................................49
8.8 No Remedy in Certain Circumstances..................................49
8.9 Enforcement of Agreement............................................49
8.10 Assignment..........................................................50
8.11 Waivers.............................................................50
8.12 References and Titles...............................................50
8.13 Incorporation.......................................................50
Exhibit "A" - Irrevocable Proxy
Exhibit "B" - Goodwill Protection Agreement
Exhibit "C" - Office Space Agreement
Exhibit "D" - Release
Exhibit "E" - Opinion
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is entered into effective the
19th day of April, 2002, by and among CANAAN ENERGY CORPORATION, an Oklahoma
corporation ("Canaan"), CHK ACQUISITION, INC., an Oklahoma corporation ("Sub"),
and CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation ("Parent").
B A C K G R O U N D:
A. The board of directors of each of Parent, Sub and Canaan has determined that
it is in the best interests of its respective stockholders to approve the
acquisition by Parent of Canaan by means of the merger of Sub with and into
Canaan, upon the terms and subject to the conditions set forth in this Agreement
and the applicable provisions of the OGCA;
B. The board of directors of each of Parent, Sub and Canaan has unanimously
adopted resolutions approving the Merger, this Agreement and the transactions
contemplated hereby, and the board of directors of Canaan has unanimously agreed
to recommend that the stockholders of Canaan approve this Agreement, the Merger
and the transactions contemplated hereby;
C. Parent, Sub and Canaan desire to make certain representations, warranties,
covenants and agreements in
connection with the Merger and also to prescribe various conditions to the
Merger;
D. Parent has advised Canaan and the Canaan Specified Stockholders that it will
not enter into this Agreement unless the Canaan Specified Stockholders execute
and deliver to Parent an Irrevocable Proxy in the form set forth in Exhibit "A"
attached hereto and made a part hereof;
E. Parent has advised Canaan that Parent will not consummate this Agreement
unless Leo E. Woodard, John K. Penton and Michael S. Mewbourn execute and
deliver to Parent a Goodwill Protection Agreement in the form set forth in
Exhibit "B" attached hereto and made a part hereof; and
F. Upon consummation of the Merger pursuant to this Agreement, all of the issued
and outstanding Canaan Common Stock and Canaan Stock Options will be converted
into the right to receive the Merger Consideration as determined in accordance
with the terms of this Agreement.
NOW, THEREFORE, for and in consideration of the recitals and the
mutual covenants and agreements set forth in this Agreement, the Parties hereby
agree as follows:
10 Definitions. As used in this Agreement, each of the following terms has
the meaning given in this paragraph or in the paragraphs referred to below:
1.1 Affiliate(s). With respect to any Person, each other Person that
directly or indirectly (through one or more intermediaries or
otherwise) controls, is controlled by, or is under common
control with such Person.
- 53 -
1.2 Agreement. This Agreement and Plan of Merger, as amended, supplemented
or modified from time to time.
1.3 Alternative Proposal. As defined in paragraph 5.3.2 of this Agreement.
1.4 Bank Credit Agreement. The Restated and Consolidated Agreement dated
October 23, 2000, by and among Canaan and a lending group led by
Bank One, Oklahoma, N.A. as amended October 9, 2001 and November 21,
2001.
1.5 Canaan. Canaan Energy Corporation, an Oklahoma corporation.
1.6 Canaan Area. As defined in paragraph 5.1.10 of this Agreement.
1.7 Canaan Certificate. A certificate representing shares of Canaan
Common Stock.
1.8 Canaan Common Stock. Canaan's common stock, $0.01 par value per
share.
1.9 Canaan Disclosure Schedule. The disclosure schedule attached
hereto entitled the Canaan Disclosure Schedule and any documents
listed on such disclosure schedule or expressly incorporated
therein by reference.
1.10 Canaan Employee(s). As defined in paragraph 5.9 of this Agreement.
1.11 Canaan Employee Benefit Plans. As defined in paragraph 3.15 of this
Agreement.
1.12 Canaan Financial Statements. The audited and unaudited
consolidated financial statements of Canaan (including the
related notes) included (or incorporated by reference) in
Canaan's Annual Report on Form 10-K for the year ended December
31, 2001, as filed with the SEC.
1.13 Canaan Material Agreements. The: (1) Bank Credit Agreement;
(2) the Cedar Brush Prospect Agreement dated November 5, 2001,
between Canaan and Union Gas Corporation, a Texas corporation;
(3) all agreements or instruments filed with or listed in the
Canaan SEC Documents as material contracts; and (4) any other written
or oral agreements, contracts, commitments or understandings
to which Canaan is a party, by which any of Canaan is directly or
indirectly bound, or to which any asset of any of Canaan may be
subject, involving total value, consideration or obligations in
excess of One Million Dollars ($1,000,000.00).
1.14 Canaan Permits. As defined in paragraph 3.12 of this Agreement.
1.15 Canaan Plans. The stock option plans and related agreements
listed in section 2.4.3 of the Canaan Disclosure Schedule.
1.16 Canaan Predecessor. As defined in paragraph 3.14.1 of this Agreement.
1.17 Canaan Representative. Any director, officer, employee, agent,
advisor (including legal, accounting and financial advisors),
Affiliate or other representative of Canaan.
1.18 Canaan Rights. The preferred share purchase rights issued pursuant to
the Canaan Rights Agreement for each share of Canaan Common
Stock outstanding on March 25, 2002.
1.19 Canaan Rights Agreement. The Rights Agreement dated as of
March 13, 2002 between Canaan and UMB Bank, N.A., as rights agent
setting forth the terms and conditions of the Canaan Rights.
1.20 Canaan SEC Documents. As defined in paragraph 3.5 of this Agreement.
1.21 Canaan Severance Policy. As defined in paragraph 5.9.1(b) of this
Agreement.
1.22 Canaan Specified Stockholders. The stockholders of Canaan who
are: (a) on Canaan's board of directors; or (b) executive
officers of Canaan.
1.23 Canaan Stock Option(s). Any unexpired option or other right to
purchase Canaan Common Stock issued under the Canaan Plans and
outstanding as of the Effective Time (regardless of whether
vested, unvested or currently exercisable).
1.24 Canaan Stockholder Meeting. The meeting of the stockholders of
Canaan for the purpose of voting on this Agreement and the Merger.
1.25 Canaan Termination Fee. As defined in paragraph 5.16 of this
Agreement.
1.26 CERCLA. The Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
1.27 Certificate of Merger. The Certificate of Merger to be prepared
and executed in accordance with the applicable provisions of the
OGCA and filed with the Secretary of State of Oklahoma to
reflect the consummation of the Merger.
1.28 Closing. The closing of the Merger and the consummation of the
other transactions contemplated by this Agreement.
1.29 Closing Date. Unless otherwise agreed to by Parent and Canaan in
writing, the Closing will take place on the second business day
following the day after which both of the following have
occurred: (a) the Canaan Stockholder Meeting; and (b) the
satisfaction of the conditions to the Merger as set forth in
this Agreement (other than conditions that by their nature are
to be satisfied at Closing).
1.30 COBRA. The Consolidated Omnibus Reconciliation Act of 1985, as
amended, as contained in section 4980B of the Code.
1.31 Code. The Internal Revenue Code of 1986, as amended.
1.32 Confidentiality Agreement. The letter agreement dated March 28,
2002 between Canaan and Parent relating to Canaan's furnishing
of information to Parent in connection with Parent's evaluation
of a possible transaction between Parent and Canaan.
1.33 Contract Employee. As defined in paragraph 5.9.1(d) of this Agreement.
1.34 Defensible Title. Such right, title and interest to an asset
that is: (a) evidenced by an instrument or instruments filed of
record in accordance with the conveyance and recording laws of
the applicable jurisdiction to the extent necessary to prevail
against competing claims of bona fide purchasers for value
without notice; (b) subject to Permitted Encumbrances; and (c)
free and clear of all other Liens, claims, infringements,
burdens or other defects.
1.35 Dissenting Stockholders. Any holder or holders of Canaan Common
Stock who validly perfect appraisal rights under Section 1091 of
the OGCA.
1.36 Effective Time. As defined in paragraph 2.7 of this Agreement.
1.37 Environmental Law. Any federal, state, local or foreign statute,
code, ordinance, rule, regulation, policy, guideline, permit,
consent, approval, license, judgment, order, writ, decree,
injunction or other authorization relating to: (a) emissions,
discharges, releases or threatened releases of Hazardous
Materials into the natural environment (including, without
limitation, ambient air, soil, sediments, land surface or
subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land); (b) the
generation, treatment, storage, disposal, use, handling,
manufacture, transportation or shipment of Hazardous Materials;
or (c) the pollution of the environment, solid waste or
operation or reclamation of mines.
1.3 ERISA. The Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.39 Exchange Act. The Securities Exchange Act of 1934, as amended from
time to time.
1.40 Exchange Agent. UMB Bank, N.A., the paying agent for shares of
Canaan Common Stock.
1.41 Exchange Fund. As defined in paragraph 2.5.1 of this Agreement.
1.42 GAAP. Generally accepted accounting principles, as recognized by
the U.S. Financial Accounting Standards Board (or any generally
recognized successor).
1.43 Goodwill Protection Agreement. The agreement to be executed and
delivered at the Closing by Leo E. Woodard, John K. Penton and
Michael S. Mewbourn in favor of Canaan and Parent substantially in
the form attached hereto as Exhibit "B."
1.44 Governmental Authority. Any national, state, county or municipal
government, (whether domestic or foreign), agency, board,
bureau, commission, court, department or other instrumentality
of any such government, or any arbitrator in any case that has
jurisdiction over Canaan, Parent or Sub or any of their
respective properties or assets.
1.45 Hazardous Material. Any: (a) "hazardous substance" as defined by
CERCLA; (b) "hazardous waste" as defined by the Resource Conservation
and Recovery Act, as amended; (c) hazardous, dangerous or toxic
chemical, material, waste or substance, within the meaning of
and regulated by any Environmental Law; (d) radioactive material,
including any naturally occurring radioactive material, and any
source, special or byproduct material as defined in 42 U.S.C. 2011
et seq. and any amendments or authorizations thereof; (3) asbestos-
containing materials in any form or condition; or
(f) polychlorinated biphenyls in any form or condition.
1.46 HSR Act. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended from time to time.
1.47 Hydrocarbons. Oil, condensate, gas, casinghead gas and other liquid or
gaseous hydrocarbons.
1.48 Indemnified Parties. As defined in paragraph 5.8.1 of this Agreement.
1.49 Irrevocable Proxy. The irrevocable proxy in the form attached hereto
as Exhibit "A" to be executed by the Canaan Specified Stockholders
granting to Parent the right to vote such holders' Canaan Common Stock
in connection with the stockholders' vote concerning the Merger and
any and all related matters.
1.50 Lien(s). Any lien, mortgage, security interest, pledge, deposit,
production payment, restriction, burden, encumbrance, rights of a
vendor under any title retention or conditional sale agreement, or
lease or other arrangement substantially equivalent thereto.
1.51 Material Adverse Effect. An event or condition or a series of related
events or conditions that: (1) has an adverse financial impact of more
than Five Million Dollars ($5,000,000) on Canaan; (2) materially and
adversely affects the business, assets, liabilities or financial
condition of Canaan; or (3) with respect to either Party, materially
and adversely affects the ability of the party to consummate the
transactions contemplated by this Agreement in accordance herewith or
fulfill the conditions to Closing. Notwithstanding the foregoing the
following will not be taken into account in determining whether there
has been a Material Adverse Effect: (x) any adverse affect or change
that is caused by or results from conditions affecting the United
States economy generally or the economy of any nation or region in
which Canaan or Parent (as the case may be) conducts business on a
consolidated basis; (y) any adverse affect or change that is caused by
or results from conditions generally affecting the natural gas
industry including, without limitation, the prices of natural gas and
oil; and (z) any adverse affect or change that is caused by or results
from the announcement or pendency of this Agreement, the Merger or the
transactions contemplated hereby.
1.52 Merger. As defined in paragraph 2.1 of this Agreement.
1.53 Merger Consideration. The aggregate amount equal to the sum of: (1)
the total number of shares of Canaan Common Stock that are issued and
outstanding as of the Effective Time other than those held by Parent
or Sub multiplied by the Per Share Merger Consideration; plus (2) the
aggregate amount by which the Per Share Merger Consideration exceeds
the exercise price of each of the Canaan Stock Options identified in
Section 2.4.3 of the Canaan Disclosure Schedule which are in the money
(based on the Per Share Merger Consideration) and which are
outstanding at the Effective Time.
1.54 Net Revenue Interests. Canaan's interest in Hydrocarbons produced from
or attributable to Canaan's Oil and Gas Interests, after deducting all
lessor's royalties, overriding royalties, production payments, and
other interests or burdens on Hydrocarbons produced from Canaan's oil
and gas properties or any well thereon.
1.55 Office Space Agreement. The agreement to be executed between Canaan
and LJ Natural Gas Company, in substantially the form attached hereto
as Exhibit "C."
1.56 OGCA. The Oklahoma General Corporation Act, as amended.
1.57 Oil and Gas Interests. Any and all: (a) direct and indirect interests
in and rights with respect to oil, gas, mineral and related properties
and assets of any kind and nature, direct or indirect, including
working, royalty and overriding royalty interests, production
payments, operating rights, net profits interests, other non-working
interests and non-operating interests; (b) interests in and rights
with respect to Hydrocarbons and other minerals or revenues therefrom
and contracts in connection therewith and claims and rights thereto
(including oil and gas leases, operating agreements, unitization and
pooling agreements and orders, division orders, transfer orders,
mineral deeds, royalty deeds, oil and gas sales, exchange and
processing contracts and agreements and interests related to any of
the foregoing), surface interests, fee interests, reversionary
interests, reservations and concessions; (c) easements, rights of way,
licenses, permits, leases, and other interests associated with,
appurtenant to, or necessary for the operation of any of the
foregoing; and (d) interests in fixtures, equipment and machinery
(including well equipment and machinery), oil and gas production,
gathering, transmission, compression, treating, processing and storage
facilities (including tanks, tank batteries, pipelines and gathering
systems), pumps, water plants, electric plants, gasoline and gas
processing plants, refineries and other tangible personal property and
fixtures associated with, appurtenant to, or necessary for the
operation of any of the foregoing.
1.58 Ownership Interests. The Net Revenue Interests, Working Interests and
other ownership interests, if any, of Canaan in Canaan's Oil and Gas
Interests which were classified as having proved reserves as of
December 31, 2001 as reported in the Canaan SEC Reports and listed in
Section 1.58 of the Canaan Disclosure Schedule.
1.59 Parent. Chesapeake Energy Corporation, an Oklahoma corporation.
1.60 Parent Companies. Parent and the Parent Subsidiaries.
1.61 Parent Representative. Any director, officer, employee, agent, advisor
(including legal, accounting and financial advisors), Affiliate or
other representative of Parent or Parent Subsidiaries.
1.62 Parent Subsidiaries. Sub and all other direct or indirect wholly owned
subsidiaries of Parent.
1.63 Parties. The collective reference to Parent, Sub and Canaan.
1.64 Payout Balance. As defined in paragraph 3.36 of this Agreement.
1.65 Permitted Encumbrances. Any: (a) Liens for Taxes, assessments or other
governmental charges or levies that are not at the particular time in
question due and delinquent, foreclosure, distraint, sale or other
similar proceedings have not been commenced or if commenced, have been
stayed or are being contested in good faith by appropriate proceedings
and if Canaan will have set aside on its books such reserves
(segregated to the extent required by sound accounting practices) as
may be required by GAAP or otherwise determined by its board of
directors to be adequate with respect thereto; (b) Liens of carriers,
warehousemen, mechanics, laborers, materialmen, landlords, vendors,
workmen and operators arising by operation of law in the ordinary
course of business or by a written agreement existing as of the date
hereof and necessary or incident to the exploration, development,
operation and maintenance of Hydrocarbon properties and related
facilities and assets for sums not yet due or being contested in good
faith by appropriate proceedings, if Canaan will have set aside on its
books such reserves (segregated to the extent required by sound
accounting practices) as may be required by GAAP or otherwise
determined by its board of directors to be adequate with respect
thereto; (c) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance and
other social security legislation (other than ERISA); (d) Liens
incurred in the ordinary course of business to secure the performance
of bids, tenders, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance and repayment bonds and other
obligations of a like nature; (e) Liens, easements, rights-of-way,
restrictions, servitudes, permits, conditions, covenants, exceptions,
reservations and other similar encumbrances incurred in the ordinary
course of business or existing on property and not (i) reducing the
Canaan Net Revenue Interest set forth in Section 1.58 of the Canaan
Disclosure Schedule, (ii) increasing the Canaan Working Interests in
any Oil and Gas Interest set forth in Section 1.58 of the Canaan
Disclosure Schedule or (iii) impairing the value of the assets of
Canaan or interfering with the ordinary conduct of the business of
Canaan or rights to any of their assets; (f) Liens created or arising
by operation of law to secure a party's obligations as a purchaser of
oil and gas; (g) all rights to consent by, required notices to,
filings with, or other actions by any Governmental Authority to the
extent customarily obtained subsequent to Closing; (h) farmout,
carried working interest, joint operating, unitization, royalty,
overriding royalty, sales and similar agreements relating to the
exploration or development of, or production from, Hydrocarbon
properties entered into in the ordinary course of business that do not
(x) reduce the Canaan Net Revenue Interests set forth in Section 1.58
of the Canaan Disclosure Schedule, (y) increase the Canaan Working
Interests in any Oil and Gas Interest set forth in Section 1.58 of the
Canaan Disclosure Schedule or (z) adversely affect the value of any
asset of Canaan; (i) any defects, irregularities or deficiencies in
title to easements, rights-of-way or other surface use agreements that
do not (x) reduce the Canaan Net Revenue Interests set forth in
Section 1.58 of the Canaan Disclosure Schedule, (y) increase the
Canaan Working Interests in any Oil and Gas Interest set forth in
Section 1.58 of the Canaan Disclosure Schedule or (z) adversely affect
the value of any asset of Canaan; (j) preferential rights to purchase
and Third-Party Consents disclosed in Section 1.65 of the Canaan
Disclosure Schedule; (k) Liens arising under or created pursuant to
the Bank Credit Agreement; and (l) Liens specifically described in
Section 1.65 of the Canaan Disclosure Schedule.
1.66 Per Share Merger Consideration. Eighteen Dollars ($18.00) per share of
Canaan Common Stock including the associated Canaan Rights.
1.67 Person(s). Any natural person, corporation, company, limited or
general partnership, joint stock company, joint venture, association,
limited liability company, limited liability partnership, trust, bank,
trust company, land trust, business trust or other entity or
organization, whether or not a Governmental Authority.
1.68 Proxy Statement. A proxy statement in a definitive form relating to
the Canaan Stockholder Meeting.
1.69 Returns. As defined in paragraph 3.14.1 of this Agreement.
1.70 SEC. The Securities and Exchange Commission.
1.71 Securities Act. The Securities Act of 1933, as amended from time to
time.
1.72 Sub. CHK Acquisition, Inc., an Oklahoma corporation and wholly-owned
subsidiary of Parent.
1.73 Sub Common Stock. Sub's common stock, par value $1.00 per share.
1.74 Superior Proposal. As defined in paragraph 5.3.2 of this Agreement.
1.75 Surviving Corporation. As defined in paragraph 2.2 of this Agreement.
1.76 Tax(es). Any and all taxes, fees, levies, duties, tariffs, imposts,
and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority or taxing
authority including, without limitation, taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment,
social security, workers' compensation, unemployment compensation, or
net worth, taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added, or gains taxes,
license, registration and documentation fees, and custom duties,
tariffs, and similar charges.
1.77 Third-Party Consent. The consent or approval of any Person other than
Canaan, Parent, Sub or any Governmental Authority.
1.78 Transaction Documents. This Agreement, the Irrevocable Proxy, the
Goodwill Protection Agreement, the Office Space Agreement and the
other documents and instruments executed and delivered in connection
with any of the foregoing.
1.79 Working Interest. Canaan's share of all of the costs, expenses,
burdens, and obligations of any type or nature attributable to
Canaan's interests in its oil and gas properties or any well thereon.
20 Consummation of the Merger. The Merger will be consummated as follows:
2.1 The Merger. Subject to the terms and conditions set forth in this
Agreement, at the Effective Time, Sub will be merged with and into
Canaan in accordance with the provisions of this Agreement and the
OGCA. Such merger is referred to in this Agreement as the "Merger."
2.2 Effect of the Merger. Upon the effectiveness of the Merger, the
separate existence of Sub will cease and Canaan, as the surviving
corporation in the Merger (the "Surviving Corporation"), will continue
its corporate existence under the laws of the State of Oklahoma. The
Merger will have the effects specified in this Agreement and the OGCA.
2.3 Governing Instruments, Directors and Officers of the Surviving
Corporation.
2.3.1 Certificate of Incorporation. The certificate of
incorporation of Canaan, as in effect immediately prior to the
Effective Time amended to reflect the change in the name of the
Surviving Corporation as provided herein, will be the certificate of
incorporation of the Surviving Corporation until duly amended in
accordance with its terms and applicable law.
2.3.2 Bylaws. The bylaws of Canaan, as in effect immediately
prior to the Effective Time, will be the bylaws of the Surviving
Corporation until duly amended in accordance with their terms and
applicable law.
2.3.3 Name. The name of the Surviving Corporation will be CHK
Acquisition, Inc., however, ---- at the option of Parent, the name of
the Surviving Corporation may be changed.
2.3.4 Directors and Officers. The directors and officers of Sub
at the Effective Time will be the directors and officers,
respectively, of the Surviving Corporation from the Effective Time
until their respective successors have been duly elected or appointed
in accordance with the certificate of incorporation and bylaws of the
Surviving Corporation and applicable law.
2.4 Effect on Securities. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof, the
Sub Common Stock, the Canaan Common Stock and other Canaan securities
will be treated as follows subject to the terms and conditions of this
Agreement:
2.4.1 Sub Common Stock. Each share of Sub Common Stock
outstanding immediately prior to the Effective Time will be
automatically converted into and become one (1) share of common stock
of the Surviving Corporation on a one for one basis. As a result of
the Merger the foregoing stock will represent one hundred percent
(100%) of the issued and outstanding capital stock of the Surviving
Corporation immediately after the Effective Time.
2.4.2 Canaan Common Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder thereof,
each share of Canaan Common Stock that is issued and outstanding
immediately prior to the Effective Time will be converted into the
right to receive the Per Share Merger Consideration. Notwithstanding
the foregoing, the shares of Canaan Common Stock covered by paragraph
2.4.4 of this Agreement will be controlled by such paragraph and will
not receive the Per Share Merger Consideration. Each share of Canaan
Common Stock, when so converted, will automatically be canceled and
retired, will cease to exist and will no longer be outstanding, and
the holder of any Canaan Certificate representing any such shares will
cease to have any rights with respect thereto, except the right to
receive the Per Share Merger Consideration upon the surrender of such
Canaan Certificate in accordance with paragraph 2.5.
2.4.3 Canaan Stock Options. Section 2.4.3 of the Canaan
Disclosure Schedule lists: (a) each of the Canaan Plans; and (b) each
Canaan Stock Option outstanding as of the date hereof specifying the
Canaan Plan under which such Canaan Stock Option was issued, the
number of shares of Canaan Common Stock covered by such Canaan Stock
Option, the term of such Canaan Stock Option, the vesting schedule for
such Canaan Stock Option and the exercise price for such Canaan Stock
Option. Each Canaan Stock Option remaining outstanding at the
Effective Time will be or become fully vested at the Effective Time.
At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each Canaan Stock Option will be
canceled and each Canaan Stock Option will be converted into the right
to receive, for each share of Canaan Common Stock with respect to
which such Canaan Stock Option is exercisable, cash in an amount equal
to the Per Share Merger Consideration, less the per share exercise
price of such Canaan Stock Option. On presentation to Parent of the
Canaan Stock Option or compliance with the provisions of paragraph
2.5.6 with respect thereto, the Parent will pay or cause to be paid to
each holder of a Canaan Stock Option, for each share of Canaan Common
Stock with respect to which such Canaan Stock Option is exercisable,
cash in an amount equal to (i) the amount by which (A) the Per Share
Merger Consideration, exceeds (B) the per share exercise price of such
Canaan Stock Option, less (ii) amounts required to be withheld by
Parent or Canaan, if any, in respect of federal taxes and other
payroll withholding as a consequence of the cancellation and
conversion of such Canaan Stock Option in accordance herewith. Without
limiting the foregoing, except as expressly disclosed in Section 2.4.3
of the Canaan Disclosure Schedule, Canaan further hereby represents
and warrants to Parent that: (i) all adjustments required to be made
to the number of shares issuable or the exercise price for exercise
under each of the Canaan Stock Options has been accurately made as
disclosed in Section 2.4.3 of the Canaan Disclosure Schedule; and (ii)
all required notices have been given to the holders of the Canaan
Stock Options including, without limitation, adjustment notices. As of
the Effective Time, as a result of the Merger, the provisions in any
of the Canaan Plans or any other program, arrangement, option, warrant
or other agreement providing for the issuance or grant of any interest
in respect of the capital stock of Canaan will be canceled, cease to
exist and no longer be outstanding as of the Effective Time and Canaan
will take all action necessary to ensure that following the Effective
Time no Person will have any right thereunder to acquire equity
securities of Canaan, the Surviving Corporation or any subsidiary
thereof.
2.4.4 Treasury Stock and Parent Owned Stock. At the Effective
Time, by virtue of the Merger, all shares of Canaan Common Stock that
are issued and held as treasury stock, if any, and all shares of
Canaan Common Stock held by Parent will be canceled and retired and
will cease to exist, and no Merger Consideration or other
consideration will be paid or payable in exchange therefor.
2.4.5 Dissenting Stockholder Shares. Except as provided herein,
any issued and outstanding shares of Canaan Common Stock held by a
Dissenting Stockholder will be converted into the right to receive
such consideration as may be determined to be due to such Dissenting
Stockholder pursuant to the OGCA. If a Dissenting Stockholder
effectively withdraws the demand for appraisal or loses the right of
appraisal as provided under the OGCA, the shares of Canaan Common
Stock held by such Dissenting Stockholder will be deemed to be
converted under paragraph 2.4.2 of this Agreement (without interest).
Canaan will provide prompt notice to Parent of any written demands for
appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to the OGCA and will provide to Parent the
opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the OGCA. Absent the prior written consent
of Parent and Sub, Canaan will not negotiate, settle or offer to
settle any demand for appraisal, provided, however that any and all
payments made to settle such appraisal rights or made pursuant to the
OGCA will be made solely out of Canaan assets and neither Parent nor
Sub will have any liability therefor. Notwithstanding anything
contained in this paragraph 2.4.5, if the Merger is rescinded or
abandoned or if the stockholders of Canaan revoke the authority to
effect the Merger, then the right of any Dissenting Stockholder to
receive such consideration as may be determined to be due in respect
of such Dissenting Stockholder's Canaan Common Stock pursuant to the
OGCA will cease.
2.5 Exchange of Certificates. The exchange of Canaan Common Stock for the
Per Share Merger Consideration will be consummated as follows:
2.5.1 Exchange Fund. At the Effective Time, Parent will deposit
with the Exchange Agent, for the benefit of the holders of shares of
Canaan Common Stock and for exchange in accordance with this
Agreement, funds representing the Merger Consideration to be paid in
exchange for shares of Canaan Common Stock pursuant to paragraph
2.5.2, less the amount of the Merger Consideration which: (i) would
have been payable to Dissenting Stockholders; and (ii) will be payable
with respect to the Canaan Stock Options. The funds delivered to the
Exchange Agent pursuant hereto are referred to herein as the "Exchange
Fund." The Exchange Agent, pursuant to irrevocable instructions
consistent with the terms of this Agreement, will deliver the Per
Share Merger Consideration to be paid pursuant to paragraph 2.5.2 out
of the Exchange Fund, and the Exchange Fund will not be used for any
other purpose whatsoever.
2.5.2 Notice and Surrender. As soon as reasonably practicable
after the Effective Time, Parent will cause the Exchange Agent to mail
to each holder of record of Canaan Common Stock that, immediately
prior to the Effective Time, were converted into the right to receive
the Per Share Merger Consideration pursuant to paragraph 2.4.2, a
letter of transmittal to be used to effect the exchange of such Canaan
Common Stock for the Per Share Merger Consideration, along with
instructions for using such letter of transmittal to effect such
exchange. The letter of transmittal (or the instructions thereto) will
specify that delivery of any Canaan Certificate will be effected, and
the risk of loss and title thereto will pass, only upon delivery of
such Canaan Certificate to the Exchange Agent and will be in such form
and have such other provisions as Parent may reasonably specify. On
surrender to the Exchange Agent of a Canaan Certificate for
cancellation, together with a duly completed and executed letter of
transmittal and any other required documents: (a) the holder of such
Canaan Certificate will be entitled to receive in exchange therefor
the Per Share Merger Consideration for each share of Canaan Common
Stock represented by such Canaan Certificate (after giving effect to
any required withholding of Taxes); and (b) the Canaan Certificate so
surrendered will forthwith be canceled. No interest will be paid or
accrued on the Per Share Merger Consideration. In the event of a
transfer of ownership of Canaan Common Stock that is not registered in
the transfer records of Canaan, the Per Share Merger Consideration may
be paid to a transferee if the Canaan Certificate representing such
shares of Canaan Common Stock is presented to the Exchange Agent
accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer Taxes have
been paid. Until surrendered as contemplated by this paragraph 2.5.2,
each Canaan Certificate will be deemed at any time after the Effective
Time to represent only the right to receive on such surrender the Per
Share Merger Consideration for the number of shares of Canaan Common
Stock represented by such Canaan Certificate as provided in paragraph
2.4.2.
2.5.3 Full Satisfaction. Payment of the Per Share Merger
Consideration upon the surrender for exchange of shares of Canaan
Common Stock in accordance with the terms hereof will be deemed to
have been paid in full satisfaction of all rights pertaining to such
shares of Canaan Common Stock. After the Effective Time, there will be
no further registration of transfers on the Surviving Corporation's
stock transfer books of the shares of Canaan Common Stock that were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, a Canaan Certificate is presented to the Surviving
Corporation or Parent for any reason, it will be canceled and
exchanged as provided in this paragraph 2.5.
2.5.4 Unclaimed Exchange Fund. Any portion of the Exchange Fund
held by the Exchange Agent in accordance with the terms of this
paragraph 2.5 that remains unclaimed by the former stockholders of
Canaan for a period of one (1) year following the Effective Time will
be delivered to Parent, on demand. Thereafter, any former stockholders
of Canaan who have not theretofore complied with the provisions of
this paragraph 2.5 will look only to Parent for payment of their claim
for the Per Share Merger Consideration for the number of shares of
Canaan Common Stock owned. No interest will be paid or payable on any
Per Share Merger Consideration regardless of the date actually paid.
2.5.5 No Liability. Neither Parent, Sub, Canaan, the Surviving
Corporation, the Exchange Agent nor any other Person will be liable to
any former holder of shares of Canaan Common Stock for any amount
properly delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law. Any amounts remaining
unclaimed by former holders of Canaan Common Stock for a period of
three (3) years following the Effective Time (or such earlier date
immediately prior to the time at which such amounts would otherwise
escheat to or become property of any Governmental Authority) will, to
the extent permitted by applicable law, become the property of Parent,
free and clear of any claims or interest of any such holders or their
successors, assigns or personal representatives previously entitled
thereto.
2.5.6 Lost, Stolen or Destroyed Certificates. If any Canaan
Certificate is lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Canaan Certificate
to be lost, stolen or destroyed and, if required by Parent, the
posting by such Person of a bond, in such reasonable amount as Parent
may direct, as indemnity against any claim that may be made against
Parent with respect to such Canaan Certificate, the Exchange Agent
will pay in exchange for such lost, stolen or destroyed Canaan
Certificate the Per Share Merger Consideration deliverable with
respect thereto pursuant to this Agreement.
2.5.7 Investment of Exchange Fund. The Exchange Agent will invest
any cash included in the Exchange Fund from time to time, as directed
by Parent, in short term money market assets or similar securities.
Any interest and other income resulting from such investments will be
payable to Parent on demand and will be the sole property of Parent.
2.6 Closing. The Closing will take place on the Closing Date at such time
and place as is agreed upon by Parent and Canaan.
2.7 Effective Time of the Merger. The Merger will become effective
immediately when the Certificate of Merger is accepted for filing by
the Secretary of State of Oklahoma or at such time thereafter as is
provided in the Certificate of Merger (the "Effective Time"). The
Certificate of Merger will be filed on the Closing Date as soon as
practicable after the Closing; provided, however, that the Certificate
of Merger may be filed prior to the Closing Date or prior to the
Closing so long as it provides for an Effective Time that occurs after
the Closing.
2.8 Taking of Necessary or Further Action. Each of Parent, Sub and Canaan
will use all reasonable efforts to take all such actions as may be
necessary or appropriate in order to effectuate the Merger under the
OGCA as promptly as commercially practicable. If, at any time after
the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of either Sub or
Canaan, the officers and directors of the Surviving Corporation are
fully authorized, in the name of the Surviving Corporation or
otherwise to take, and will take all such lawful and necessary action.
3. Canaan Representations and Warranties. Except as set forth in the Canaan
Disclosure Schedule with a reference to each paragraph of this Agreement
modified by such item of disclosure, Canaan hereby represents and warrants
to Parent and Sub that:
3.1 Corporate Organization. Canaan: (a) is a corporation duly organized,
validly existing and in good standing under the laws of the state of
Oklahoma; (b) has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its
business as it is presently being conducted; and (c) is duly qualified
to do business as a foreign corporation, and is in good standing, in
each jurisdiction where the character of the properties owned or
leased by it or the nature of its activities makes such qualification
necessary (except where any failure to be so qualified as a foreign
corporation or to be in good standing would not, individually or in
the aggregate, have a Material Adverse Effect on Canaan). Copies of
the certificate or articles of incorporation and bylaws of Canaan have
heretofore been delivered to Parent and such copies are accurate and
complete as of the date hereof.
3.2 Authority and Enforceability. The board of directors of Canaan (at a
meeting duly called and held) has: (a) determined that the Merger is
advisable; and (b) resolved to approve the Merger and recommend the
approval and adoption of this Agreement by Canaan's stockholders. In
addition, the board of directors of Canaan has taken all action
necessary to render the Control Share Acquisition Act, Sections 1145
through 1155 of Title 18 of the Oklahoma Statutes and Section 1090.3
of the OGCA inapplicable to the Merger and the other transactions
contemplated by this Agreement. No other state takeover statute or
similar statute or regulation applies or purports to apply to Canaan
with respect to this Agreement, the Merger or any other transaction
contemplated by this Agreement. Canaan has the requisite corporate
power and authority to execute and deliver this Agreement and (with
respect to consummation of this Agreement and the Merger, subject to
the approval of the stockholders of Canaan) to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and (with the approval by the stockholders of Canaan) the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part
of Canaan, including approval by the board of directors of Canaan, and
no other corporate proceedings on the part of Canaan are necessary to
authorize the execution or delivery of this Agreement or (with
approval by the stockholders of Canaan) to consummate the transactions
contemplated hereby. The board of directors of Canaan has taken all
action necessary to render the Canaan Rights inapplicable to this
Agreement, the other Transaction Documents and the Merger and ensure
that neither Parent nor Sub nor any of their Affiliates or associates
is or will become an "Acquiring Person" (as defined in the Canaan
Rights Agreement) by reason of any of the Transaction Documents or the
Merger. In addition, a "Distribution Date" (as defined in the Canaan
Rights Agreement) will not occur by reason of the execution of this
Agreement, the execution of any of the Transaction Documents or the
consummation of the Merger. This Agreement has been duly and validly
executed and delivered by Canaan and constitutes a valid and binding
obligation of Canaan, enforceable against Canaan in accordance with
its terms.
3.3 No Violations. The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby and
compliance by Canaan with the provisions hereof will not, conflict
with, result in any violation of or default (with or without notice or
lapse of time or both) under, give rise to a right of termination,
cancellation or acceleration of any obligation (excluding any change
of control put or acceleration) or to the loss of a material benefit
under, or result in the creation of any Lien on any of the properties
or assets of Canaan under, any provision of: (a) the certificate of
incorporation or bylaws of Canaan; (b) any loan or credit agreement,
note, bond, mortgage, indenture, lease, permit, concession, franchise,
license or other agreement or instrument applicable to Canaan; or (c)
assuming the consents, approvals, authorizations or permits and
filings or notifications referred to in paragraph 3.4 are duly and
timely obtained or made, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Canaan or any of Canaan's
properties or assets, other than, in the case of clause (b) or (c)
above, any such conflict, violation, default, right, loss or Lien
that, individually or in the aggregate, would not have a Material
Adverse Effect on Canaan.
3.4 Consents and Approvals. No consent, approval, order or authorization
of, registration, declaration, or filing with, or permit from, any
Governmental Authority is required by or with respect to Canaan in
connection with the execution and delivery of this Agreement by Canaan
or the consummation by Canaan of the transactions contemplated hereby
except for the following: (1) any such consent, approval, order,
authorization, registration, declaration, filing or permit which the
failure to obtain or make would not, individually or in the aggregate,
have a Material Adverse Effect on Canaan; (2) the filing of the
Certificate of Merger with the Secretary of State of Oklahoma pursuant
to the provisions of the OGCA; (3) the filing, if necessary, of a
pre-merger notification report under the HSR Act and the expiration or
termination of the applicable waiting period; (4) the filing with the
SEC of the Proxy Statement and such other reports under Section 13(a)
of the Exchange Act and such other compliance with the Exchange Act
and the Securities Act and the rules and regulations of the SEC
thereunder as may be required in connection with this Agreement and
the transactions contemplated hereby and the obtaining from the SEC of
such orders as may be so required; and (5) such filings and approvals
as may be required by any applicable state securities, "blue sky" or
takeover laws or Environmental Laws. No Third-Party Consent is
required by or with respect to Canaan in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for: (x) any such Third-Party Consent
which the failure to obtain would not, individually or in the
aggregate, have a Material Adverse Effect on Canaan; (y) the valid
approval of this Agreement and the Merger by the stockholders of
Canaan; and (z) any consent, approval or waiver required by the terms
of the Bank Credit Agreement, which consent, approval or waiver Canaan
agrees to use reasonable efforts to obtain if requested by Parent or
Sub.
3.5 Canaan SEC Documents. Parent has had available to it a true, correct
and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Canaan with the SEC since December
31, 2000, and prior to the Effective Time (the "Canaan SEC
Documents"), which are all the documents that Canaan was or will be
required to file with the SEC since such date. As of their respective
dates, the Canaan SEC Documents complied or will comply in all
material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Canaan SEC Documents, and none of
the Canaan SEC Documents contained or will contain any untrue
statement of a material fact or omitted or will omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
3.6 Financial Statements. The Canaan Financial Statements were prepared in
accordance with the applicable published rules and regulations of the
SEC with respect thereto and in accordance with GAAP 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, in accordance with applicable requirements of GAAP, the
financial position of Canaan as of their respective dates and the
results of operations and the cash flows of Canaan for the periods
presented therein.
3.7 Capital Structure. The authorized capital stock of Canaan consists of
50,000,000 shares of Canaan Common Stock and 1,000,000 shares of
preferred stock, 25,000 of which have been designated as Series A
Junior Participating Preferred Stock , par value $.01. As of April 17,
2002: (a) 4,353,646 shares of Canaan Common Stock were validly issued
and outstanding; (b) 500,000 shares of Canaan Common Stock were
reserved for issuance pursuant to the Canaan Plans, of which Canaan
Stock Options to purchase a total of 470,450 shares of Canaan Common
Stock were issued and outstanding; (c) there are no shares of capital
stock of Canaan of any class authorized, issued or outstanding other
than the Canaan Common Stock ; and (d) 578,169 shares of Canaan Common
Stock were held by Canaan as treasury stock. Except for changes
resulting from the exercise of Canaan Stock Options listed in section
2.4.3 of the Canaan Disclosure Schedule Canaan will notify Parent in
writing simultaneously with any change after April 17, 2002, in any of
the numbers of securities set forth in the immediately preceding
sentence together with a detailed explanation of the event giving rise
to such change. Except as described in subpart (a) above, as described
in Section 2.4.3 of the Canaan Disclosure Schedule and the Canaan
Rights under the Canaan Rights Plan, there are: (i) no outstanding
shares of capital stock or other voting securities of Canaan; (ii) no
outstanding securities of Canaan or any other Person convertible into
or exchangeable or exercisable for shares of capital stock or other
voting securities of Canaan; and (iii) no outstanding subscriptions,
options, warrants, calls, rights (including preemptive rights, stock
appreciation rights, phantom stock rights, conversion rights,
commitments, understandings or agreements to which Canaan is a party
or by which it is bound) obligating Canaan to issue, deliver, sell,
purchase, redeem or acquire shares of capital stock or other
securities of Canaan or obligating Canaan to grant, extend or enter
into any such subscription, option, warrant, call, right, commitment,
understanding or agreement. All outstanding shares of capital stock of
Canaan are validly issued, fully paid and nonassessable and not
subject to any preemptive right. As of the date hereof there is no,
and at the Effective Time there will not be any, stockholder
agreement, voting trust or other agreement or understanding to which
Canaan is a party or by which it is bound relating to the voting of
any shares of the capital stock of Canaan.
3.8 Governmental Regulation. Canaan is not subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940 or any state public utilities laws.
3.9 Litigation. There is no litigation, arbitration, investigation or
other proceeding of any Governmental Authority or other Person pending
or, to the knowledge of Canaan, threatened against Canaan or Canaan's
assets which, if adversely determined, could reasonably be expected to
have a Material Adverse Effect on Canaan. Canaan has no knowledge of
any facts that are likely to give rise to any litigation, arbitration,
investigation or other proceeding of any Governmental Authority or
other Person which, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect on Canaan. Canaan is not
subject to any outstanding injunction, judgment, order, decree or
ruling (other than routine oil and gas field regulatory orders and any
injunction, judgment, order, decree or ruling that, either
individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on Canaan). There is no litigation,
investigation or other proceeding of any Governmental Authority or
other Person pending or, to the knowledge of Canaan, threatened
against or affecting Canaan that questions the validity or
enforceability of this Agreement or any other document, instrument or
agreement to be executed and delivered by Canaan in connection with
the transactions contemplated hereby.
3.10 Brokers. No broker, finder, investment banker or other Person is or
will be, in connection with the transactions contemplated by this
Agreement, entitled to any brokerage, finder's or other fee or
compensation based on any arrangement or agreement made by or on
behalf of Canaan for which Canaan or Parent or Sub will have any
obligation or liability.
3.11 Absence of Certain Changes or Events. Since December 31, 2001, Canaan
has conducted its business only in the ordinary course of business
consistent with past practices and, since such date, there has not
been any event (financial or otherwise, whether or not in the ordinary
course of business), circumstance or condition that: (a) would be
reasonably likely to have a Material Adverse Effect on Canaan; or (b)
would have required the consent of Parent pursuant to paragraph 5.1
had such event occurred after the date of this Agreement.
3.12 Compliance with Laws, Material Agreements and Permits. Canaan is not
in violation of, or in default under, and no event has occurred that
(with notice or the lapse of time or both) would constitute a
violation of or default under: (a) its certificate or articles of
incorporation or bylaws or other governing document; (b) any
applicable law, rule, regulation, order, writ, decree or judgment of
any Governmental Authority; or (c) any Canaan Material Agreement,
except (in the case of clause (b) or (c) above) for any violation or
default that would not, individually or in the aggregate, have a
Material Adverse Effect on Canaan. Canaan has obtained and holds all
permits, licenses, variances, exemptions, orders, franchises,
approvals and authorizations of all Governmental Authorities necessary
for the lawful conduct of its business or the lawful ownership, use
and operation of its assets ("Canaan Permits"), except for Canaan
Permits which the failure to obtain or hold would not, individually or
in the aggregate, have a Material Adverse Effect on Canaan. Canaan is
in compliance with the terms of each of the Canaan Permits, except
where the failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect on Canaan. No investigation
or review by any Governmental Authority with respect to Canaan is
pending or, to the knowledge of Canaan, threatened, other than those,
the outcome of which would not, individually or in the aggregate, have
a Material Adverse Effect on Canaan. To the knowledge of Canaan, no
party to any Canaan Material Agreement is in material breach of the
terms, provisions and conditions of such Canaan Material Agreement.
3.13 No Restrictions. Canaan is not a party to: (a) any agreement,
indenture or other instrument that contains restrictions with respect
to the payment of dividends or other distributions with respect to its
capital stock; (b) any financial arrangement with respect to or
creating any indebtedness to any Person (other than indebtedness
reflected in the Canaan Financial Statements or indebtedness incurred
in the ordinary course of business); (c) any agreement, contract or
commitment relating to the making of any advance to, or investment in,
any Person; (d) any guaranty or other contingent liability with
respect to any indebtedness or obligation of any Person (other than
the endorsement of negotiable instruments for collection in the
ordinary course of business); or (e) any agreement, contract or
commitment limiting in any respect its ability to compete with any
Person or otherwise conduct business of any line or nature.
3.14 Taxes. During the period beginning on January 1, 1998, and ending on
the date hereof, except as expressly provided below:
3.14.1 Canaan and any affiliated, combined or unitary group of
which Canaan or any subsidiary is or was a member and any Person that
has been acquired by Canaan (a "Canaan Predecessor") has properly
completed and timely (taking into account any extensions) filed all
federal, state, local and foreign returns, declarations, reports,
estimates, information returns and statements ("Returns") required to
be filed in respect of any Tax and has timely paid all Taxes that are
shown by such Returns to be due and payable and the Returns correctly
and accurately (except for one or more matters the aggregate effect of
which would not reasonably be expected to have a Material Adverse
Effect) reflect the facts regarding the income, business and assets,
operations, activities, status or other matters of Canaan required to
be shown thereon or any other information required to be shown thereon
and are not subject to penalties under Section 6662 of the Code,
relating to accuracy-related penalties, or any corresponding provision
of applicable state, local or foreign tax law or any predecessor
provision. Canaan has established reserves that are adequate in the
aggregate for the payment of all material Taxes not yet due and
payable with respect to the results of operations of Canaan through
the date hereof, and has complied with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes and the
filing of material federal, state or local Returns except where the
failure to comply would not reasonably be expected to have a Material
Adverse Effect.
3.14.2 Section 3.14.2 of the Canaan Disclosure Schedule sets
forth the last taxable period through which the federal income Tax
Returns of Canaan and any Canaan Predecessor have been examined by the
IRS. Except to the extent being contested in good faith, all material
deficiencies asserted as a result of such examinations and any
examination by any applicable state or local taxing authority have
been paid, fully settled or adequately provided for in Canaan's most
recent audited financial statements. No Tax audits or other
administrative proceedings or court proceedings are presently pending
with regard to any Taxes for which Canaan would be liable, and no
deficiency which has not yet been paid for any such Taxes has been
proposed, asserted or assessed against Canaan with respect to any
period which would reasonably be expected to have a Material Adverse
Effect. No claim has been asserted by an authority in any jurisdiction
where Canaan do not file Returns that any Canaan Company is subject to
Tax in that jurisdiction.
3.14.3 Canaan and the Canaan Predecessors have not executed or
entered into (or prior to the close of business on the Closing Date
will execute or enter into) with the IRS or any taxing authority: (a)
any agreement extending the period for assessment or collection of any
Tax for which Canaan is liable for any period that is open under the
applicable statute of limitations; or (b) a closing agreement pursuant
to Section 7121 of the Code or any similar provision of state or local
income tax law that relates to Canaan for the current or any future
taxable period. Canaan and the Canaan Predecessors have not made an
election under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned
by Canaan. Canaan is not a party to, is not bound by and has no
obligation under any tax sharing agreement or similar agreement or
arrangement. Canaan is not a party to any agreement or other
arrangement that would result separately or in the aggregate in the
payment of any "excess parachute payments" within the meaning of
Section 280G of the Code.
3.14.4 There are no Liens for Taxes (other than for current Taxes
not yet due and payable) on the assets of Canaan.
3.14.5 Canaan has never been a member of an "affiliated group of
corporations" within the meaning of Section 1504 of the Code, other
than as a common parent corporation.
3.14.6 After the date hereof, no election which is inconsistent
with past practices with respect to Taxes will be made by Canaan
without the written consent of Parent.
3.14.7 None of the assets of Canaan are property that is required
to be treated as being owned by any other Person pursuant to the "safe
harbor lease" provisions of former Section 168(f)(8) of the Code.
3.14.11 Canaan and the Canaan Predecessors have not had a
permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States and such
foreign country.
3.14.12 Section 3.14.12 of the Canaan Disclosure Schedule
identifies each arrangement to which Canaan is currently a party and
which is a partnership for federal income tax purposes and which was
required to file an income tax return for a taxable year of such
partnership which ended in 2001 (taking into account any election
which permitted such arrangement not to file a return).
3.14.13 Canaan did not have an excess loss account in any
subsidiary which had on December 31, 2001, assets with a fair market
value in excess of $500,000.
3.14.14 Canaan is in compliance with all applicable laws, rules,
regulations and orders applicable to the Oil and Gas Interests to the
extent pertaining to escheatment or similar laws affecting the payment
of revenues except where the failure to comply would not reasonably be
expected to have a Material Adverse Effect on Canaan.
3.15 Employee Benefit Plans.
3.15.1 Section 3.15.1 of the Canaan Disclosure Schedule lists:
(i) the "employee benefit plans" (within the meaning of Section 3(3)
of ERISA), which Canaan maintains or sponsors or with respect to which
Canaan has any material liability (actual or contingent, primary or
secondary); and (ii) all other (A) director or employee compensation
or benefit plans, programs or arrangements, (B) stock purchase, stock
option, severance, bonus, incentive and deferred compensation plans,
(C) written employment or consulting contracts, and (D)
change-in-control agreements which Canaan maintains, sponsors or is a
party to or with respect to which Canaan has or could have any
material liability (such plans, programs, arrangements, contracts and
agreements are collectively referred to herein as the "Canaan Employee
Benefit Plans").
3.15.2 (i) The reserves reflected in the balance sheet contained
in the Canaan Financial Statements for the period ending December 31,
2001 (together with all footnotes attached thereto, the "Balance
Sheet") relating to any unfunded benefits under the Canaan Employee
Benefit Plans were adequate in the aggregate under GAAP as of December
31, 2001; and (ii) Canaan has not incurred any material unfunded
liability in respect of any such Canaan Employee Benefit Plans since
that date.
3.15.3 There are no suits, investigations or claims (other than
undisputed claims for benefits) pending or, to the knowledge of Canaan
threatened (or any basis therefor) relating to or for benefits under
the Canaan Employee Benefit Plans.
3.15.4 Each Canaan Employee Benefit Plan has been established and
administered in all material respects in accordance with its terms,
and in all material respects in compliance with the applicable
provisions of ERISA, the Code and other applicable laws, rules and
regulations and each Canaan Employee Benefit Plan which is intended to
be qualified within the meaning of Code Section 401(a) is so
qualified.
3.15.5 (i) No Canaan Employee Benefit Plan currently has any
"accumulated funding deficiency" as such term is defined in ERISA
Section 302 and Code Section 412 (whether or not waived); (ii) no
event or condition exists or is expected to occur which is a
reportable event within the meaning of ERISA Section 4043 with respect
to any Canaan Employee Benefit Plan that is subject to Title IV of
ERISA and with respect to which the 30-day notice requirement has not
been waived; (iii) each member of Canaan's Controlled Group (as
defined below) has made all required premium payments when due to the
Pension Benefit Guaranty Corporation ("PBGC"); (iv) neither Canaan nor
any member of its Controlled Group is subject to any liability to the
PBGC for any Canaan Employee Benefit Plan termination; (v) no
amendment has occurred which requires Canaan or any member of its
Controlled Group to provide security pursuant to Code Section
401(a)(29); and (vi) neither Canaan nor any member of its Controlled
Group has engaged in a transaction which is reasonably likely to
subject it to liability under ERISA Section 4069. For the purposes of
this paragraph 3.15, the term "Controlled Group" means all
corporations, trades or businesses which, together with Canaan, are
treated as a single employer under Section 414 of the Code.
3.15.6 No Canaan Employee Benefit Plan is a multiemployer plan
(within the meaning of Section 3(37) of ERISA) and neither Canaan nor
any member of its Controlled Group has incurred or is reasonably
likely to incur any liability to any multiemployer plan nor has or is
engaged in a transaction which is reasonably expected to subject
Canaan or any member of its Controlled Group to any liability under
ERISA Section 4212(c).
3.15.7 Each Canaan Employee Benefit Plan described in subpart
3.15.1(i) above can be unilaterally terminated at any time by Canaan
without material liability to Canaan.
3.16 Environmental Matters.
3.16.1 (i) The reserves reflected in the Canaan Financial
Statements relating to environmental matters were adequate under GAAP
as of December 31, 2001, and Canaan has not incurred any liability in
respect of any environmental matter since that date which would
reasonably be expected to have a Material Adverse Effect; and (ii) the
Canaan SEC Documents include all information relating to environmental
matters required to be included therein under the rules and
regulations of the SEC applicable thereto.
3.16.2 To the knowledge of Canaan, except for any matters which
would not reasonably be expected to have a Material Adverse Effect:
(i) each of Canaan and Canaan Predecessors has conducted its business
and operated its assets, and is conducting its business and operating
its assets, in compliance with all Environmental Laws; (ii) Canaan has
not been notified by any Governmental Authority that any of the
operations or assets of Canaan is the subject of any investigation or
inquiry by any Governmental Authority evaluating whether any material
remedial action is needed to respond to a release of any Hazardous
Material or to the improper storage or disposal (including storage or
disposal at offsite locations) of any Hazardous Material; (iii)
neither Canaan nor any other Person has filed any notice under any
federal, state or local law indicating that (A) Canaan or any Canaan
Predecessor is responsible for the improper release into the
environment, or the improper storage or disposal of any Hazardous
Material, or (B) any Hazardous Material is improperly stored or
disposed of upon any property of Canaan or any Canaan Predecessor;
(iv) Canaan does not have any contingent liability in connection with
a release into the environment at or on the property now or previously
owned or leased by Canaan or any Canaan Predecessor, or the storage or
disposal of any Hazardous Material; (v) neither Canaan or any of the
Canaan Predecessor has received any claim, complaint, notice, inquiry
or request for information which remains unresolved as of the date
hereof with respect to any alleged violation of any Environmental Law
or regarding potential liability under any Environmental Law relating
to operations or conditions of any facilities or property owned,
leased or operated by Canaan or any Canaan Predecessor; (vi) there are
no sites, locations or operations at which Canaan is currently
undertaking, or has completed, any remedial or response action
relating to any such disposal or release, as required by Environmental
Laws; and (vii) all underground storage tanks and solid waste disposal
facilities owned or operated by Canaan are used and operated in
material compliance with Environmental Laws.
3.17 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Canaan Common Stock voting as one class is
the only vote of the holders of any class or series of Canaan capital
stock or other voting securities necessary to approve this Agreement
and the Merger. The affirmative vote of the holders of Canaan capital
stock, or any of them, is not necessary to approve any of the
Transaction Documents other than this Agreement or to consummate any
transaction other than the Merger.
3.18 Canaan Board of Directors Actions. The board of directors of Canaan
has by requisite vote of all directors present: (a) determined that
the Merger is advisable; (b) approved the Merger in accordance with
the provisions of Section 1081 of the OGCA and the transactions
contemplated by this Agreement; and (c) recommended the approval of
this Agreement and the Merger by the holders of Canaan Common Stock
and directed that the Merger be submitted for consideration by the
holders of Canaan Common Stock at a meeting of such stockholders
contemplated by paragraph 5.4 hereof.
3.19 Employment Contracts and Benefits. Except as otherwise provided for in
any Canaan Employee Benefit Plan: (a) Canaan is not subject to or
obligated under any consulting, employment, severance, termination or
similar arrangement, any employee benefit, incentive or deferred
compensation plan with respect to any Person, or any bonus, profit
sharing, pension, stock option, stock purchase or similar plan or
other arrangement or other fringe benefit plan entered into or
maintained for the benefit of employees or any other Person; and (b)
no employee of Canaan, the Canaan Predecessor or any other Person
owns, or has any rights granted by Canaan to acquire, any interest in
any of the assets or business of Canaan. Section 3.19 of the Canaan
Disclosure Schedule sets forth all indebtedness, promissory notes and
other obligations owing by any employee, officer or non-employee
director of Canaan including, without limitation, by any employee,
officer or non-employee director, the principal amount thereof, the
interest rate applicable thereto, any collateral securing payment
thereof, the payment terms and the maturity date thereof.
3.20 Labor Matters. No employees of Canaan are represented by any labor
organization. No labor organization or group of employees of Canaan
has made a demand for recognition or certification as a union or other
labor organization, and there are no representation or certification
proceedings or petitions seeking a representation proceeding presently
pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal
or authority. There are no organizing activities involving Canaan
pending with any labor organization or group of employees of Canaan.
Canaan is in material compliance with all laws, rules, regulations and
orders relating to the employment of labor, including all such laws,
rules, regulations and orders relating to wages, hours, collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding or social
security Taxes and similar Taxes, except where the failure to comply
would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Canaan.
3.21 Insurance. Each of the insurance policies currently maintained by
Canaan is described in Section 3.21 of the Canaan Disclosure Schedule.
Canaan maintains, and through the Closing Date will maintain, such
insurance in full force and effect. Canaan may terminate each of its
insurance policies or binders at or after the Closing and will incur
no penalties or other material costs in doing so other than any short
rate premium adjustments. None of such policies or binders was
obtained through the use of false or misleading information or the
failure to provide the insurer with all information requested in order
to evaluate the liabilities and risks insured. There is no material
default with respect to any provision contained in any such policy or
binder, nor has Canaan failed to give any notice or present any claim
under any such policy or binder in due and timely fashion. There are
no billed but unpaid premiums past due under any such policy or
binder. There (a) are no outstanding claims under any such policies or
binders and, to the knowledge of Canaan, there has not occurred any
event that might reasonably form the basis of any claim against or
relating to Canaan that is not covered by any of such policies or
binders; (b)is no notice of cancellation or non-renewal of any such
policies or binders which has been received; and (c) no performance
bonds outstanding with respect to Canaan.
3.22 Intangible Property. There are no material trademarks, trade names,
patents, service marks, brand names, computer programs, databases,
industrial designs, copyrights or other intangible property that are
necessary for the operation, or continued operation, of the business
of Canaan or for the ownership and operation, or continued ownership
or operation, of any of Canaan's assets, for which Canaan does not
hold valid and continuing authority in connection with the use
thereof. Section 3.22 of the Canaan Disclosure Schedule lists each
seismic agreement to which Canaan is a party.
3.23 Title to Assets. Canaan has Defensible Title subject only to Permitted
Encumbrances to: (1) all Oil and Gas Interests of Canaan included or
reflected in the Ownership Interests and included in section 1.58 of
the Canaan Disclosure Schedule as having proved reserves; (2) all
other Oil and Gas Interests of Canaan as listed in section 3.23 of the
Canaan Disclosure Schedule detailing the type of interest and general
location; (30 all other assets owned by Canaan. Each Oil and Gas
Interest included or reflected in the Ownership Interests entitles
Canaan to receive not less than the undivided Net Revenue Interest set
forth in (or derived from) the Ownership Interests of all Hydrocarbons
produced, saved and sold from or attributable to such Oil and Gas
Interest, and the portion of such costs and expenses of operation and
development of such Oil and Gas Interest that is borne or to be borne
by Canaan is not greater than the undivided Working Interest set forth
in (or derived from) the Ownership Interests.
3.24 Opinion of Financial Advisor. The board of directors of Canaan has
received the opinion of CIBC World Markets, Inc., that, as of such
date, the Per Share Merger Consideration to be received by the holders
of Canaan Common Stock is fair to such holders from a financial point
of view.
3.25 Oil and Gas Operations. (a) All wells included in the Oil and Gas
Interests of Canaan have been drilled and (if completed) completed,
operated and produced in accordance with generally accepted oil and
gas field practices and in compliance with applicable oil and gas
leases and applicable laws, rules, regulations, except where the
failure or violation would not reasonably be expected to have a
Material Adverse Effect on Canaan; and (b) proceeds from the sale of
Hydrocarbons produced from Canaan's Oil and Gas Interests are being
received by Canaan in a timely manner and are not being held in
suspense for any reason (except for amounts, individually or in the
aggregate, not in excess of $250,000 held in suspense in the ordinary
course of business).
3.26 Financial and Commodity Hedging. Section 3.26 of the Canaan Disclosure
Schedule accurately summarizes the outstanding Hydrocarbon and
financial hedging positions of Canaan (including fixed price controls,
collars, swaps, caps, hedges and puts) as of the date reflected on the
Canaan Disclosure Schedule. After the date hereof, Canaan has not and
will not enter into, terminate or modify any hedging positions without
Parent's prior written consent, which will not be unreasonably
withheld.
3.27 Books and Records. All books, records and files of Canaan (including
those pertaining to Canaan's Oil and Gas Interests, wells and other
assets, the production, gathering, transportation and sale of
Hydrocarbons, and corporate, accounting, financial and employee
records): (a) have been prepared, assembled and maintained in
accordance with usual and customary policies and procedures; and (b)
fairly and accurately reflect the ownership, use, enjoyment and
operation by Canaan of their respective assets.
3.28 Other Entities. Canaan has no direct or indirect equity interest in
any corporation, partnership, limited liability company, joint
venture, business association or other entity (other than joint
venture, joint operating or ownership arrangements related to oil and
gas activities entered into in the ordinary course of business or
other partnerships that, individually or in the aggregate, are not
material to the operations or businesses of Canaan).
3.29 Account Information. Section 3.29 of the Canaan Disclosure Schedule
contains an accurate list of the names and addresses of every bank and
other financial institution in which Canaan maintains an account
(whether checking, savings or otherwise), lock box or safe deposit
box, and the account numbers and Persons having signature authority or
legal access thereto.
3.30 Powers of Attorney. There are no outstanding powers of attorney
relating to or affecting Canaan.
3.31 Plugging Status. All wells operated by Canaan or any Canaan
Predecessor that have been permanently plugged and abandoned have been
so plugged and abandoned in accordance in with all applicable
requirements of each Governmental Authority having jurisdiction over
Canaan and the Oil and Gas Interests except where failure to comply
would not reasonably be expected to have a Material Adverse Effect.
3.32 No Knowledge of Breach of Representations. Canaan has no actual
knowledge that any of the representations of Parent or Sub contained
in this Agreement are untrue as of the date of this Agreement. If and
to the extent that Canaan has any such knowledge as of the date of
this Agreement, Canaan will not assert any remedy under this Agreement
for breach of such representation (including, but not limited to, any
right to not close the Merger due to a failure to satisfy the
condition to Closing set forth in paragraph 6.3.1 arising solely as a
result of any such breach).
3.33 Proxy Statement. None of the information supplied or to be supplied by
Canaan for inclusion or incorporation by reference in the Proxy
Statement and any amendments or supplements thereto will, at the time
the Proxy Statement or any amendment or supplement thereto is first
mailed to stockholders of Canaan, at the time such stockholders vote
on approval and adoption of this Agreement and at the Effective Time,
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 light of the circumstances under
which they were made, not misleading. If at any time prior to
Effective Time any event with respect to Canaan or Canaan's officers
and directors occurs which is required to be described in an amendment
of, or a supplement to, the Proxy Statement, such event will be so
described, and such amendment or supplement will be promptly filed
with the SEC and, as required by law, disseminated to the stockholders
of Canaan. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act.
3.34 Equipment. All equipment constituting part of the Oil and Gas
Interests operated by Canaan has been installed, maintained, and
operated by Canaan as a prudent operator in accordance with oil and
gas industry standards, and is currently in a state of repair so as to
be adequate for normal operations by Canaan, except where the failure
to do so would not, individually or in the aggregate, have a Material
Adverse Effect on Canaan.
3.35 Current Commitments. Section 3.35 of the Canaan Disclosure Schedule
contains a true and reasonably complete list as of April 17, 2002, of
all oral or written commitments for Canaan's portion of capital
expenditures of more than $50,000 with respect to any of the Oil and
Gas Interests for which all of the activities anticipated in such
commitments are not reasonably expected to have been completed by the
Effective Time. Except for those set forth in Section 3.35 of the
Canaan Disclosure Schedule or as otherwise permitted by paragraph
5.1.10 of this Agreement, as of Closing there will be no oral or
written commitments for capital expenditures with respect to the Oil
and Gas Interests.
3.36 Payout Balances, Gas Imbalances and Take or Pay. To the knowledge of
Canaan the Payout Balance for each well owned and operated by Canaan
is properly reflected in Section 3.36 of the Canaan Disclosure
Schedule as of the respective date(s) shown thereon. To the knowledge
of Canaan, the Payout Balance for any such third-party operated well
in which Canaan owns an interest is properly reflected in Section 3.36
of the Canaan Disclosure Schedule as of the respective date(s) shown
thereon. "Payout Balance(s)" means the status, as of the dates of the
Canaan's calculations, of the recovery by Canaan or a third party of a
cost amount specified in the contract relating to a well out of the
revenue from such well where the Net Revenue Interest of Canaan
therein will be reduced or the Working Interest therein will be
increased when such amount has been recovered. With respect to the Oil
and Gas Interests (a) there are no production, transportation or
processing imbalances existing with respect to Canaan or the Oil and
Gas Interests, and (b) Canaan have received no deficiency payments
under gas contracts for which any party has a right to take deficiency
gas from Canaan, nor has Canaan received any payments for production
which are subject to refund or recoupment out of future production.
3.37 Full Disclosure. The representations, warranties or other statements
by Canaan in this Agreement or in the Canaan Disclosure Schedule or
Exhibits hereto or any documents distributed generally to Canaan's
stockholders, taken as a whole, do not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements contained therein not misleading.
3.38 Certain Agreements. There are no contracts, agreements, arrangements
or understandings to which Canaan is a party which create, govern or
purport to govern the right of another party (other than Parent or
Sub) to acquire Canaan.
3.39 Affiliate Transactions. There are no transactions between Canaan and
any of Canaan's Affiliates, which are required to be disclosed in the
Canaan SEC Documents which are not disclosed.
4. Parent and Sub Representations and Warranties. Parent and Sub hereby
jointly and severally represent and warrant to Canaan that:
4.1 Organization and Standing. Each of Parent and Sub is a corporation
duly formed, validly existing and in good standing under the laws of
the State of Oklahoma and has the corporate power and authority to own
its property and to carry on its business as such business is now
being conducted.
4.2 Authority and Enforceability. Each of Parent and Sub has the requisite
corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action on the part of Parent and Sub,
including approval by the respective boards of directors of Parent and
Sub and by Parent as the sole stockholder of Sub, and no other
corporate proceedings on the part of Parent or Sub are necessary to
authorize the execution or delivery of this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by each of Parent and Sub and (with
respect to consummation of this Agreement and the Merger, assuming
that this Agreement constitutes a valid and binding obligation of
Canaan) constitutes a valid and binding obligation of each of Parent
and Sub, enforceable against Parent and Sub in accordance with its
terms.
4.3 No Restriction. Neither Parent nor Sub is subject to any order,
judgment or decree, or the subject of any litigation, claim or
proceeding, pending or threatened, or any other restriction of any
kind or character known to either Parent or Sub, which would affect
its ability to carry out the transactions contemplated by this
Agreement.
4.4 Consents and Approvals. No consent, approval, order or authorization
of, registration, declaration, or filing with, or permit from, any
Governmental Authority is required by or with respect to Parent or Sub
in connection with the execution and delivery of this Agreement by
Parent or Sub or the consummation by Parent and Sub of the
transactions contemplated hereby except for the following: (a) any
such consent, approval, order, authorization, registration,
declaration, filing or permit which the failure to obtain or make
would not, individually or in the aggregate, have a Material Adverse
Effect; (b) the filing of the Certificate of Merger with the Secretary
of State of Oklahoma pursuant to the provisions of the OGCA; (c) the
filing, if necessary, of a pre-merger notification report by Parent
under the HSR Act and the expiration or termination of the applicable
waiting period; (d) the filing with the SEC of the Proxy Statement and
such reports under Section 13(a) of the Exchange Act and such other
compliance with the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder as may be required in connection
with this Agreement and the transactions contemplated hereby and the
obtaining from the SEC of such orders as may be so required; (e) such
filings and approvals as may be required by any applicable state
securities, "blue sky" or takeover laws or Environmental Laws; and (f)
the valid approval of this Agreement and the Merger by the board of
directors of Parent and Sub.
4.5 Authorization. All corporate action on the part of each of Parent and
Sub, their directors and stockholders necessary for the transaction
contemplated by this Agreement has been taken. This Agreement is
legal, valid and binding with respect to each of Parent and Sub and is
enforceable in accordance with its terms except as the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally.
4.6 Litigation. There are no actions, proceedings, or investigations
pending, or to the knowledge of Parent or Sub, any basis or threat
thereof, which question the validity of this Agreement or any other
action taken or to be taken in connection herewith or which would have
a material adverse effect on the ability of either Parent or Sub to
consummate the transactions contemplated hereby.
4.7 Broker's or Finder's Fees. Neither Parent nor Sub has incurred any
liability, contingent or otherwise, for brokers' or finders' fees in
respect of this Agreement for which either Canaan or any of its
stockholders will have any responsibility whatsoever.
4.8 Funding. Parent has available adequate funds or the means to obtain
adequate funds in an aggregate amount sufficient to pay (a) all
amounts required to be paid by Parent and Sub under this Agreement
including payment in full of all amounts under the Bank Credit
Agreement; and (b) all expenses which have been or will be incurred by
Parent or Sub in connection with this Agreement and the transactions
contemplated hereby.
4.9 Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and has
not engaged in any business or activity (or conducted any operations)
of any kind, entered into any agreement or arrangement with any
Person, or incurred, directly or indirectly, any material liabilities
or obligations, except in connection with its incorporation, the
negotiation of this Agreement, the Merger and transactions
contemplated hereby.
4.10 Proxy Statement. None of the information supplied or to be supplied by
Parent for inclusion or incorporation by reference in the Proxy
Statement, and any amendments or supplements thereto will, at the time
the Proxy Statement or any amendment or supplement thereto is first
mailed to stockholders of Canaan, at the time such stockholders vote
on approval and adoption of this Agreement and at the Effective Time,
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 light of the circumstances under
which they were made, not misleading. If at any time prior to
Effective Time any event with respect to any of the Parent Companies
or their officers and directors will occur which is required to be
described in an amendment of, or a supplement to, the Proxy Statement,
such event will be so described, and such amendment or supplement will
be promptly filed with the SEC and, as required by law, disseminated
to the stockholders of Canaan.
4.11 No Knowledge of Breach of Representations. Parent has no actual
knowledge that any of Canaan's representations contained in this
Agreement are untrue as of the date of this Agreement. If and to the
extent that Parent has any such knowledge as of the date of this
Agreement, Parent will not assert any remedy under this Agreement for
breach of such representation (including, but not limited to, any
right to not close the Merger due to a failure to satisfy the
condition to Closing set forth in paragraph 6.2.1 arising solely as a
result of any such breach).
4.12 Prior Purchases. The Schedule 13D, as amended, filed by Parent
pursuant to the Exchange Act with respect to prior purchases of Canaan
Common Stock complies with the Exchange Act and all rules and
regulations promulgated thereunder. Except as disclosed in the
Schedule 13D as previously filed there are no other agreements or
arrangements pursuant to which the sellers of the shares to the Parent
are entitled to receive any additional consideration from any Parent
Company or any Affiliate of the Parent.
5. Covenants. From the date hereof until the Effective Time, Parent, Sub
and Canaan hereby covenant and --------- agree as follows:
5.1 Conduct of Canaan Business Pending Closing. From the date hereof until
the Effective Time, Canaan covenants and agrees that, unless Parent
otherwise agrees in writing, the businesses of Canaan will be
conducted only in, and Canaan will not take any action except in, the
ordinary course of business and in a manner consistent with past
practice, and Canaan will use its reasonable best efforts to preserve
substantially intact the business organization of Canaan, to keep
available the services of the current officers, employees and
consultants of Canaan and to preserve the goodwill of those current
relationships of Canaan with customers, suppliers and other Persons
with which Canaan have significant business relations. By way of
amplification and not limitation, except as contemplated by this
Agreement, Canaan will not, between the date of this Agreement and the
Effective Time, directly or indirectly do, or propose to do, any of
the following without the prior written consent of Parent:
5.1.1 Amend or otherwise change the certificate of incorporation
or bylaws or equivalent organizational documents of Canaan;
5.1.2 Issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or
encumbrance of: (a) any shares of any class of capital stock of
Canaan, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom
interest), of Canaan (except for the issuance of shares of Canaan
Common Stock issuable pursuant to Canaan Stock Options outstanding on
the date hereof and disclosed in the Canaan Disclosure Schedule); or
(b) any assets of Canaan, except for sales of oil and gas production
in the ordinary course of business;
5.1.3 Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
5.1.4 Reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any capital stock or
amend or modify any warrant or other right to acquire any capital
stock;
5.1.5 (a) Acquire (including, without limitation, by formation,
merger, consolidation, or acquisition of stock or assets) any interest
in any corporation, partnership, other business organization or any
division thereof or any material amount of assets other than in the
ordinary course of business; (b) incur any indebtedness for borrowed
money in excess of the existing borrowing base under the current Bank
Credit Agreement or issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any Person, or make any loans, advances or capital
contribution to, or investments in, any other Person, except in the
ordinary course of business and consistent with past practice, but in
no event in excess of $100,000; or (c) enter into or amend any
contract, agreement, commitment or arrangement with respect to any
matter set forth in this paragraph 5.1.5;
5.1.6 Increase the compensation payable or to become payable to
any officers or employees, except for increases in accordance with
past practices in salaries or wages of employees of Canaan who are not
officers of Canaan, or grant any severance or termination pay to, or
enter into any employment or severance agreement with, any director,
officer or other employee of Canaan (except as permitted by this
Agreement), or establish, adopt, enter into, modify or amend any
collective bargaining, bonus, profit sharing, thrift, compensation,
stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance phantom stock plan or
other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee;
5.1.7 Make any material Tax election or settle or compromise any
material federal, state, local or foreign Tax liability;
5.1.8 Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the Canaan Financial
Statements or subsequently incurred in the ordinary course of business
and consistent with past practices;
5.1.9 Settle or compromise any pending or threatened suit, action
or claim which is material or which relates to any of the transactions
contemplated hereby, except if such settlement or compromise would not
have a Material Adverse Effect;
5.1.10 Undertake or agree to: (a) any capital commitment outside
Arkansas, Oklahoma and Texas (the "Canaan Area"); (b) any new land or
lease initiatives or acquisitions; (c) any capital expenditures in the
Canaan Area in an individual amount greater than $10,000 net to
Canaan's interest or, when aggregated with all other capital
commitments, in an aggregate amount greater than $200,000 net to
Canaan's interest unless such capital expenditure is in an oil and gas
well proposed by a Parent Company, proposed by a third party and
participated in by a Parent Company or approved by the Parent; or (d)
any new well proposals or regulatory or governmental action with
respect to any well activities, provided however, Canaan agrees to
provide notice to the Parent of any new well proposal within three (3)
days after receipt and the Parent will have fifteen (15) days
thereafter to consent to the proposal, in which case Canaan will
participate in such well proposal (to the extent Canaan is required to
act in a shorter time period the notice and response periods will be
shortened so that Parent will be provided a minimum of 24 hours to
consent);
5.1.11 Make any change in accounting methods, principles or
practices materially affecting the reported consolidated assets,
liabilities or results of operations of Canaan, except insofar as may
have been required by a change in GAAP;
5.1.12 Make, enter into or renew, extend, amend, modify, or waive
any provisions of any Canaan Material Agreement or any other material
commitment or relinquish or waive any Canaan Material Agreement rights
or agree to the termination of any material Canaan Material Agreement,
except in the ordinary course of business consistent with prior
practice;
5.1.13 Agree to any covenant of Canaan not to compete (other than
pursuant to any radius restriction contained in any lease, reciprocal
easement or development, construction, operating or similar agreement)
or any other covenant restricting the development, manufacture,
marketing or distribution of the products and services of Canaan or
otherwise limiting the freedom of Canaan to compete in any line of
business or with any Person or in any area or to own, operate, sell,
transfer, pledge or otherwise dispose of or encumber any material
assets or which would so limit the freedom of Parent or any of its
Affiliates after the consummation of the Merger;
5.1.14 Amend, modify, terminate, waive or permit to lapse any
material right of first refusal, preferential right, right of first
offer or any other material right of Canaan; or
5.1.15 Take or offer or propose to take, or agree to take in
writing, or otherwise, any of the actions described in paragraphs
5.1.1 through 5.1.14 of this paragraph 5.1 or any action which would
result in any of the conditions to the Merger not being satisfied.
5.2 Access to Information. Canaan will afford to Parent and Parent
Representatives (including, without limitation, directors,
officers and employees of Parent and its Affiliates, and counsel,
accountants and other professionals retained by Parent) such
access, during normal business hours throughout the period prior
to the Effective Time, to Canaan's books, records (including,
without limitation, Tax returns and work papers of Canaan's
independent auditors), properties, personnel and to such other
information as Parent reasonably requests and will permit Parent
to make such inspections as Parent may reasonably request and
will cause the officers of all of Canaan to furnish Parent with
such financial and operating data and other information with
respect to the business, properties and personnel of Canaan as
Parent may from time to time reasonably request, provided,
however, that no investigation pursuant to this paragraph 5.2
will affect or be deemed to modify any of the representations or
warranties made by Canaan in this Agreement. All information
exchanged pursuant to this paragraph 5.2 will be subject to the
Confidentiality Agreement.
5.3 No Solicitation. Immediately following the execution of this Agreement,
Canaan:
5.3.1 Will (and will cause each of the Canaan Representatives to)
terminate any and all existing activities, discussions and
negotiations with third parties (other than Parent) with respect to
any possible transaction involving any proposal to acquire all or any
part of the Canaan Common Stock or all or a material portion of the
assets, business or equity interests of Canaan (other than the
transactions contemplated by this Agreement), whether by merger,
purchase of assets, tender offer, exchange offer or otherwise.
5.3.2 Will not (and will cause the Canaan Representatives not
to): (a) solicit, initiate or encourage the submission of, any offer
or proposal to acquire any of the Canaan Common Stock (other than the
exercise of Canaan Stock Options) or all or any material portion of
the assets, business or equity interests of Canaan or any other
transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the
consummation of the Merger (other than the transactions contemplated
by this Agreement), whether by merger, purchase of assets, tender
offer, exchange offer or otherwise (an "Alternative Proposal"); (b)
engage in negotiations or discussions concerning or provide any
non-public information to any Person relating to an Alternative
Proposal; or (c) agree to, approve or recommend, or otherwise
facilitate any effort or attempt to make or implement, any Alternative
Proposal, or withdraw its recommendation of the Merger, provided,
however, that: (i) Canaan's board of directors may take and disclose
to the stockholders of Canaan a position contemplated by Rules 14d-9
or 14e-2(a) promulgated under the Exchange Act with regard to an
Alternative Proposal; and (ii) following receipt from a third party
(without any solicitation, initiation or encouragement by Canaan or
any Canaan Representatives) of a bona fide written Alternative
Proposal, (x) Canaan may, upon written notice to Parent, engage in
discussions or negotiations with such third party and may furnish such
third party non-public information concerning Canaan, and Canaan's
business, properties and assets if, prior to furnishing such
information to such third party, such third party executes a
confidentiality agreement not materially less favorable to Canaan than
the Confidentiality Agreement (but containing provisions permitting
Canaan to comply with paragraphs 5.3.2 and 5.3.3 hereof) and (y) the
board of directors of Canaan may recommend such Alternative Proposal
or withdraw, modify or not make its recommendation referred to in
paragraph 3.18, if and only to the extent that Canaan's board of
directors determines in good faith that: (1) based on the advice of
Canaan's counsel, the failure to recommend such Alternative Proposal
would constitute a breach of the board's fiduciary duties; and (2)
based on the advice of Canaan's financial advisor, such Alternative
Proposal, if consummated, would result in a transaction more favorable
to Canaan's stockholders from a financial point of view than the
transaction contemplated by this Agreement (a "Superior Proposal") and
the Person making such Superior Proposal has the financial means, or
the ability to obtain the necessary financing, to conclude such
transaction.
5.3.3 Will promptly notify Parent after receipt by Canaan or any
of the Canaan Representatives of any Alternative Proposal, any
inquiries indicating that any Person is considering making or wishes
to make an Alternative Proposal or any requests for nonpublic
information and the terms and conditions of any proposals or offers
and the status of any actions, including any discussions, taken
pursuant to such Alternative Proposal. Canaan agrees that it will keep
Parent informed, on a current basis, of the status and terms of any
such Alternative Proposal and of any discussions or negotiations
regarding same.
5.3.4 Will use Canaan's best efforts to cause each of the
Irrevocable Proxies to be executed and delivered to Parent
simultaneously with the execution of this Agreement, all in form and
substance satisfactory to Parent and its legal counsel.
Nothing in this paragraph 5.3 will permit Canaan to terminate
this Agreement or to change or withdraw its recommendation except as
specifically provided in paragraph 7.1.
5.4 Canaan Stockholder Meeting. As promptly as practicable after the date
hereof, Canaan will: (a) take all action necessary in accordance with applicable
law and its certificate of incorporation and bylaws to convene a meeting of its
stockholders for the purpose of voting on this Agreement and the Merger; (b)
distribute to its stockholders the Proxy Statement in accordance with applicable
federal and state law and with its certificate of incorporation and bylaws,
which Proxy Statement will contain the recommendation of the board of directors
of Canaan that its stockholders approve the merger; (c) use all reasonable
efforts to solicit from its stockholders proxies in favor of the approval and
adoption of the Merger, this Agreement and the transactions contemplated hereby
and to secure the Canaan stockholders approval; and (d) cooperate and consult
with Parent with respect to each of the foregoing matters; provided, that
nothing in this paragraph will prohibit the board of directors of Canaan from
failing to make or from withdrawing or modifying its recommendation to Canaan's
stockholders hereunder to the extent permitted by paragraph 5.3.2 of this
Agreement
5.5 Proxy Statement. With respect to the Proxy Statement, the Parties agree
that:
5.5.1 Parent and Canaan will cooperate and promptly prepare a preliminary
Proxy Statement and Canaan will file the preliminary Proxy Statement with the
SEC as soon as practicable after the date hereof.
5.5.2 Parent and Canaan will cause the Proxy Statement, at the time it is
delivered to the Canaan stockholders, to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange Act
and the rules and regulations of the SEC thereunder.
5.5.3 Canaan hereby covenants and agrees with Parent that the Proxy
Statement (at the time it is first mailed to stockholders of Canaan, at the time
of the Canaan Stockholder Meeting, and at the Effective Time) will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If, at any
time prior to the Effective Time, any event with respect to Canaan, or with
respect to other information included in the Proxy Statement, occurs and such
event is required to be described in a supplement to the Proxy Statement, such
event will be so described and such supplement will be promptly prepared, filed
and disseminated.
5.5.4 Parent hereby covenants and agrees with Canaan that the Proxy
Statement (at the time it is first mailed to stockholders of Canaan, at the time
of the Canaan Stockholder Meeting, and at the Effective Time) will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated herein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, no misleading (provided,
however, that this provision will only apply to any information contained in the
Proxy Statement that was supplied by Parent specifically for inclusion therein).
If, at any time prior to the Effective Time, any event with respect to Parent,
or with respect to any information concerning Parent included in the Proxy
Statement, occurs and such event is required to be described in a supplement to
the Proxy Statement, such event will be disclosed to Canaan to be so described
and such supplement will be promptly prepared, filed and disseminated.
5.5.5 Neither the Proxy Statement nor any amendment or supplement thereto
will be filed or disseminated to the stockholders of Canaan without the approval
of both Parent and Canaan which approval will not be unreasonably withheld.
5.6 Public Announcements. Prior to Closing, Canaan will consult with Parent
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement and will not issue
any press release or make any such public statement prior to obtaining the
approval of Parent; provided, however, that such approval will not be required
where such release or announcement is required by applicable law; and provided
further, that Canaan may respond to inquiries by the press or others regarding
the transactions contemplated by this Agreement, so long as such responses are
consistent with previously issued press releases.
5.7 Notification of Certain Matters. Canaan will give prompt notice to Parent
of: (a) any representation or warranty of Canaan contained in this Agreement
being untrue or inaccurate when made; (b) the occurrence of any event or
development that would cause (or could reasonably be expected to cause) any
representation or warranty of Canaan contained in this Agreement to be untrue or
inaccurate on the Closing Date; or (c) any failure of Canaan to comply with or
satisfy any covenant, condition, or agreement to be complied with or satisfied
by it hereunder. Parent will give prompt notice to Canaan of: (i) any
representation or warranty of Parent contained in this Agreement being untrue or
inaccurate when made; (ii) the occurrence of any event or development that would
cause (or could reasonably be expected to cause) any representation or warranty
of Parent contained in this Agreement to be untrue or inaccurate on the Closing
Date; or (iii) any failure of Parent to comply with or satisfy any covenant,
condition, or agreement to be complied with or satisfied by it hereunder.
5.8 Indemnification. From and after the Effective Time, Parent agrees that:
5.8.1 Parent will indemnify and hold harmless each present and former
director and/or officer of Canaan, determined as of the Effective Time (the
"Indemnified Parties"), that is made a party or threatened to be made a party to
any threatened, pending or completed, action, suit, proceeding or claim, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she was a director or officer of Canaan prior to the Effective Time and
arising out of actions or omissions of the Indemnified Party in any such
capacity occurring at or prior to such Effective Time (a "Claim") against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities reasonably incurred in connection with
any Claim, whether asserted or claimed prior to, at or after the Effective Time,
to the fullest extent that Canaan would have been permitted under Oklahoma law,
the certificate of incorporation or bylaws of Canaan or written indemnification
agreements in effect at the date hereof, including provisions therein relating
to the advancement of expenses incurred in the defense of any action or suit.
5.8.2 Any Indemnified Party wishing to claim indemnification under
paragraph 5.8.1, upon learning of any such Claim, will promptly notify Parent
thereof, but the failure to so notify Parent will not relieve Parent of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice Parent. In the event of any such Claim (whether arising
before or after the Effective Time): (a) Parent will have the right to assume
the defense thereof and Parent will not be liable to such Indemnified Party for
any legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Party in connection with the defense thereof, except that if
Parent elects not to assume such defense, the Indemnified Party may retain
counsel reasonably satisfactory to Parent, and Parent will pay reasonable fees
and expenses of such counsel for the Indemnified Party; provided, however, that
Parent will be obligated pursuant to this paragraph 5.8.2 to pay for only one
firm or counsel for all Indemnified Parties unless the use of one counsel for
such Indemnified Parties would present such counsel with a conflict of interest;
(b) such Indemnified Parties will cooperate in the defense of any such matter;
and (c) Parent will not be liable for any settlement effected without its prior
written consent, which consent will not be unreasonably withheld; and provided,
further, however, that Parent will not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction will ultimately
determine, and such determination will have become final and non-appealable,
that the indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable law. If such indemnity is not available with
respect to any Indemnified Party, then Parent and the Indemnified Party will
contribute to the amount payable in such proportion as is appropriate to reflect
relative faults and benefits, with any allocation of respective "fault"
otherwise allocable to Canaan being allocated to Parent.
5.8.3 The rights of each Indemnified Party shall be in addition to any
other rights such Indemnified Party may have under the certificate of
incorporation or bylaws of Canaan, under the OGCA, under existing
indemnification agreements, or otherwise, all of which will be assumed by the
Surviving Corporation.
5.8.4 In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity in such consolidations or merger
or (ii) transfers all or substantially all of its properties and assets to any
Person, then and in either case, proper provisions shall be made so that the
successors and assigns of Parent, as case may be, shall assume the obligations
as set forth in this paragraph.
5.8.5 The provisions of this paragraph 5.8 shall survive consummation of
the Merger and expressly are intended to benefit each of the Indemnified
Parties.
5.9 Employee and Severance Matters.
5.9.1 Attached as Section 5.9 of the Canaan Disclosure Schedule is: (1) a
current list of each of Canaan's employees (the "Canaan Employees"); (2) a copy
of Canaan's severance policy (the "Canaan Severance Policy"); (3) a severance
package table which lists the cost of all severance pay to be paid to each of
the Canaan Employees; (4) a list of Canaan Employees with written employment
agreements (the "Contract Employees"); (5) a list of all contract pumpers and
other independent contractors (the "Independent Contractors") and a summary of
the terms of such arrangements including, without limitation, any severance
package; and (6) a list of each of the Canaan Employees with change in control
agreements ("CIC Employees") together with the amounts and terms of such change
in control agreements.
5.9.2 On or immediately prior to the Closing Date, Canaan will pay the
amounts payable to the CIC Employees under the applicable change in control
agreements in an amount not to exceed the amounts disclosed in the Canaan
Disclosure Schedule, provided the CIC Employee has tendered the CIC Employee's
resignation and executed all other documents and taken all actions required
under this Agreement, the change of control agreement or the CIC Employee's
employment agreement. Canaan will also pay the severance pay as indicated on the
severance package table to the Canaan Employees. Notwithstanding the immediately
preceding sentence, Canaan will not pay such severance pay to: (1) any Canaan
Employee who is not a Contract Employee and to whom Parent or Sub offers a
substantially comparable job (as determined by Parent in its reasonable
discretion) with equal or better base salary at such employee's current
location; (2) any Contract Employee who chooses not to terminate his employment
agreement with Canaan on the Closing Date; (3) any Independent Contractor who is
covered by the Canaan Severance Policy and chooses not to terminate his contract
with Canaan on the Closing Date; or (4) any Canaan Employee who does not execute
a severance agreement in substantially the form required by the Canaan Severance
Policy. With respect to any Canaan Employee who is not paid severance pay on or
immediately prior to the Effective Date, all the terms and provisions of the
Canaan Severance Policy and the Contract Employees' employment agreements will
continue in full force and effect. Parent shall provide funding to Canaan at the
Closing sufficient in amount for Canaan to make all payments required or
permitted by this paragraph 5.9.2.
5.9.3 Neither Canaan nor Parent is under any obligation to retain or hire
any Canaan Employee after the Effective Time. At least five (5) days before the
Closing Date, Parent will provide to Canaan a list of those Canaan Employees to
whom an offer of employment has been or will be made to be effective on the day
after the Closing Date. On reasonable prior notice during normal business hours,
Parent and the Parent Representatives will be given reasonable access to the
facilities and to personnel, safety and other relevant records of Canaan (to the
extent access to such records does not violate any law or the legitimate privacy
rights of the Canaan Employee concerned) for the purpose of preparing for and
conducting employment interviews with any Canaan Employees. Canaan will be
responsible for and pay, on or before the Closing Date, any and all severance or
other payments due to the Canaan Employees.
5.9.4 To the extent legally required by COBRA, for a period of 18 months
following the Effective Time, Parent will, or will cause the Surviving
Corporation to: (a) maintain Canaan's health benefit plans for the benefit of
the continuing and terminated Canaan Employees; or (b) provide such continuing
and terminated Canaan Employees with the rights and benefits of Parent's
employee health benefit plans; provided, that Parent will not be required to
pay, or cause the Surviving Corporation to pay, the premiums for coverage under
such plans for any terminated Canaan Employee. Parent will, or will cause the
Surviving Corporation to, fulfill all coverage continuation obligations imposed
by Section 4980B of the Code and Section 601 of ERISA for those Canaan Employees
who are not retained by Parent or the Surviving Corporation. The provisions of
this Section 5.9.4 are intended to be for the benefit of, and will be
enforceable by, the Parties and the Canaan Employees covered by the Employee
Plans at the Effective Time and their respective heirs and representatives.
5.9.5 The Parent shall give to all Canaan employees who continue their
employment with a Parent Company or the Surviving Corporation after the
Effective Time ("Affected Employees") the opportunity to participate in all
employee benefit plans maintained by Parent for its employees generally and
shall give full credit for their continuous service with Canaan (including
deemed service credited by Canaan) for purposes of eligibility to participate in
vesting (but not benefit accruals under any defined benefit pension plan) under
all employee benefit plans, programs, policies or arrangements which are
maintained by Parent or any Parent Company for such Affected Employees to the
same extent recognized by Canaan immediately prior to the Effective Time under
any similar Canaan Employee Benefit Plans. Parent and the Surviving Corporation
shall (i) waive all limitations as to pre-existing conditions, exclusions and
waiting periods with respect to participation and coverage requirements
applicable to the Affected Employees under any welfare benefit plan, that such
employees may be eligible to participate in after the Effective Time (other than
limitations or waiting periods that are already in effect with respect to any
such employees under the Canaan plans and that have not been satisfied as of the
Effective Time) and (ii) provide each Affected Employee with credit for any
co-payments and deductibles paid prior to the Effective Time (in the calendar
year of the Effective Time) and satisfying any applicable deductible or
out-of-pocket requirements for the year in which the Effective Time occurred
under any welfare plans that such employees are eligible to participate in after
the Effective Time. For any Affected Employee who is terminated without cause
within six months following the Effective Time, such Affected Employee shall
receive a severance payment equal to the greater of the amount payable under the
Canaan Severance Policy or any Parent severance plan or policy applicable to
employees generally.
5.9.6 Canaan will use its best efforts to cause Canaan's Profit Sharing
Plan and Indian Oil's 401(k) to be terminated immediately prior to the Closing
with the result that all participants therein shall be 100% vested. The Parent
shall cause the Surviving Corporation to take all of such action as is necessary
as promptly as reasonably possible to receive IRS approval for the termination
of such plans and promptly thereafter to distribute to the participants in the
plans all amounts that they are entitled to receive under the plans. Parent will
permit Affected Employees receiving distributions from the Canaan Profit Sharing
Plan to be eligible for rollover contributions to any similar plans maintained
by the Parent and will permit any outstanding plan loans that are in compliance
with the applicable plan and the applicable law to be continued.
5.10 Reasonable Best Efforts. Upon the terms and subject to the conditions
set forth in this Agreement, each of the Parties will use all reasonable best
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 Merger and the other transactions
contemplated hereby, including: (a) the obtaining of all necessary actions or
non-actions, waivers, consents and approvals from Governmental Authorities and
the making of all necessary registrations and filings (including filings with
Governmental Authorities, if any) and the taking of all reasonable steps as may
be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity; (b) the obtaining of all necessary
consents, approvals or waivers from third parties; (c) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Transaction Documents or the consummation of the transactions
contemplated hereby, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed; and
(d) the execution and delivery of any additional instruments necessary to
consummate the Merger and to fully carry out the purposes of the Transaction
Documents. In connection with and without limiting the foregoing, the Canaan and
Canaan's board of directors will: (i) take all action necessary to ensure that
no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger or the Transaction Documents; and (ii) if any state
takeover statute or similar statute or regulation becomes applicable to the
Merger or the Transaction Documents, take all action necessary to ensure that
the Merger and the other transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated by the Transaction Documents
and otherwise to minimize the effect of such statute or regulation on the
Merger.
5.11 Stock Options.
5.11.1 As soon as practicable following the date of this Agreement,
Canaan's board of directors (or, if appropriate, any committee administering the
Canaan Plans) will adopt such resolutions or take such other actions as are
required to adjust the terms of all outstanding Canaan Stock Options granted
under any Canaan Plan to confirm that each of the Canaan Stock Options
outstanding immediately prior to the acceptance for payment of shares of Canaan
Common Stock pursuant to the terms of this Agreement will be canceled, with the
holder thereof becoming entitled to receive an amount of cash equal to the
product of (a) the excess, if any, of (i) the Per Share Merger Consideration
over (ii) the exercise price per share of Canaan Common Stock subject to such
Canaan Stock Option, multiplied by (b) the number of shares of Canaan Common
Stock issuable pursuant to the unexercised portion of such Canaan Stock Option.
Subject to the Closing of the Merger, Parent agrees to provide any funding out
of the Merger Consideration necessary to make the foregoing payments.
5.11.2 All amounts payable pursuant to paragraph 5.11.1 will be subject to
any required withholding of Taxes and will be paid at or as soon as practicable
at or following the Effective Time, but in any event within seven days following
the Effective Time, without interest. The cancellation of a Canaan Stock Option
in exchange for the cash payment described in paragraph 5.11.1 will be deemed a
release of any and all rights the holder of such Canaan Stock Option had or may
have had in respect thereof.
5.11.3 As soon as practicable following the date of this Agreement,
Canaan's board of directors (or, if appropriate, any committee administering the
Canaan Plans) will take or cause to be taken such actions as are required to
cause (i) the Canaan Plans to terminate as of the Effective Time and (ii) the
provisions in any other plan, program or agreement providing for the issuance,
transfer or grant of any capital stock of Canaan or any interest in respect of
any capital stock of Canaan to be terminated as of the Effective Time. Canaan
will ensure that following the Effective Time no holder of a Canaan Stock Option
or any participant in any Canaan Plan or other benefit plan, program or
agreement will have any right thereunder to acquire any capital stock of Canaan
or the Surviving Corporation.
5.12 Stockholder Litigation. Canaan will give Parent the opportunity to
participate in the defense or settlement of any stockholder litigation against
Canaan and its directors relating to the Merger and Canaan will not agree to any
settlement of such litigation without Parent's consent.
5.13 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of Canaan or Sub, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of
Canaan or Sub, any other actions and things to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of Canaan
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
5.14 Rights Agreement; Consequences if Rights Triggered. Canaan's board of
directors will take all action requested in writing by Parent in order to render
the Canaan Rights inapplicable to the Merger and the transactions contemplated
by this Agreement. Except as approved in writing by Parent, Canaan's board of
directors will not (i) amend the Canaan Rights Agreement, (ii) redeem the Canaan
Rights or (iii) take any action with respect to, or make any determination
under, the Canaan Rights Agreement, in each case in a manner adverse to Parent
or Sub. If any triggering event occurs under the Canaan Rights Agreement at any
time during the period from the date of this Agreement to the Effective Time,
Canaan and Parent will make such adjustment to the Per Share Merger
Consideration as Canaan and Parent will mutually agree so as to preserve the
economic benefits that Canaan and Parent each reasonably expected on the date of
this Agreement to receive as a result of the consummation of the Merger and the
other transactions.
5.15 Payment of Expenses. Except as set forth in this paragraph 5.15, all
expenses incurred in connection with this Agreement will be paid by the party
incurring such expenses, whether or not the Merger is consummated. "Expenses" as
used in this Agreement will include all reasonable out-of-pocket expenses
(including, without limitation, all fees and expenses of counsel, accountants,
experts and consultants to a party hereto and its affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Proxy Statement, the
solicitation of stockholder approvals and all other matters related to the
closing of the Merger.
5.16 Canaan Termination Fee. Parent and Canaan agree that: (a) if Canaan
terminates this Agreement pursuant to paragraph 7.1.4(a); or (b) if Parent
terminates this Agreement pursuant to paragraph 7.1.5; or (c) if (i) Canaan or
Parent terminates this Agreement pursuant to paragraph 7.1.2 due to the failure
of Canaan's stockholders to approve and adopt this Agreement, the Merger and the
transactions contemplated hereby or by Parent pursuant to paragraph 7.1.3, and
(ii) at the time of such termination, there exists an Alternative Proposal with
respect to Canaan which has been publicly announced and remains pending and,
prior to or within twelve (12) months of the termination of this Agreement,
Canaan enters into a definitive agreement with any third party with respect to
such Alternative Proposal with respect to Canaan which is ultimately
consummated, then Canaan will pay to Parent $5,000,000.00 (the "Canaan
Termination Fee"). The Canaan Termination Fee will be paid to Parent: (i) prior
to, and will be a pre-condition to effectiveness of termination of this
Agreement pursuant to paragraph 7.1.4(a); (ii) within three (3) business day
after a termination of this Agreement pursuant to paragraph 7.1.5; and (iii)
within one (1) business day after consummation of a definitive agreement entered
into with a third party with respect to an Alternative Proposal if this
Agreement is terminated pursuant to paragraph 7.1.2 or paragraph 7.1.3. All
payments under this paragraph 5.16 will be made by wire transfer of immediately
available funds to an account designated by Parent.
5.17 Dissenting Stockholder Payments. Any and all payments made to settle
appraisal rights of Dissenting Stockholders or made pursuant to the OGCA will be
made solely out of Canaan assets and neither Parent nor Sub will have any
liability therefor.
5.18 Name. As of the Effective Time, the Surviving Corporation and Parent
hereby release any claim to the use of the name "Canaan" and will provide an
assignment of such rights to LJ Natural Gas Company, an Oklahoma corporation.
5.19 Related Agreements. As of the Effective Time the parties will execute
or cause to be executed the Goodwill Protection Agreements and the Office Space
Agreement. The periodic payments to be paid under: (1) Leo E. Woodard's Goodwill
Protection Agreement will be $500,000; (2) John K. Penton's Goodwill Protection
Agreement will be $500,000; and (3) Michael S. Mewbourn's Goodwill Protection
Agreement will be $300,000. 6. Conditions Precedent. The obligations of the
Parties under this Agreement will be subject to the following conditions
precedent:
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each of the Parties to effect the Merger will be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:
6.1.1 Stockholder Approval. This Agreement and the Merger will have been
duly and validly approved and adopted by a majority of the outstanding Canaan
Common Stock voting as one class.
6.1.2 Other Approvals. If applicable, the waiting period applicable to the
consummation of the Merger under the HSR Act will have expired or been
terminated and all filings required to be made prior to the Effective Time with,
and all consents, approvals, permits and authorizations required to be obtained
prior to the Effective Time from, any Governmental Authority in connection with
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Canaan, Parent and Sub will have been made
or obtained (as the case may be), except where the failure to obtain such
consents, approvals, permits and authorizations would not be reasonably likely
to result in a Material Adverse Effect.
6.1.3 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger will be in effect; provided, however, that prior to
invoking this condition, each party will have complied fully with its
obligations under this Agreement and, in addition, will use all reasonable
efforts to have any such decree, ruling, injunction or order vacated, except as
otherwise contemplated by this Agreement.
6.2 Conditions to Obligations of Parent and Sub. The obligations of Parent
and Sub to effect the Merger are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by Parent and
Sub:
6.2.1 Representations and Warranties. The representations and warranties of
the Company contained in this Agreement and any document delivered in connection
herewith: (1) to the extent qualified by Material Adverse Effect or any other
materiality qualification will be true and correct as of the date of this
Agreement and as of the Closing Date; and (2) to the extent not qualified by
Material Adverse Effect or any other materiality qualification will be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date; provided that the foregoing condition will be deemed to have been
satisfied unless the failure of such representations and warranties to be true
and correct (without regard to any Material Adverse Effect or any other
materiality qualification or threshold set forth in paragraph 3 of this
Agreement), individually or in the aggregate, results in or would reasonably be
expected to result in a Material Adverse Effect on Canaan. At Closing the Parent
will have received a certificate of the Company, executed on its behalf by its
chief executive officer, dated as of the Closing Date, certifying to the
foregoing.
6.2.2 Performance of Covenants and Agreements by Canaan. Canaan will
have performed in all material respects all covenants and agreements required to
be performed by it under this Agreement at or prior to the Closing Date, and
Parent will have received a certificate signed by the chief executive officer of
Canaan to such effect.
6.2.3 No Adverse Change. From the date of this Agreement through the
Closing, there will not have occurred any change in the condition (financial or
otherwise), operations or business of Canaan that would have or would reasonably
be expected to have a Material Adverse Effect on Canaan.
6.2.4 Dissenting Stockholders. Holders of no more than ten percent (10%) of
the outstanding shares of Canaan Common Stock will have exercised, nor will they
have any continued right to exercise, appraisal, dissenters' or similar rights
under applicable law with respect to their shares of Canaan Common Stock by
virtue of the Merger.
6.2.5 Releases. Each officer and director of Canaan will have executed and
delivered a Release in substantially the form attached hereto as Exhibit "D" and
resignation as officer and director.
6.2.6 Opinion of Counsel. Parent will have received from Crowe & Dunlevy,
counsel to Canaan, an opinion in form and substance substantially as set forth
in Exhibit "E" attached hereto addressed to Parent and dated as of the Closing
Date.
6.3 Conditions to Obligation of Canaan. The obligation of Canaan to effect
the Merger is subject to the satisfaction of the following conditions, any or
all of which may be waived in whole or in part by Canaan:
6.3.1 Representations and Warranties. The representations and warranties of
Parent and Sub set forth in paragraph 4 will be true and correct as of the
Closing Date as though made on and as of that time, and Canaan will have
received a certificate signed by the chief executive officer or the chief
financial officer of Parent to such effect; provided, however, that the
condition set forth in this paragraph 6.3.1 will be deemed to be satisfied even
if one or more of such representations and warranties are not true and correct,
so long as the failure of such representations and warranties to be true and
correct (in the aggregate) does not result in Parent and/or Sub being unable to
perform its obligations under this Agreement.
6.3.2 Performance of Covenants and Agreements by Parent and Sub. Parent and
Sub will have performed in all material respects all covenants and agreements
required to be performed by them under this Agreement at or prior to the Closing
Date, and Canaan will have received a certificate signed by the chief executive
officer or the chief financial officer of Parent to such effect.
7. Termination. This Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time, whether before or after approval of
this Agreement and the Merger by the stockholders of Canaan on the following
terms.
7.1 Termination Rights. Any termination of this Agreement will be:
7.1.1 Mutual Consent. By mutual written consent of Parent and Canaan;
7.1.2 Date Certain. By either Canaan or Parent if: (a) the Merger has not
been consummated by December 31, 2002 (provided, however, that the right to
terminate this Agreement pursuant to this clause (a) will not be available to
any party whose breach of any representation or warranty or failure to perform
any covenant or agreement under this Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date); (b) any
Governmental Authority has issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, ruling or other action has become final and
nonappealable (provided, however, that the right to terminate this Agreement
pursuant to this clause (b) will not be available to any party until such party
has used all reasonable efforts to remove such injunction, order or decree); or
(c) this Agreement and the Merger have not been approved by the holders of a
majority of the outstanding Canaan Common Stock voting as one class at the
Canaan Stockholder Meeting or at any adjournment thereof;
7.1.3 By Parent. By Parent if: (a) there has been a breach of any of the
representations and warranties made by Canaan in this Agreement or the Canaan
Disclosure Schedule the aggregate of which would have a Material Adverse Effect
on Canaan and such breach has not been, or cannot be, cured within twenty (20)
days after notice and demand for cure thereof; or (b) Canaan has failed to
comply in any material respect with any of its covenants or agreements contained
in this Agreement and such failure has not been, or cannot be, cured within
twenty (20) days after notice and demand for cure thereof, provided however
Parent will not have the right to terminate this Agreement pursuant to this
paragraph 7.1.3 if at the time Parent is in breach of any representation,
warranty or covenant under this Agreement such that the conditions to Closing
under paragraph 6.3 of this Agreement will not be satisfied.
7.1.4 By Canaan. By Canaan if: (a) as a result of a Superior Proposal
received by Canaan from a Person other than a party to this Agreement or any of
its Affiliates, Canaan's board of directors determines to accept such Superior
Proposal as provided in paragraph 5.3.2; provided, however, that prior to the
effective date of any such termination, Canaan will provide Parent with an
opportunity (of not less than five (5) full business days) to make such
adjustments in the terms and conditions of this Agreement or the Merger as would
enable Canaan to proceed with the transactions contemplated hereby; provided,
further, that it will be a condition to the effectiveness of termination by
Canaan pursuant to this paragraph 7.1.4, that Canaan will have paid the Canaan
Termination Fee to Parent required by paragraph 5.16 of this Agreement; or (b)
there has been a breach of the representations and warranties made by Parent in
paragraph 4 of this Agreement the aggregate effect of which would cause Parent
to be unable to perform its obligations under this Agreement, and the condition
described in paragraph 6.3.1, other than the provision thereof relating to the
certificate signed by the chief executive officer or chief financial officer of
Parent, would not be satisfied if the Closing were to occur on the day on which
Canaan gives Parent notice of such termination; or (c) Parent has failed to
comply in any material respect with any of its covenants or agreements contained
in this Agreement and such failure has not been, or cannot be, cured within
twenty (20) days after notice and demand for cure thereof; or
7.1.5 Superior Proposal. By Parent if the board of directors of Canaan: (a)
recommends any Alternative Proposal to Canaan's stockholders; or (b) withdraws
or modifies in a manner adverse to Parent, its approval or recommendation of
this Agreement or the Merger, or, on request by Parent, fails to reaffirm such
approval or recommendation.
7.2 Effect of Termination. If this Agreement is terminated by either Canaan
or Parent pursuant to the provisions of paragraph 7.1, this Agreement will
forthwith become void and there will be no further obligation on the part of any
party hereto or its respective Affiliates, directors, officers or stockholders
except pursuant to, the provisions of this paragraph 7.2 and paragraphs 3.10,
4.7, 5.2, 5.5, 5.15 and 5.16 (which will continue pursuant to their terms). The
termination of this Agreement will not relieve any party hereto from any
liability for damages incurred as a result of a breach by such party of its
representations, warranties, covenants, agreements or other obligations
hereunder occurring prior to such termination.
8. Miscellaneous. It is further agreed as follows:
8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties contained in this Agreement or in any instrument
delivered pursuant to this Agreement, and no agreements or obligations arising
under the Confidentiality Agreement, will survive the consummation of the
Merger, except for the agreements contained in paragraphs 2, 5.8, 5.9, and in
this paragraph 8.
8.2 Amendment. This Agreement may be amended by the Parties at any time
before or after approval of the Merger and this Agreement by the stockholders of
Canaan; provided, however, that after any such approval, no amendment will be
made that by law requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by a written
instrument signed on behalf of each of the Parties.
8.3 Notices. Any notice or other communication required or permitted
hereunder will be in writing and either delivered personally, by facsimile
transmission or by registered or certified mail (postage prepaid and return
receipt requested) and will be deemed given when received (or, if mailed, five
(5) business days after the date of mailing) at the following addresses or
facsimile transmission numbers (or at such other address or facsimile
transmission number for a party as will be specified by like notice):
To Parent or Sub: Chesapeake Energy Corporation
6100 North Western Avenue
Oklahoma City, Oklahoma 73118
Attention: Aubrey K. McClendon
Telephone: 405-879-9226
Facsimile: 405-848-8588
With a copy to: Commercial Law Group, P.C.
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
Attention: Ray Lees
Telephone: 405-232-3001
Facsimile: 405-232-5553
To Canaan: Canaan Energy Corporation
211 North Robinson, Suite 1000N
Oklahoma City, Oklahoma 73102
Attention: John K. Penton
Telephone: (405) 604-9200
Facsimile: (405) 604-9295
With a copy to: Crowe & Dunlevy
20 North Broadway, Suite 1800
Oklahoma City, Oklahoma 73102
Attention: Michael M. Stewart
Telephone: (405) 235-7747
Facsimile: (405) 272-5238
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement and
will become effective when two or more counterparts have been signed by each of
the Parties and delivered to the other Parties, it being understood that all
Parties need not sign the same counterpart.
8.5 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
8.6 Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the documents and instruments delivered by the Parties in
connection with this Agreement): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the Parties with respect to the subject matter hereof; and (b) except as
provided in paragraph 2 or paragraphs 5.8 or 5.9, is solely for the benefit of
the Parties and their respective successors, legal representatives and assigns
and does not confer on any other Person any rights or remedies hereunder.
8.7 Applicable Law. This Agreement will be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Oklahoma regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
8.8 No Remedy in Certain Circumstances. Each party agrees that, should any
court or other competent authority hold any provision of this Agreement or part
hereof to be null, void or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent herewith or required
hereby, the validity, legality and enforceability of the remaining provisions
and obligations contained or set forth herein will not in any way be affected or
impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes this
Agreement impossible to perform, in which case this Agreement will terminate
pursuant to paragraph 7 hereof. Except as otherwise contemplated by this
Agreement, to the extent that a party hereto took an action inconsistent
herewith or failed to take action consistent herewith or required hereby
pursuant to an order or judgment of a court or other competent Governmental
Authority, such party will not incur any liability or obligation unless such
party breached its obligation under paragraph 5.10 or did not in good faith seek
to resist or object to the imposition or entering of such order or judgment.
8.9 Enforcement of Agreement. 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 the terms hereof or were otherwise breached.
Accordingly, the Parties hereby agree that each party hereto will be entitled to
specific performance of the terms and provisions hereof in addition to any other
remedy at law or in equity.
8.10 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the Parties (whether by
operation of law or otherwise) without the prior written consent of the other
Parties, except that Sub may assign, in its sole discretion, any or all of its
rights, interests and obligations hereunder to any newly formed direct or
indirect wholly-owned subsidiary of Parent. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
8.11 Waivers. At any time prior to the Effective Time, the Parties may, to
the extent legally allowed: (a) extend the time for the performance of any of
the obligations or other acts of the other Parties; (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto; and (c) waive performance of any of the covenants or
agreements, or satisfaction of any of the conditions, contained herein. Any
agreement on the part of a party hereto to any such extension or waiver will be
valid only if set forth in a written instrument signed on behalf of such party.
Except as provided in this Agreement, no action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, will be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision hereof
will not operate or be construed as a waiver of any prior or subsequent breach
of the same or any other provisions hereof.
8.12 References and Titles. All references in this Agreement to Exhibits,
Schedules, Sections, paragraphs, subsections and other subdivisions refer to the
corresponding Exhibits, Schedules, Sections, paragraphs, subsections and other
subdivisions of or to this Agreement and/or the schedules attached hereto unless
expressly provided otherwise. Except for the defined terms in paragraph 1,
titles appearing at the beginning of any Sections, paragraphs, subsections or
other subdivisions of this Agreement are for convenience only, do not constitute
any part of this Agreement, and will be disregarded in construing the language
hereof.
8.13 Incorporation. Exhibits and Schedules referred to herein are attached
to and by this reference incorporated herein for all purposes.
[SIGNATURE PAGES TO FOLLOW]
SIGNATURE PAGE
(Agreement and Plan of Merger)
IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement as of the date first above written.
ATTEST: CANAAN ENERGY CORPORATION,
an Oklahoma corporation
By /s/ Sue Barnard By Leo E. Woodard
-------------------------------------- -----------------------------------
Sue Barnard, Secretary Leo E. Woodard, Chairman and Chief
Executive Officer
ATTEST:
By /s/ Sue Barnard By /s/ John K. Penton
-------------------------------------- ----------------------------------
Sue Barnard, Secretary John K. Penton, President
("Canaan")
SIGNATURE PAGE
(Agreement and Plan of Merger)
IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement as of the date first above written.
ATTEST: CHESAPEAKE ENERGY CORPORATION,
an Oklahoma corporation
By /s/ Jennifer M. Grigsby By /s/ Aubrey K. McClendon
---------------------------------- ------------------------------------
Secretary Aubrey K. McClendon, Chief Executive
Officer
("Parent")
ATTEST: CHK ACQUISITION, INC.,
an Oklahoma corporation
By /s/ Jennifer M. Grigsby By /s/ Aubrey K. McClendon
---------------------------------- ------------------------------------
Secretary Aubrey K. McClendon, Chief Executive
Officer
("Sub")
EXHIBIT 99(b)
AGREEMENT AND LIMITED IRREVOCABLE PROXY
This Agreement and Irrevocable Proxy, dated as of April 19,
2002 (the "Agreement"), is by and between Chesapeake Energy Corporation, an
Oklahoma corporation ("Chesapeake"), and the party identified as the
"Stockholder" on the signature page hereof (the "Stockholder").
RECITALS:
WHEREAS, Chesapeake, CHK Acquisition, Inc., an Oklahoma
corporation and wholly owned subsidiary of Chesapeake ("Merger Sub"), and Canaan
Energy Corporation, an Oklahoma corporation ("Canaan"), propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), providing, among other things, for the merger of Merger Sub with
and into Canaan in accordance with the terms and provisions of, and subject to
the conditions set forth in, the Merger Agreement (the "Merger"); and
WHEREAS, the Stockholder is the owner, beneficially and of
record, of the number of shares of Canaan Common Stock (the "Shares") identified
on the signature page of this Agreement; and
WHEREAS, the Stockholder has agreed to vote the Shares in
favor of the Merger Agreement and the consummation of the Merger at the Canaan
Stockholder Meeting;
NOW, THEREFORE, to induce Chesapeake and Merger Sub to enter
into the Merger Agreement and in consideration of the aforesaid and the
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, including the benefits that the parties hereto expect to
derive from the Merger, the receipt and sufficiency of all of which are hereby
acknowledged by the parties, the parties hereto agree as follows:
1. Revocation of Prior Proxies. The Stockholder hereby revokes all previous
proxies granted with respect to any of the Shares owned by the Stockholder
that would conflict with the terms of the Proxy granted hereby.
2. Grant of Limited Irrevocable Proxy. The Stockholder, solely in such
capacity, hereby irrevocably constitutes and appoints Chesapeake and Aubrey
K. McClendon, Chairman of the Board and Chief Executive Officer of
Chesapeake, Tom L. Ward, President and Chief Operating Officer of
Chesapeake, and Marcus C. Rowland, Executive Vice President and Chief
Financial Officer of Chesapeake, in their respective capacities as officers
of Chesapeake, and any individual who hereafter succeeds to the office of
Chairman of the Board and Chief Executive Officer, President or Chief
Financial Officer, respectively, of Chesapeake, and each of them
individually, as the Stockholder's true and lawful proxy and
attorney-in-fact (the "Agents"), with full power of substitution, for and
in the name, place and stead of the Stockholder, to call and attend any and
all meetings of Canaan's stockholders, including the Canaan Stockholder
Meeting, at which the Merger Agreement or the Merger are to be considered
and voted upon by Canaan's stockholders, and any adjournments thereof, to
execute any and all written consents of stockholders of Canaan and to vote
all of the Shares and any and all shares of any other class of capital
stock of Canaan presently or at any future time owned beneficially or of
record by the Stockholder, including any and all securities having voting
rights issued or issuable in respect thereof, which the Stockholder is
entitled to vote (all of the foregoing being collectively referred to as
the "Subject Stock"), and to represent and otherwise act as the Stockholder
could act, in the same manner and with the same effect as if the
Stockholder were personally present, at any such annual, special or other
meeting of the stockholders of Canaan (including the Canaan Stockholder
Meeting), and at any adjournment thereof (a "Meeting"), or pursuant to any
written consent in lieu of meeting or otherwise; provided, however, that
this Proxy will be limited to any such vote or consent in lieu thereof or
any other action so taken will be solely for the purposes of voting in
favor of the Merger and the Merger Agreement and any transactions
contemplated thereby. The Agents are hereby authorized to vote the Subject
Stock in accordance with the terms of the Proxy contemplated hereby.
3. Vote in Favor of Merger and Merger Agreement. If Chesapeake is unable or
declines to exercise the power and authority granted by the Proxy for any
reason, the Stockholder covenants and agrees to vote all the Subject Stock
in favor of approval of the Merger and the Merger Agreement at any Meeting
at which such matters are considered and voted upon and, upon request of
Chesapeake, to provide the Stockholder's written consent thereto.
4. No Action Without Chesapeake's Consent. The Stockholder hereby covenants
and agrees that the Stockholder will not vote or take any action by written
consent of stockholders in lieu of meeting on any matter that is subject to
the Proxy without Chesapeake's prior written consent.
5. Negative Covenants of the Stockholder. Except to the extent contemplated
herein or in the Merger Agreement, the Stockholder hereby covenants and
agrees that the Stockholder will not, and will not agree to, directly or
indirectly: (a) sell, transfer, assign, cause to be redeemed or otherwise
dispose of any of the Subject Stock or enter into any contract, option or
other agreement or understanding with respect to the sale, transfer,
assignment, redemption or other disposition of any Subject Stock; or (b)
grant any proxy, power-of-attorney or other authorization or interest in or
with respect to such Subject Stock pertaining or relating to the Merger
Agreement, the Merger or any of the transactions contemplated thereby; or
(c) deposit such Subject Stock into a voting trust or enter into a voting
agreement or arrangement with respect to such Subject Stock, unless and
until, in the case of (a), (b) or (c) above, the Stockholder has taken all
actions (including, without limitation, the endorsement of a legend on the
certificates evidencing such Subject Stock) reasonably necessary to ensure
that such Subject Stock will at all times be subject to all the rights,
powers and privileges granted or conferred, and subject to all the
restrictions, covenants and limitations imposed, by this Agreement and has
caused any transferee of any of the Subject Stock to execute and deliver to
Chesapeake, an Agreement and Irrevocable Proxy, in substantially the form
of this Agreement with respect to the Subject Stock. Nothing contained
herein will be construed in any way as affecting the right of the
Stockholder to grant a security interest, by way of pledge, by
hypothecation or otherwise, in the Subject Stock in connection with bona
fide credit arrangements or as requiring the lender in such bona fide
credit arrangement to be bound by the terms of this Agreement, provided
that the Stockholder will promptly notify Chesapeake of any such grant.
6. Stockholder's Representations and Warranties. The Stockholder represents
and warrants to Chesapeake that: (a) the Stockholder has duly authorized,
executed and delivered this Agreement and this Agreement constitutes a
valid and binding agreement, enforceable in accordance with its terms and
neither the execution and delivery of this Agreement nor the consummation
by the Stockholder of the transactions contemplated hereby will constitute
a violation of, a default under, or conflict with any contract, commitment,
agreement, understanding, arrangement or restriction of any kind to which
the Stockholder is a party or by which the Stockholder is bound; (b)
consummation by the Stockholder of the transactions contemplated hereby
will not violate, or require any consent, approval, or notice under, any
provision of law other than filing on Form 13D that may be required under
the Securities Exchange Act of 1934, as amended; (c) the Subject Stock and
the certificates representing same are now and at all times during the term
of this Agreement will be held by the Stockholder, or by a nominee or
custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trust or agreement or any other
encumbrances whatsoever ("Encumbrances") with respect to the ownership or
voting of the Subject Stock or otherwise, other than Encumbrances created
by or arising pursuant to this Agreement, and there are no outstanding
options, warrants or rights to purchase or acquire, or proxies,
powers-of-attorney, voting agreements, trust agreements or other agreements
relating to, the Subject Stock other than this Agreement; (d) the Subject
Stock constitutes all of the securities of Canaan owned beneficially or of
record by the Stockholder on the date hereof; and (e) the Stockholder has
the present power and right to vote all of the Subject Stock as
contemplated herein.
7. Certain Defined Terms. Unless otherwise expressly provided herein, all
capitalized terms used herein without definition will have the meanings
assigned to them in the Merger Agreement.
8. Choice of Law. The terms and provisions of this Agreement will be
governed by and construed in accordance with the laws of the State of
Oklahoma without giving effect to the provisions thereof relating to
conflicts of law.
9. Binding Effect; Assignability. The terms and provisions of this
Agreement will be binding upon, inure to the benefit of, and be enforceable
by the successors and permitted assigns of the parties hereto. This
Agreement and the rights hereunder may not be assigned or transferred by
Chesapeake, except with the prior written consent of the Stockholder.
10. Term. This Agreement will terminate, and the Proxy granted hereby will
be automatically revoked, at the earlier of: (a) the Effective Time; (b)
the termination of the Merger Agreement in accordance with its terms; or
(c) upon written notice of termination of this Agreement given by
Chesapeake to the Stockholder expressly referring to this paragraph.
11. Irrevocable Proxy Coupled with an Interest. The Stockholder
acknowledges that Chesapeake will enter into the Merger Agreement in
reliance upon this Agreement, including the Proxy, and that the Proxy is
granted in consideration for the execution and delivery of the Merger
Agreement by Chesapeake. THE STOCKHOLDER AGREES THAT THE PROXY AND ALL
OTHER POWER AND AUTHORITY INTENDED TO BE CONFERRED HEREBY IS COUPLED WITH
AN INTEREST SUFFICIENT IN LAW TO SUPPORT AN IRREVOCABLE POWER AND, EXCEPT
AS PROVIDED IN PARAGRAPH 10 ABOVE, WILL NOT BE TERMINATED BY ANY ACT OF THE
STOCKHOLDER BY LACK OF APPROPRIATE POWER OR AUTHORITY OR BY THE OCCURRENCE
OF ANY OTHER EVENT OR EVENTS.
12. Specific Performance. The parties acknowledge and agree that
performance of their respective obligations hereunder will confer a unique
benefit on the other and that a failure of performance will result in
irreparable harm to the other and will not be compensable by money damages.
The parties therefore agree that this Agreement, including the Proxy, will
be specifically enforceable and that specific enforcement and injunctive
relief will be a remedy properly available to Chesapeake and the
Stockholder for any breach of any agreement, covenant or representation of
the other hereunder.
13. Further Assurance. The Stockholder will, upon request, execute and
deliver any additional documents and take such further actions as may
reasonably be deemed by Chesapeake or its counsel to be necessary or
desirable to carry out the provisions hereof.
14. Severability. If any term, provision, covenant or restriction of this
Agreement, or the application thereof to any circumstance, is, to any
extent, held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement or the application thereof to any other
circumstance, will remain in full force and effect, will not in any way be
affected, impaired or invalidated and will be enforced to the fullest
extent permitted by law.
15. Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed to be an original but all of which together will
constitute one and the same document.
16. Notice. All notices, requests, claims, demands and other communications
under this Agreement will be in writing and will be deemed given if
delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or such other address
for a party as will be specified by like notice): (a) if to Chesapeake, to
the address set forth in paragraph 8.3 of the Merger Agreement, and (b) if
to a Stockholder, to the address set forth on the signature page hereof, or
such other address as may be specified in writing by such Stockholder.
IN WITNESS WHEREOF, Chesapeake and the Stockholder have duly
executed this Agreement or caused this Agreement to be duly executed as of the
date first set forth above.
STOCKHOLDER
[NAME]
Shares Owned:
shares of Canaan Common Stock
Address:
CHESAPEAKE ENERGY CORPORATION,
an Oklahoma corporation
By
----------------------------------------
Aubrey K. McClendon, Chief Executive
Officer
EXHIBIT 99(c)
GOODWILL PROTECTION AGREEMENT
THIS GOODWILL PROTECTION AGREEMENT (this "Agreement") is made
effective the _____ day of ____________, 2002, among _______________, an
individual (the "Restricted Party"), CHESAPEAKE ENERGY CORPORATION, an Oklahoma
corporation ("Chesapeake"), and CHK ACQUISITION, INC., an Oklahoma corporation
("CHK").
W I T N E S S E T H:
WHEREAS, Chesapeake, CHK and Canaan Energy Corporation, an
Oklahoma corporation ("Canaan"), entered into that certain Agreement and Plan of
Merger dated April 19, 2002 (the "Merger Agreement");
WHEREAS, the Restricted Party is an officer and shareholder of
Canaan with special expertise in the oil and gas business and as a result the
obligations of Chesapeake and CHK to close the transactions contemplated under
the Merger Agreement are expressly conditioned upon the execution and delivery
of this Agreement by the Restricted Party; and
WHEREAS, to induce Chesapeake and CHK to perform the Merger
Agreement and to protect the goodwill acquired by Chesapeake and CHK under the
Merger Agreement, the Restricted Party has agreed to execute, deliver and
perform this Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Defined Terms. Except as otherwise defined herein, all terms defined in
the Merger Agreement will have the same meanings herein as therein defined
unless the context otherwise requires. The following terms will have the
following meanings when used in this Agreement:
1.1. Chesapeake Companies. Chesapeake, CHK and all of their wholly owned
subsidiary companies, whether owned directly or indirectly by
Chesapeake or CHK, including, without implied limitation,
corporations, partnerships and limited liability companies.
1.2 Confidential Information. All information relating to Canaan and/or
Canaan's Oil and Gas Interests, including information relating to
title matters, environmental matters, financial statements and other
financial matters, estimates of reserves, quality of reserves,
geological matters, asset listings, production and operating costs,
production capabilities, marketing, tax, forecasts and projections, in
whatever form (whether documentary, computer storage or other).
Notwithstanding the foregoing, information which is generally
available to the public or becomes generally available to the public
through no action of the Restricted Party Group will not be considered
Confidential Information.
1.3 Derivative Information. Any notes, summaries, evaluations, analyses
and other material derived by the Restricted Party from any of the
Confidential Information.
1.4 Lands. Any and all lands lying within one (1) mile of: (a) any well
and drilling or spacing unit within which such well lies in which
Canaan had an interest as of the Effective Time of the Merger, and (b)
the boundary of any Oil and Gas Interest in which Canaan had an
interest as of the Effective Time of the Merger.
1.5 Oil and Gas Business. Owning, managing, operating, controlling or
developing Oil and Gas Interests or engaging in or being connected
with, as a partner, limited liability company member, investor,
stockholder, advisor, employee, independent contractor or consultant,
any of the foregoing activities or the oil and gas exploration and
production business.
1.6 Oil and Gas Interests. All: (a) oil and gas leases, mineral interests,
oil, gas and mineral leasehold interests, fee interests, royalty
interests (including, without implied limitation, landowner royalty
interests, nonparticipating royalty interests and overriding royalty
interests), production payments, net profits interests, subleases,
mineral servitudes, licenses, easements, pooling orders and other
interests in oil, gas and other hydrocarbons; (b) contract rights,
joint operating agreements, farm out agreements, pooling agreements,
seismic agreements, cost sharing arrangements and other agreements
relating to the interests under the foregoing clause (a) or the oil
and gas exploration and production business; (c) wells, equipment,
associated personal property, pipelines, fixtures and other assets
related to the foregoing; and (d) other businesses, operations,
rights, titles and interests relating directly or indirectly to the
drilling, exploration, development, operation, marketing, sale or
other disposal of the foregoing assets and interests.
1.7 Restricted Party Group. The Restricted Party together with: (a) the
immediate family members of the Restricted Party; (b) any successors
or assigns of the Restricted Party; (c) any Person in which the
Restricted Party owns or has the right to acquire an equity interest
in excess of twenty percent (20%); and (d) any entity in which the
Restricted Party, ____________ and _____________ (collectively, the
"Related Parties") own or have the right to acquire a combined equity
interest in excess of forty percent (40%).
2. Restriction on Activities. During the period commencing on the date of
this Agreement and ending on the date two (2) years after the date of this
Agreement (the "Protection Period"), each member of the Restricted Party
Group will not, without the prior written consent of Chesapeake or as
otherwise specifically permitted under paragraph 2.2 hereof, directly or
indirectly: (a) own, acquire or solicit the acquisition of (or assist any
other Person to own, acquire or solicit the acquisition of) any Oil and Gas
Interests, or any option or other right to acquire any Oil and Gas
Interests, in any case pertaining to or covering, in whole or in part, the
Lands; (b) conduct (or assist any third person to conduct) any Oil and Gas
Business on or with respect to the Lands; or (c) acquire any interest or
the right to acquire any interest in a Person that owns Oil and Gas
Interests included in clause (a) or conducts activities included in (b)
that results in the Restricted Party Group and the Related Parties owning
or having the right to acquire more than forty percent (40%) of such
Person. In addition to the foregoing, during the Protection Period, each
member of the Restricted Party Group will not, without the prior consent of
Chesapeake, directly or indirectly terminate, own, acquire, solicit or
otherwise interfere with any of Canaan's Oil and Gas Interests pertaining
to or covering in whole in part the Lands or in anyway attempt to do any of
the foregoing or assist any third person to do any of the foregoing.
2.1 The limitations in this paragraph 2 will not prohibit any investment
by the Restricted Party or the Restricted Party Group in securities
which are listed on a public exchange or the National Association of
Securities Dealers Automated Quotation System issued by a company,
firm, corporation, partnership, trust or other entity involved in or
conducting an Oil and Gas Business, provided that the Restricted Party
and the Restricted Party Group own no more than fifteen percent (15%)
of the outstanding voting securities of such entity.
2.2 The parties hereto recognize that, during the Protection Period, the
Restricted Party and/or the Restricted Party Group may desire to
acquire one or more packages of Oil and Gas Interests which include
Oil and Gas Interests both inside and outside the Lands (each a
"Package"). Nothing in this Agreement will prohibit any such
acquisition of a Package, and no such acquisition or the resulting
ownership of such Oil and Gas Interests will constitute a violation of
this paragraph 2, as long as the number of Oil and Gas Interests
included in such Package is greater than twenty five (25) and the
value of the Oil and Gas Interests lying outside the Lands exceeds
seventy-five percent (75%) of the purchase price of the Package. In
the event the Restricted Party Group acquires a Package which contains
more than twenty five (25) Oil and Gas Interests but does not satisfy
the foregoing or which contains less than twenty five (25) Oil and Gas
Interests, such acquisition and the resulting ownership of such Oil
and Gas Interests will not constitute a violation of this Agreement,
if within twenty (20) days after any such acquisition, the Restricted
Party: (a) notifies Chesapeake of such acquisition, specifying the Oil
and Gas Interests acquired in the Lands (the "Offered Interests") and
specifying the portion of the acquisition price for such Package
allocated to the Offered Interests; and (b) grants the Chesapeake
Companies the right, for a period of twenty (20) days after receipt of
such notice, to acquire the Offered Interests from the Restricted
Party or the Restricted Party Group at the same acquisition price paid
therefor by the Restricted Party or the Restricted Party Group.
Notwithstanding the foregoing, in the event any of the Offered
Interests are subject to an existing preferential right to purchase
("Third Party Rights"), the Restricted Party will provide Chesapeake
with all notices of Third Party Rights as and when provided to the
holders thereof and will take such actions as may be prudent to permit
the Chesapeake Companies to step into the shoes of the Restricted
Party during the period such Third Party Rights are outstanding so
that, in the event such Third Party Rights are not exercised in
accordance with the terms thereof, the Chesapeake Companies will have
the ability to acquire such Offered Interests without the necessity of
re-instituting another Third Party Rights offer. For purposes of
calculating the number of Oil and Gas Interests in a Package, the
following will be considered an individual Oil and Gas Interest under
this paragraph: (y) all of the Restricted Group's rights and ownership
in a governmental spacing or production unit for a producing well; and
(z) with respect to non-producing assets, all of the Restricted
Group's rights and ownership in the area covered by a single prospect.
2.3 Nothing in this Agreement will prevent or prohibit any member of the
Restricted Party Group from being employed by any Person which is not
a member of the Restricted Party Group or, so long as the member of
the Restricted Party Group does not use Confidential Information or
Derivative Information, from assisting any such Person as an advisor,
consultant or independent contractor, regardless of whether such
person or entity owns, acquires or solicits the acquisition of any Oil
and Gas Interests, or any option or other right to acquire any Oil and
Gas Interests, pertaining to or covering, in whole or in part, any of
the Lands, or conducts any Oil and Gas Business on or with respect to
the Lands.
3. Confidentiality. The Restricted Party hereby acknowledges that, during
the term of the Restricted Party's relationship with Canaan, the Restricted
Party has developed and had access to Confidential Information and
Derivative Information. The Restricted Party hereby agrees as follows with
respect to all Confidential Information and Derivative Information:
3.1 Upon execution of this Agreement, the Restricted Party will, and will
cause each member of the Restricted Party Group to, immediately return
to Canaan all Confidential Information and Derivative Information in
the possession of the Restricted Party or any member of the Restricted
Party Group.
3.2 For a period of two (2) years after the date hereof, the Restricted
Party will, and will cause the members of the Restricted Party Group
to, keep all Confidential Information and Derivative Information and
the results of any analyses of such data and information strictly
confidential and will not, and will cause the members of the
Restricted Party Group not to, use any of such data, information or
results or disclose any such data, information or results to any
Person unless otherwise required by law or regulation and then only
after written notice to Canaan of the determination of the need for
disclosure.
3.3 In the event that the Restricted Party or any member of the Restricted
Party Group becomes legally compelled to disclose any Confidential
Information and/or Derivative Information, the Restricted Party will
provide Canaan with prompt notice so that Canaan may seek a protective
order or other appropriate remedy and/or waive the Restricted Party's
compliance with the confidentiality and non-disclosure provisions of
this Agreement. In the event that such protective order or other
remedy is not obtained, the Restricted Party will furnish only that
portion of the Confidential Information and/or Derivative Information
which it is advised by counsel is legally required.
4. Separate Covenants. This Agreement will be deemed to consist of a series
of separate covenants independent from any provision of the Merger
Agreement. The Restricted Party expressly agrees that the character,
duration and geographical scope of this Agreement are reasonable in light
of the circumstances as existing on the date of this Agreement. However,
should a determination nonetheless be made by a court of competent
jurisdiction at a later date that the character, duration or geographical
scope of this Agreement is unreasonable in light of the circumstances as
then existing or existing at the execution of this Agreement, then it is
the intention and the agreement of the Restricted Party, Chesapeake and CHK
that this Agreement be construed by the court and given effect in such a
manner as to impose only the restrictions on the conduct of the Restricted
Party which are reasonable in light of the circumstances as then existing
and as are necessary to assure Chesapeake and CHK of the intended benefit
of this Agreement and the Merger Agreement. If, in any judicial proceeding,
a court refuses to enforce all of the separate covenants included herein
because, taken together such covenants are more extensive than necessary to
assure Chesapeake and CHK of the intended benefit of this Agreement, it is
expressly understood and agreed between the parties that those covenants
not to be enforced in such proceeding will, for the purpose of such
proceeding, be deemed eliminated from the provisions hereof.
5. Periodic Payments. As additional consideration for the Restricted
Party's execution, delivery and performance of this Goodwill Protection
Agreement, Chesapeake agrees to pay to the Restricted Party the sum of
$_____________ payable in three (3) equal payments of $_____________ each.
The first payment will be due on the execution of this Agreement, the
second payment will be due on the date which is one (1) year after the
execution of this Agreement and the third payment will be due on the date
which is two (2) years after the execution of this Agreement.
6. Default. The Restricted Party will be responsible for any violation of
provisions hereof by any member of the Restricted Party Group. If the
Restricted Party fails to perform any obligation contained in this
Agreement or fails to cause the Restricted Party Group to perform the terms
of this Agreement, Chesapeake or CHK may serve written notice to the
Restricted Party specifying the nature of such default and demanding
performance. If such default has not been cured within five (5) business
days after receipt of such default notice, Chesapeake and/or CHK will be
entitled to demand specific performance, suspend performance of any
obligation under this Agreement, or exercise all remedies available at law
or in equity. Given the nature of the assets to be acquired by Chesapeake
under the Merger Agreement, the parties acknowledge and agree that the
goodwill purchased by Chesapeake cannot be protected if the provisions of
this Agreement are not strictly enforced. Accordingly, the parties
acknowledge and agree that, if there is a breach by the Restricted Party of
the provisions of this Agreement, money damages alone will not be adequate
and the Chesapeake Companies will be entitled to an injunction restraining
the Restricted Party or the Restricted Party Group from violating the
provisions of this Agreement. The remedies provided by this Agreement are
cumulative and will not exclude any other remedy to which a party might be
entitled under this Agreement. In the event a party elects to selectively
and successively enforce such party's rights under this Agreement, such
action will not be deemed a waiver or discharge of any other remedy.
7. Miscellaneous. It is further agreed as follows:
7.1 Notices. Except as expressly provided herein, any notice, demand or
communication required or permitted to be given by any provision of
this Agreement will be in writing and will be deemed to have been
given and received when delivered personally or by telefacsimile to
the party designated to receive such notice, or on the date following
the day sent by overnight courier, or on the third (3rd) business day
after the same is sent by certified mail, postage and charges prepaid,
directed to the following addresses or to such other or additional
addresses as any party might designate by written notice to the other
parties:
To any of the Chesapeake
Companies: Mr. Henry J. Hood
Chesapeake Energy Corporation
6100 North Western
Oklahoma City, Oklahoma 73118
Telephone: (405) 879-9400
Fax: (405) 405.879.9561
With a copy to: Ray Lees, Esquire
Commercial Law Group, P.C.
2725 Oklahoma Tower
210 Park Avenue
Oklahoma City, Oklahoma 73102
Telephone: (405) 232-3001
Fax: (405) 232-5553
To the Restricted Party:
---------------------------------
Telephone: (___) ___-____
Fax: (___) ___-____
7.2 Severability. If any clause or provision of this Agreement is illegal,
invalid or unenforceable under any present or future law, the
remainder of this Agreement will not be affected thereby. It is the
intention of the parties that if any such provision is held to be
illegal, invalid or unenforceable, there will be added in lieu thereof
a provision as similar in terms to such provisions as is possible and
to be legal, valid and enforceable.
7.3 Entire Agreement. This Agreement, together with the Merger Agreement
and the other instruments executed in connection therewith, constitute
the entire agreement between the parties with respect to the subject
matter hereof and there are no agreements, understandings, warranties
or representations except as set forth herein and therein. Neither
this Agreement nor any of the provisions hereof can be changed,
waived, discharged or terminated except by an instrument signed by the
party against whom enforcement of the change, waiver, discharge or
termination is sought.
7.4 Attorneys' Fees. If any party institutes an action or proceeding
against any other party relating to the provisions of this Agreement,
the party to such action or proceeding which does not prevail will
reimburse the prevailing party therein for the reasonable expenses of
attorneys' fees and disbursements incurred by the prevailing party.
7.5 Waiver. Waiver of performance of any obligation or term contained in
this Agreement by any party, or waiver by one party of the other's
default hereunder will not operate as a waiver of performance of any
other obligation or term of this Agreement or a future waiver of the
same obligation or a waiver of any future default.
7.6 Assignment. No party hereto may assign all or any portion of his or
its rights or obligations hereunder without the prior written consent
of the other parties hereto; provided, however, CHK may assign all or
any portion of its rights hereunder to (a) any other entity or person
which at any time controls or is under common control with CHK, or (b)
any entity or person which acquires all of CHK's Oil and Gas Business
with respect to the Lands.
7.7 Governing Law. This Agreement will be interpreted, construed and
enforced in accordance with the laws of the State of Oklahoma.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CHESAPEAKE ENERGY CORPORATION,
an Oklahoma corporation
By
-------------------------------------
Aubrey K. McClendon, Chief Executive
Officer
("Chesapeake")
CHK ACQUISITION, INC.,
an Oklahoma corporation
By
-------------------------------------
Aubrey K. McClendon, Chief Executive
Officer
("CHK")
, individually
---------------------------------------------------------------
(the "Restricted Party")