AGREEMENT AND PLAN OF MERGER
among
UNION OIL COMPANY OF CALIFORNIA,
TITAN RESOURCES HOLDINGS, INC.,
TRH, INC.
and
TITAN EXPLORATION, INC.
December 13, 1999
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TABLE OF CONTENTS
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Page
ARTICLE I - THE MERGER............................................... 2
1.1 The Merger.............................................. 2
1.2 Closing Date............................................ 2
1.3 Consummation of the Merger.............................. 2
1.4 Effects of the Merger................................... 2
1.5 Certificate of Incorporation; Bylaws.................... 2
1.6 Directors and Officers.................................. 3
1.7 Conversion of Securities................................ 3
1.8 Rights as a Stockholder................................. 3
1.9 Surrender and Payment................................... 4
1.10 Taking of Necessary Action; Further Action.............. 5
1.11 Adjustment.............................................. 5
1.12 Titan Stock Options..................................... 6
1.13 Fractional Shares....................................... 7
1.14 Withholding Rights 7
ARTICLE II - TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES........ 7
2.1 Transfer of Assets and Assumption of Liabilities........ 7
2.2 Assets.................................................. 8
2.3 Excluded Assets......................................... 9
2.4 Cash Amount............................................. 10
2.5 Transfer of Certain Contracts........................... 11
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF UNION OIL, THE
COMPANY AND SUB............................................... 12
3.1 Organization and Qualification.......................... 12
3.2 No Subsidiaries......................................... 13
3.3 Capitalization.......................................... 13
3.4 Authorization and Validity of Agreement................. 14
3.5 Approvals; No Conflict.................................. 14
3.6 Financial Statements.................................... 15
3.7 Absence of Undisclosed Liabilities...................... 15
3.8 Absence of Certain Changes.............................. 15
3.9 Tax Matters............................................. 16
3.10 Compliance With Laws.................................... 16
3.11 Litigation.............................................. 17
3.12 Employees; Employee Benefit Plans....................... 17
3.13 Environmental Matters................................... 17
3.14 Title to Assets......................................... 18
3.15 No Well Abandonments, No P&A Liabilities................ 18
3.16 Production Marketing.................................... 18
3.17 Gas Balancing, Take or Pay, Allowables.................. 18
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3.18 Leases and Contracts in Force, Operatorship............. 19
3.19 Permits................................................. 19
3.20 Current Commitments..................................... 19
3.21 Tax Partnerships........................................ 19
3.22 No Demands.............................................. 20
3.23 No Other Activities..................................... 20
3.24 Liability for Brokers' Fees............................. 20
3.25 Registration Statement and Proxy Statement/Prospectus
Information............................................. 20
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF TITAN................. 20
4.1 Organization and Compliance with Law.................... 20
4.2 Capitalization.......................................... 21
4.3 Authorization and Validity of Agreement................. 22
4.4 Approvals; No Conflict.................................. 22
4.5 Commission Filings; Financial Statements................ 23
4.6 Absence of Undisclosed Liabilities...................... 24
4.7 Absence of Certain Changes.............................. 24
4.8 Tax Matters............................................. 24
4.9 Compliance With Laws.................................... 25
4.10 Litigation.............................................. 26
4.11 Voting Requirements..................................... 26
4.12 Employees; Employee Benefit Plans....................... 26
4.13 Environmental Matters................................... 27
4.14 Title to Assets......................................... 27
4.15 No Well Abandonments, No P&A Liabilities................ 27
4.16 Production Marketing.................................... 27
4.17 Gas Balancing, Take or Pay, Allowables.................. 28
4.18 Leases and Contracts in Force, Operatorship............. 28
4.19 Permits................................................. 28
4.20 Current Commitments..................................... 28
4.21 Tax Partnerships........................................ 29
4.22 Liability for Brokers' Fees............................. 29
4.23 Anti-Takeover Provisions................................ 29
4.24 Dissenters' Rights...................................... 29
4.25 Certain Discussions..................................... 29
4.26 Registration Statement and Proxy Statement/Prospectus
Information............................................ 29
ARTICLE V - CONDUCT PENDING CLOSING.................................. 30
5.1 Conduct and Preservation of Business.................... 30
5.2 Conduct and Preservation of Business of Titan........... 31
ARTICLE VI - ADDITIONAL AGREEMENTS................................... 34
6.1 Access to Information................................... 34
6.2 Titan Acquisition Proposals............................. 35
6.3 Company Acquisition Proposals........................... 37
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6.4 Special Meeting; Proxy Statement/Prospectus;
Registration Statement.................................. 37
6.5 Reservation of Company Common Stock..................... 38
6.6 Notification of Certain Matters......................... 38
6.7 HSR Act; Consents....................................... 39
6.8 Disclosure Letters...................................... 39
6.9 Reasonable Efforts...................................... 39
6.10 Public Announcements.................................... 40
6.11 Fees and Expenses....................................... 40
6.12 Employees and Employee Benefit Plans.................... 40
6.13 Indemnification of Claims of Brokers.................... 43
6.14 Amendment of Disclosure Letters......................... 43
6.15 Transfer Taxes.......................................... 43
6.16 Amendment of Rights Plan................................ 44
6.17 Management Employee Agreements.......................... 44
6.18 Tax Treatment........................................... 44
6.19 Company Board........................................... 44
6.20 Stock Exchange Listing.................................. 44
6.21 Indemnification and Insurance........................... 44
6.22 Affiliate Agreements.................................... 46
6.23 Ancillary Agreements.................................... 46
6.24 Dividend Restriction.................................... 46
6.25 Incentive Plan.......................................... 46
6.26 Registration Rights Agreement........................... 47
ARTICLE VII - CONDITIONS TO OBLIGATIONS OF UNION OIL................ 47
7.1 Representations and Warranties.......................... 47
7.2 Covenants and Agreements................................ 47
7.3 Certificate............................................. 47
7.4 HSR Act................................................. 47
7.5 Legal Proceedings....................................... 47
7.6 Consents................................................ 48
7.7 Stockholder Approval.................................... 48
7.8 Registration Statement.................................. 48
7.9 Listing of Company Common Stock......................... 48
7.10 Accounting Matters...................................... 48
7.11 Opinion of Tax Counsel.................................. 48
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF TITAN................... 49
8.1 Representations and Warranties.......................... 49
8.2 Covenants and Agreements................................ 49
8.3 Certificate............................................. 49
8.4 HSR Act................................................. 49
8.5 Legal Proceedings....................................... 49
8.6 Consents................................................ 49
8.7 Stockholder Approval.................................... 49
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8.8 Registration Statement.................................. 49
8.9 Listing of Company Common Stock......................... 50
8.10 Accounting Matters...................................... 50
8.11 Opinion of Tax Counsel.................................. 50
ARTICLE IX - TAX MATTERS............................................ 50
9.1 Tax History of the Company.............................. 50
9.2 Proration of Taxes...................................... 50
9.3 Tax Benefit Payments.................................... 51
ARTICLE X - TERMINATION, AMENDMENT AND WAIVER....................... 52
10.1 Termination............................................. 52
10.2 Effect of Termination................................... 53
10.3 Amendment............................................... 53
10.4 Waiver.................................................. 54
ARTICLE XI - SURVIVAL MATTERS; CROSS INDEMNIFICATION................ 54
11.1 Survival of Representations and Warranties.............. 54
11.2 Survival of Covenants and Agreements.................... 54
11.3 Indemnification......................................... 54
11.4 Indemnification Procedure............................... 55
11.5 Insurance............................................... 56
11.6 Definitions............................................. 57
ARTICLE XII - MISCELLANEOUS......................................... 57
12.1 Notices................................................. 57
12.2 Entire Agreement........................................ 59
12.3 Binding Effect; Assignment; No Third Party Benefit...... 59
12.4 Severability............................................ 59
12.5 Governing Law........................................... 59
12.6 Descriptive Headings.................................... 59
12.7 Gender.................................................. 59
12.8 References.............................................. 59
12.9 Counterparts............................................ 60
12.10 Specific Performance.................................... 60
ARTICLE XIII - DEFINITIONS.......................................... 60
13.1 Certain Defined Terms................................... 60
13.2 Certain Additional Defined Terms........................ 63
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INDEX TO EXHIBITS
Exhibit A Assets
Exhibit 6.17(a) Executive Letter Agreement
Exhibit 6.17(b) Executive Severance Arrangements
Exhibit 6.22 Affiliate Agreement
Exhibit 6.25 1999 Incentive Plan
INDEX TO SCHEDULES
Schedule 1.6 Directors and Officers of Surviving Corporation
Schedule 6.19 Directors and Officers of the Company
Schedule 6.25 Stock Option Grants
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of the 13th day of December,
1999 (the "Agreement"), is among Union Oil Company of California, a California
corporation ("Union Oil") Titan Resources Holdings, Inc., a newly-formed
Delaware corporation and a wholly-owned subsidiary of Union Oil (the "Company"),
TRH, Inc., a newly-formed Delaware corporation and a wholly-owned subsidiary of
the Company ("Sub"), and Titan Exploration, Inc., a Delaware corporation
("Titan").
WHEREAS, as of the Closing Date (as defined below), the Company will
conduct as an ongoing concern substantially all of the business and operations
of Union Oil and its subsidiaries relating to the exploration for and
development and production of oil and gas onshore in the Permian Basin and the
San Juan Basin including the business and operations relating to the gas plants
identified in Section 2.2 (the "Business");
WHEREAS, the respective Boards of Directors of Union Oil, the Company, Sub
and Titan have determined that the acquisition by the Company of Titan is
desirable and in the best interests of the stockholders of the respective
companies;
WHEREAS, the respective Boards of Directors of Union Oil, the Company, Sub
and Titan have approved this Agreement, and such Boards of Directors and Union
Oil, as the sole stockholder of the Company, and the Company, as the sole
stockholder of Sub, have approved the merger of Sub with and into Titan (the
"Merger"), whereby each issued and outstanding share of common stock, par value
$.01 per share, of Titan (the "Titan Common Stock"), not owned directly or
indirectly by Titan will be converted into the right to receive shares of common
stock, par value $.01 per share, of the Company ("Company Common Stock"), upon
the terms and subject to the conditions set forth herein;
WHEREAS, as a material inducement for each party to enter into this
Agreement and consummate the transactions contemplated hereby, each of the
parties is, or will be at or prior to Closing, entering into each of the
Ancillary Agreements (as defined below) that it is a party to;
WHEREAS, for federal income tax purposes, the parties intend that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code") and as part of a
transaction under Section 351 of the Code;
WHEREAS, the parties intend that this Agreement, as it relates to the
Merger, shall constitute a "plan of reorganization" within the meaning of
Treasury Regulation Section 1.368-3;
WHEREAS, the parties intend that Union Oil's transfer of the Assets (as
defined below) to the Company shall qualify as a transaction described in
Section 351(a) of the Code; and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
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NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Union Oil, the Company, Sub and Titan hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to and in accordance with the terms and
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conditions of this Agreement and in accordance with the General Corporation Law
of the State of Delaware (the "DGCL"), at the Effective Time (as defined in
Section 1.3) Sub shall be merged with and into Titan. As a result of the
Merger, the separate corporate existence of Sub shall cease and Titan shall
continue as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation").
1.2 Closing Date. The closing of the transactions contemplated by this
------------
Agreement (the "Closing") shall take place at the offices of Thompson & Knight
L.L.P., 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201, at 10:00 a.m.,
local time, on the day which is five (5) consecutive Business Days after the day
on which the last of the conditions to the obligations of the parties set forth
in Articles VII and VIII is fulfilled or waived (subject to Applicable Law) or
is capable of being fulfilled at the Closing or (ii) at such other time or place
or on such other date as the parties hereto shall agree. The date on which the
Closing occurs is herein referred to as the "Closing Date".
1.3 Consummation of the Merger. As soon as practicable on the Closing
--------------------------
Date, the parties hereto will cause the Merger to be consummated by filing with
the Secretary of State of Delaware a certificate of merger in such form as
required by, and executed in accordance with, the relevant provisions of the
DGCL. The "Effective Time" of the Merger as that term is used in this Agreement
shall mean such time as the certificate of merger is duly filed with the
Secretary of State of Delaware or at such later time (not to exceed 90 days from
the date the certificate is filed) as is specified in the certificate of merger
pursuant to the mutual agreement of Union Oil, the Company, Sub and Titan.
1.4 Effects of the Merger. The Merger shall have the effects set forth in
---------------------
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of Titan and Sub shall vest in the
Surviving Corporation, without any transfer or assignment having occurred, and
all debts, liabilities and duties of Titan and Sub shall attach to the Surviving
Corporation, all in accordance with the DGCL.
1.5 Certificate of Incorporation; Bylaws.
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(a) The Certificate of Incorporation of Sub, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of
the Surviving Corporation and thereafter shall continue to be its
Certificate of Incorporation until amended as provided therein and under
the DGCL.
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(b) The bylaws of Sub, as in effect immediately prior to the Effective
Time, shall be the bylaws of the Surviving Corporation and thereafter shall
continue to be its bylaws until amended as provided therein and under the
DGCL.
1.6 Directors and Officers. The directors of the Surviving Corporation at
----------------------
and after the Effective Time shall consist of the persons set forth on Schedule
1.6, each to hold office in accordance with the Certificate of Incorporation and
bylaws of the Company and the Surviving Corporation, and the officers of the
Surviving Corporation at and after the Effective Time shall consist of the
persons set forth on Schedule 1.6, in each case until their respective
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
1.7 Conversion of Securities. Subject to the terms and conditions of this
------------------------
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Union Oil, the Company, Sub, Titan or their stockholders:
(a) Each share of Titan Common Stock, together with the attached
preferred stock purchase rights, issued and outstanding immediately prior
to the Effective Time, other than any shares of Titan Common Stock to be
canceled pursuant to Section 1.7(b), shall be converted into the right to
receive .4302314 (the "Exchange Ratio") of a share of Company Common Stock.
(b) Each share of Titan Common Stock held in the treasury of Titan and
each share of Titan Common Stock owned by any direct or indirect wholly-
owned subsidiary of Titan immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof and no payment
shall be made with respect thereto.
(c) Each share of common stock, par value $.01 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock, $.01 par value per
share, of the Surviving Corporation.
The consideration to which the holders of shares of Titan Common Stock are
entitled as provided in Section 1.7(a), together with cash, if any, in lieu of
Fractional Shares (as defined below), is referred to herein as the "Merger
Consideration".
The Company shall, following the Closing, except as provided in Section
1.9(d) and Section 1.13(b), pay all stamp duties and stamp duty reserve tax, if
any, imposed in connection with the issuance or creation of the shares of
Company Common Stock in connection with the Merger.
1.8 Rights as a Stockholder. From and after the Effective Time, all
-----------------------
shares of Titan Common Stock converted in accordance with Section 1.7(a) into
the right to receive shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Titan
Common Stock shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration and any dividends payable pursuant to
Section 1.9(a). From and after the
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Effective Time, all certificates representing the common stock of Sub shall be
deemed for all purposes to represent the number of shares of common stock of the
Surviving Corporation into which they were converted in accordance with Section
1.7(c).
1.9 Surrender and Payment.
---------------------
(a) Prior to the Effective Time, the Company shall designate a bank or
trust company reasonably acceptable to the Company (the "Exchange Agent")
for the purpose of effecting the exchange of certificates representing
shares of Titan Common Stock (the "Certificates") for the Merger
Consideration. As soon as practicable after the Effective Time, the
Company will make available to the Exchange Agent, for the benefit of the
holders of shares of Titan Common Stock, for exchange in accordance with
this Article I, certificates representing the number of whole shares of
Company Common Stock issuable pursuant to Section 1.7 in exchange for
outstanding shares of Titan Common Stock. Promptly after the Effective
Time, the Company will send, or will cause the Exchange Agent to send, to
each holder of record at the Effective Time of shares of Titan Common Stock
a letter of transmittal for use in such exchange (which shall specify that
the delivery shall be effected, and risk of loss and title shall pass, only
upon proper delivery of the Certificates to the Exchange Agent) in such
form as the Company and Titan may reasonably agree, for use in effecting
delivery of shares of Titan Common Stock to the Exchange Agent acting on
behalf of the Company.
(b) Each holder of shares of Titan Common Stock that have been
converted into a right to receive the Merger Consideration, upon surrender
to the Exchange Agent of a Certificate, together with a properly completed
letter of transmittal, will be entitled to receive the Merger Consideration
in respect of the shares of Titan Common Stock represented by such
Certificate. Until so surrendered and exchanged, each such Certificate
that prior to the Effective Time represented Titan Common Stock shall
represent solely the right to receive such Merger Consideration.
(c) All shares of Company Common Stock issued upon the surrender for
exchange of Certificates in accordance with the terms hereof (including any
cash paid pursuant to Section 1.13) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Titan Common
Stock. At and after the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of Titan Common Stock that were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Exchange Agent for any
reason, they shall be canceled and exchanged as provided in this Article I.
(d) If any portion of the Merger Consolidation is to be paid to a
person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition to
such payment that the Certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting
such exchange shall have paid to the Exchange Agent any transfer or other
taxes required by reason of the issuance of a
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certificate for shares of Company Common Stock in any name other than that
of the registered holder of the Certificate surrendered, or established to
the satisfaction of the Exchange Agent that such tax has been paid or is
not payable.
(e) None of Union Oil, the Company, Sub, Titan, the Surviving
Corporation or their transfer agents shall be liable to a holder of the
shares of Titan Common Stock for any amount paid in good faith to a public
official pursuant to applicable property, escheat or similar laws.
(f) Any holder whose Certificates have been lost or destroyed may
nevertheless obtain the Merger Consideration and other amounts to which
such holder is entitled pursuant to this Article I, provided such holder
delivers to the Exchange Agent a statement certifying such loss or
destruction and providing for indemnity reasonably satisfactory to the
Company and the Surviving Corporation against any loss or expense either of
them may incur with respect to such Certificate.
(g) No dividends or other distributions with respect to shares of
Company Common Stock issued in the Merger shall be paid to the holder of
any unsurrendered Certificates until such Certificates are surrendered as
provided in this Agreement. Subject to the effect of applicable laws,
following such surrender, there shall be paid, without interest, to the
record holder of the shares of Company Common Stock issued in exchange
therefor (i) at the time of such surrender, all dividends and other
distributions payable in respect of such shares of Company Common Stock
with a record date after the Effective Time and a payment date on or prior
to the date of such surrender and not previously paid and (ii) at the
appropriate payment date, the dividends or other distributions payable with
respect to such shares of Company Common Stock with a record date after the
Effective Time but with a payment date subsequent to such surrender.
1.10 Taking of Necessary Action; Further Action. The parties hereto shall
------------------------------------------
take all such reasonable and lawful action as may be necessary or appropriate in
order to effectuate the Merger as promptly as possible. If, at any time after
the Effective Time, any such 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 Titan or Sub, such parties shall direct their
respective officers and directors to take all such lawful and necessary action.
1.11 Adjustment. In the event of any stock split, combination,
----------
reclassification, recapitalization, exchange, stock dividend or other
distribution payable in Company Common Stock with respect to shares of Company
Common Stock (or if a record date with respect to any of the foregoing actions
should occur) during the period between the date of this Agreement and the
Effective Time, then the number of shares of Company Common Stock into which
each share of Titan Common Stock is to be converted pursuant to this Agreement
shall be adjusted to reflect any such action.
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1.12 Titan Stock Options. Subject to the consummation of the Merger and
-------------------
effective at the Effective Time, the Company and Titan will take such action as
is necessary to assume, effective at the Effective Time, each option to purchase
shares of Titan Common Stock (each, a "Titan Employee Option") that remains as
of such time unexercised in whole or in part and to substitute shares of Company
Common Stock as purchasable under each such assumed option ("Assumed Option"),
with such assumption and substitution to be effected as follows:
(a) The Assumed Option shall not give the optionee additional benefits
which he did not have under the Titan Employee Option before such
assumption and shall be assumed on the same terms and conditions as the
Titan Employee Options being assumed, subject to Section 1.12(b) and (c)
(it being recognized that each existing Titan Employee Option shall vest on
the Closing Date insofar as such Titan Employee Option vests as a result of
the Merger);
(b) The number of shares of Company Common Stock purchasable under the
Assumed Option shall be equal to the nearest whole number of shares of
Company Common Stock that the holder of the Titan Employee Option being
assumed would have received (without regard to any vesting schedule) upon
consummation of the Merger had such Titan Employee Option been exercised in
full immediately prior to consummation of the Merger; and
(c) The per share exercise price of such Assumed Option shall be an
amount equal to the per share exercise price of the Titan Employee Option
being assumed divided by the Exchange Ratio.
The Company shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Company Common Stock for delivery upon
exercise of the Assumed Options, and, as soon as practicable after the Effective
Time, the Company shall file a registration statement on Form S-8 (or other
appropriate form) with respect to the shares of Company Common Stock subject to
the Assumed Options, and shall use its best efforts to maintain the
effectiveness of such registration statement (and maintain the current status of
any prospectus contained therein) for so long as any of the Assumed Options
remain outstanding. The Company agrees that the Company's Board of Directors or
the Compensation Committee of the Company's Board of Directors shall at or prior
to the Effective Time adopt resolutions specifically approving, for purposes of
Rule 16b-3 under the Exchange Act, the receipt of (i) Company Common Stock
pursuant to Section 1.7 and (ii) Company stock options pursuant to this Section
1.12 by persons who will become officers or directors of the Company subject to
Section 16 of the Exchange Act. The parties acknowledge that on or before the
date of this Agreement, the Company's board of directors has adopted resolutions
specifically approving, for purposes of Rule 16b-3 under the Exchange Act, the
receipt by Jack D. Hightower ("CEO") of the put rights contained in the
agreement referenced in Section 6.23(f) and the purchase by the Company of
Company Common Stock pursuant thereto.
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1.13 Fractional Shares.
-----------------
(a) No certificates or scrip representing fractional shares of Company
Common Stock ("Fractional Shares") shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of the Company shall
relate to such Fractional Shares and such Fractional Shares will not entitle the
owner thereof to vote or to any rights of a stockholder of the Company. All
holders of Titan Common Stock who would otherwise be entitled to receive
Fractional Shares shall be entitled to receive, in lieu thereof, an amount in
cash equal to the product obtained by multiplying (A) the number of Fractional
Shares to which such holder (after taking into account all shares of Titan
Common Stock held at the Effective Time by such holder) would otherwise be
entitled by (B) the closing price for a share of Company Common Stock as
reported in The Wall Street Journal, or, if not reported thereby, any other
authoritative source, on the first full trading day in the United States public
securities markets immediately following the Closing Date.
(b) The parties acknowledge that payment of the cash consideration in lieu
of issuing Fractional Shares was not separately bargained for consideration but
merely represents a mechanical rounding off for purposes of simplifying the
corporate and accounting problems that would otherwise be caused by the issuance
of Fractional Shares.
1.14 Withholding Rights. Each of the Surviving Corporation and the Company
------------------
shall be entitled to deduct and withhold from the consideration otherwise
payable to any person pursuant to this Article I such amounts as it is required
to deduct and withhold with respect to the making of such payment under any
provision of federal, state, local or foreign tax law. To the extent that
amounts are so withheld by the Surviving Corporation or the Company, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Titan Common Stock
in respect of which such deduction and withholding was made by the Surviving
Corporation or the Company, as the case may be.
ARTICLE II
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
2.1 Transfer of Assets and Assumption of Liabilities. Simultaneously with
------------------------------------------------
the Closing, Union Oil shall, or shall cause its subsidiaries to, contribute and
convey, the Assets (as defined below) to the Company or, at the Company's
direction, to a subsidiary of the Company which is reasonably satisfactory to
both parties (as used herein, the term the "Company" shall be deemed to mean the
Company and/or such subsidiary, as appropriate) in exchange for (i) the issuance
by the Company to Union Oil of 32,708,067 shares of Company Common Stock, and
(ii) the assumption by the Company of all Liabilities related to the assets or
operations comprising the Business or the Assets or otherwise reflected or
reserved in the Financial Statements, in each case regardless of whether such
Liabilities exist or arise before, at or after January 1, 2000 (whether
contingent or otherwise), except for (A) any Liabilities required by generally
accepted accounting principles ("GAAP") to be disclosed in the Financial
Statements that are not disclosed in the Financial Statements, (B) any Liability
for trade payables arising out of the ownership and operation of the
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Assets prior to January 1, 2000, (C) any Liability relating to payment of or
failure to pay any royalty, overriding royalty, compensatory royalty, working
interests or net profits interests prior to the Closing Date, other than
Liabilities relating to legal suspense amounts for royalties included among the
Assets, (D) any Liability for which the Company is indemnified pursuant to
Section 6.12 or Section 6.13, (E) Liabilities for Taxes of the Company or the
Business relating to periods prior to January 1, 2000, (F) any liabilities in
respect of the claims or Proceedings described in Section 3.9 or 3.11 of the
Union Oil Disclosure Letter or (G) any Liabilities of Union Oil or any of its
affiliates relating to the Excluded Assets (the matters in clauses (A) through
(G) are collectively referred to herein as the "Excluded Liabilities"). Union
Oil shall provide proposed forms of conveyance, assignment and assumption
documents to Titan not less than 10 days prior to the Closing Date, and such
documents as finally executed shall be reasonably acceptable to Titan.
2.2 Assets. As used in this Agreement, "Assets" shall mean the Cash
------
Amount (as determined in Section 2.4) and the aggregate of all right, title and
interest owned by Union Oil and/or any of its affiliates, or any of them,
insofar as they relate to the Business, including without limitation the
following:
(a) the interests specified on Exhibit A hereto in and to the oil and
gas leases, real property, real property leases, mineral classified lands
and other interests described on such Exhibit A (and any ratifications and
amendments thereof, whether or not the same are described on Exhibit A);
(b) without limitation of the foregoing, subject to Section 2.5, all
other right, title and interest (of whatever kind or character, whether
legal or equitable, and whether vested or contingent) of Union Oil or any
subsidiary of Union Oil in and to the oil, gas and other minerals produced
in association therewith in and under or that may be produced from the
lands described on Exhibit A hereto at all depths or described in any of
the leases or other instruments described on such Exhibit A (including,
without limitation, interests in oil, gas and/or mineral leases, overriding
royalties, production payments, net profits interests, fee mineral
interests, fee royalty interests and other interests insofar as they cover
such lands and depths), even though Union Oil's or such subsidiary's
interest therein may be incorrectly described in, or omitted from, such
Exhibit A; and
(c) subject to Section 2.5, all rights, titles and interests of Union
Oil or any subsidiary of Union Oil in and to, or otherwise derived from,
all presently existing and valid oil, gas and/or mineral unitization,
pooling, and/or communitization agreements, declarations, designations
and/or orders relating to the foregoing (including, without limitation,
those described on Exhibit A hereto) and in and to the properties covered
and the units created thereby (including, without limitation, all units
formed under orders, rules, regulations, or other official acts of any
federal, state, or other authority having jurisdiction, and voluntary
unitization agreements, designations and/or declarations) primarily
relating to the properties described in subsections (a) and (b) above;
(d) subject to Section 2.5, all rights, titles and interests of Union
Oil or any subsidiary of Union Oil in and to all presently existing and
valid production sales contracts,
8
<PAGE>
operating agreements, and other agreements and contracts which relate
primarily to any of the properties described in subsections (a), (b) and
(c) above;
(e) subject to Section 2.5, all rights, titles and interests of Union
Oil or any subsidiary of Union Oil in and to all materials, supplies,
machinery, equipment, improvements and other personal property and fixtures
(including, but not by way of limitation, all wells, wellhead equipment,
pumping units, flowlines, tanks, platforms, buildings, saltwater disposal
facilities, injection facilities, compression facilities, gathering
systems, service contracts, seismic data, trucks, well site equipment,
geological data (including maps and interpretations thereof), telephone,
communication equipment, computers (including any geological or geophysical
aids relating to software or hardware), hedges entered into at Titan's
request, suspense files and accounts, bonds, contracts, legal claims,
furniture and other equipment, personal property leases, prepaid expenses,
and books and records) used primarily in connection with the exploration,
development, operation, maintenance or administration of the properties
described in subsections (a), (b) and (c) above, and in and to all permits
and licenses (including, without limitation, all environmental and other
governmental permits, licenses and authorizations), rights of way,
easements, and other rights of surface use, water rights and other rights
and interests used in connection with the exploration, development,
operation, maintenance or administration of the properties described in
subsections (a), (b) and (c) above;
(f) all rights, titles and interests of Union Oil or any subsidiary of
Union Oil in and to the gas plants and gathering and transmission lines
listed on Exhibit A, including the gas plants in the Dollarhide, Massey,
Sacrock and Coyonosa Fields;
(g) all rights, titles and interests of Union Oil or any subsidiary of
Union Oil in and to all accounts receivable and other rights to receive
payment with respect to production from or operation of the Properties on
or after January 1, 2000; and
(h) all rights, titles and interests of Union Oil or any subsidiary of
Union Oil in and to rights to receive proceeds with respect to the exercise
of preferential purchase rights relating to any Asset after the date
hereof.
The properties, rights and interests described in subsections (a) through
(c) above are herein sometimes called the "Properties."
2.3 Excluded Assets. Notwithstanding any provision contained in this
---------------
Agreement to the contrary, the following shall be excluded from the Assets
(collectively, the "Excluded Assets"):
(a) Union Oil's or its subsidiaries' capital stock in Tom Brown, Inc.
and Matador Petroleum Corporation and all assets or properties of such
corporations;
(b) All tools, vehicles or other rolling stock, communication
equipment, computer equipment, software, office premises, and office
equipment that is not owned by Union Oil or is located outside of the
Permian Basin and San Juan Basin;
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<PAGE>
(c) Storage or warehouse agreements (for locations outside of the
Permian Basin and San Juan Basin), service contracts and constructor
agreements, unless such contract or agreement is associated primarily with
the production from or operation of the Assets or is otherwise reasonably
necessary to the ongoing ownership, operation or maintenance of the Assets
consistent with past practice;
(d) All pipelines, gas storage land or facilities, equipment and
rights of any kind whether owned and/or operated, directly or indirectly,
by Union Oil or any affiliate of Union Oil that are not expressly
identified on Exhibit A, unless such pipeline, equipment or right of way is
associated primarily with the production from or operation of the Assets or
is otherwise reasonably necessary to the ongoing ownership, operation or
maintenance of the Assets consistent with past practice; provided, however,
that any assets owned by Unocal Pipeline Company shall be Excluded Assets;
(e) All assets of whatever kind that are held by Union Oil or its
subsidiaries that are used in owning, operating or maintaining assets and
that are not primarily used in owning, operating or maintaining the Assets
and are not related primarily to the Business;
(f) The marketing agreement relating to the Assets between Unocal
Global Trade and Union Oil; and
(g) cash other than (1) the Cash Amount and (2) any preferential
purchase rights proceeds referred to in Section 2.2(h).
2.4 Cash Amount. (a) The Assets shall include the amount of cash equal
-----------
to the following (the "Cash Amount"):
(i) the amount of revenues (or estimated revenues as agreed)
received by Union Oil in connection with sales of oil, gas
and/or other minerals and associated products from the Assets,
together with any other revenue from the Assets, with respect
to production and/or operations on or after January 1, 2000
through the Closing Date; plus
(ii) the amount of legal suspense as of the Closing Date; less
(iii) the amount of expenditures (or estimated expenditures as
agreed) paid by Union Oil that are attributable to the Assets
for the period beginning on January 1, 2000 and ending on the
Closing Date, including, without limitation, royalties, taxes,
rentals and similar charges and expenses, including those
billed under applicable operating agreements, and all prepaid
expenses.
(b) Three days prior to, and for the purposes of, the Closing,
Union Oil and Titan shall determine, based upon the best information
reasonably available to them, the amount of the Cash Amount. In the event
that the Cash Amount determined at Closing is a negative
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<PAGE>
number, such amount shall be an outstanding obligation of the Company
payable, if applicable, to Union Oil in accordance with Section 2.4(d).
(c) On or before February 15, 2001, Union Oil and the Company shall
review any additional information which may then be available pertaining to
the Cash Amount, and the Company shall prepare and deliver to Union Oil a
reconciliation of the Cash Amount to determine whether any adjustment
should be made to the Cash Amount as it was determined for the Closing
(whether the same be made to account for funds received and expenditures
paid that are attributable to the operations of the Assets for the period
from and after January 1, 2000 until the Closing Date that were not
considered in making the determination of the Cash Amount at Closing, or to
correct errors made in such determination). In the event that Union Oil
acting in good faith disputes the reconciliation prepared by the Company,
Union Oil shall give written notice thereof to the Company on or before the
tenth Business Day after the reconciliation was given to Union Oil, which
notice shall set forth the basis for such dispute in reasonable detail.
Union Oil and the Company shall use all reasonable efforts to resolve any
such dispute, but if any such dispute cannot be resolved by such parties
within ten Business Days after the date the dispute notice is given, all
unresolved disputes shall be referred to the Arbitrating Firm for
resolution. Union Oil and the Company shall seek to cause the Arbitrating
Firm to make its determination within ten Business Days after referral of a
dispute to it. Union Oil and the Company shall each provide the
Arbitrating Firm with all information which it reasonably requires. The
determination of the Arbitrating Firm shall be conclusive and binding on
each party. The fees of the Arbitrating Firm shall be allocated and paid
by Union Oil or the Company on a basis determined by the Arbitrating Firm
to be fair taking into account the correctness of the positions asserted by
Union Oil and the Company.
(d) Following the determination pursuant to Section 2.4(c) of the
adjustments, if any, to the Cash Amount as determined at Closing, (i) if
the Cash Amount as finally determined pursuant to Section 2.4(c) minus the
Cash Amount determined at Closing is greater than zero, then Union Oil
shall promptly pay such amount to the Company and (ii) if the Cash Amount
as finally determined pursuant to Section 2.4(c) minus the Cash Amount
determined at Closing is a negative number, then the Company shall promptly
pay such amount to Union Oil.
(e) Following the adjustments pursuant to this Section 2.4, no further
adjustments shall be made to the Cash Amount.
2.5 Transfer of Certain Contracts.
-----------------------------
(a) Without limiting the generality of Section 2.2, Union Oil agrees
that between the date hereof and the Closing Date it will use its
reasonable efforts to obtain or cause to be obtained the necessary consents
to the transfer to the Company of each contract, license or permit included
in the Assets which by its terms requires the consent of any other
contracting party thereto or the issuer thereof (for purposes of this
section, "Consent Required Asset"). In no event, however, shall Union Oil
be obligated to pay any money to any person or to offer
11
<PAGE>
or grant other financial or other accommodations to any person in
connection with obtaining any consent with respect to any contract, license
or permit. If Union Oil shall have failed prior to the Closing Date to
obtain consents to the transfer of any Consent Required Asset, the terms of
this Section 2.5 shall govern the transfer of the benefits of each such
contract, license or permit.
(b) Notwithstanding any provision contained in this Agreement to the
contrary, the parties hereto acknowledge and agree that at the Closing
Union Oil shall not transfer or cause to be transferred to the Company any
Consent Required Asset the consent to which has not been obtained prior to
the Closing Date.
(c) With respect to each such unassigned Consent Required Asset, after
the Closing Date Union Oil shall continue to deal with the other
contracting party or parties to such Consent Required Asset as the prime
contracting party and shall continue to use its reasonable efforts to
obtain the consent of all required parties to the transfer of such Consent
Required Asset to the Company, but the Company shall be entitled to the
benefits of such Consent Required Asset accruing after the Closing Date to
the extent that Union Oil may provide the Company with such benefits
without violating the terms of such Consent Required Asset or Applicable
Law; provided, however, that Union Oil's obligation to maintain any such
arrangement shall terminate upon the earliest to occur of (1) the
expiration or termination of such Consent Required Asset in accordance with
its terms (without regard to any extensions, automatic or otherwise) or (2)
with regard to a permit, such time as the Company shall obtain a permit in
reasonable substitution therefor, or have its application for such
substitute permit denied. In any such arrangement, (i) Union Oil shall
promptly pay to the Company when received all moneys relating to the period
after the Closing Date received by it under any contract included in the
Assets or any claim, right or benefit arising thereunder not transferred
pursuant to this Section 2.5 and (ii) the Company shall promptly pay,
perform or discharge when due any obligation or liability arising
thereunder after the Closing Date.
(d) Union Oil shall not incur any liability to Titan or the Company if
such "pass through" arrangement shall not enable the Company to use or
benefit from such Consent Required Asset.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
UNION OIL, THE COMPANY AND SUB
Union Oil, the Company and Sub jointly and severally represent and warrant
to Titan that:
3.1 Organization and Qualification. Each of the Company and Sub is a
------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority and
all necessary governmental authorizations to own, lease
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<PAGE>
and operate all of its properties and assets and to carry on its business as now
being conducted. Except as set forth in Section 3.1 of the disclosure letter
delivered by Union Oil and the Company to Titan on the date hereof (the "Union
Oil Disclosure Letter"), each of the Company and Sub is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification necessary, except in
such jurisdictions where the failure to be duly qualified is not and would not
be, either individually or in the aggregate, reasonably expected to have a
Material Adverse Effect on the Assets or the Company. No actions or proceedings
to dissolve the Company or Sub are pending. Each of the Company and Sub has
heretofore made available to Titan true and complete copies of (i) such
company's Certificate of Incorporation and bylaws as currently in effect, (ii)
the stock records of the Company and Sub and (iii) the minutes of all meetings
of the Boards of Directors of the Company and Sub, any committees of such
Boards, and the stockholder of the Company and Sub (and all consents in lieu of
such meetings). Such records, minutes and consents accurately reflect the stock
ownership of the Company and Sub and all actions taken by such Boards of
Directors, committees and stockholders.
3.2 No Subsidiaries. Except as set forth in Section 3.2 of the Union Oil
---------------
Disclosure Letter, neither the Company nor Sub owns, directly or indirectly, the
capital stock or other securities of any corporation or partnership or has any
direct or indirect equity or ownership interest in any other person, except for
the Company's ownership of Sub and except as contemplated by this Agreement.
3.3 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of (i) 200
million shares of Company Common Stock, par value $.01 per share and (ii)
10 million shares of preferred stock, par value $.01 per share. As of the
date of this Agreement, there were issued and outstanding 1,000 shares of
Company Common Stock, all of which are owned by Union Oil, and no shares of
capital stock of the Company are held as treasury shares. At the Closing
Date, after the completion of the contribution and assumption contemplated
by Section 2.1, there will be issued and outstanding 32,709,067 shares of
Company Common Stock, all of which will be owned by Union Oil. All
outstanding shares of capital stock of the Company have been validly issued
and are fully paid and nonassessable, and no shares of capital stock of the
Company are subject to, nor have any been issued in violation of,
preemptive or similar rights. Except as contemplated by this Agreement,
neither Union Oil nor the Company is a party to, nor is aware of, any
voting agreement, voting trust or similar agreement or arrangement relating
to any class or series of the Company's capital stock, or any agreement or
arrangement providing for registration rights with respect to any capital
stock or other securities of the Company. All shares of Company Common
Stock to be issued pursuant to the Merger, when issued in accordance with
this Agreement, will be validly issued, fully paid and nonassessable and
will not violate the pre-emptive rights of any person.
(b) As of the date of this Agreement, except as contemplated by this
Agreement and other than as set forth in Section 3.3(a) or 3.3(d), there
are not now, and at the Closing Date there will not be, any (A) shares of
capital stock or other equity securities of the
13
<PAGE>
Company or Sub outstanding or (B) outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any class of capital stock of the Company or Sub, or contracts,
understandings or arrangements to which Union Oil, the Company, Sub, any
affiliate of Union Oil, the Company or Sub is a party, or by which Union
Oil, the Company, Sub, any affiliate of Union Oil, the Company or Sub is or
may be bound, to issue additional shares of capital stock or equity
interests or options, warrants, scrip or rights to subscribe for, or
securities or rights convertible into or exchangeable for, any additional
shares of capital stock or equity interests of the Company or Sub.
(c) All securities which have been offered or sold by the Company and
Sub have been registered pursuant to the Securities Act and applicable
state securities laws or were offered and sold pursuant to valid exemptions
therefrom.
(d) As of the date hereof, the authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $.01 per share, all of
which are validly issued, fully paid and nonassessable and are owned by the
Company.
3.4 Authorization and Validity of Agreement. Each of the Company, Sub and
---------------------------------------
Union Oil has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder, and the execution and
delivery by the Company, Sub and Union Oil of this Agreement and the
consummation by each of them of the transactions contemplated hereby have been
duly authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by each of the Company, Sub and Union Oil and
constitutes, and each other agreement, instrument or document executed or to be
executed by the Company, Sub or Union Oil in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by the Company, Sub or Union Oil, as applicable, and constitutes, or
when executed and delivered will constitute, the valid and binding obligation of
the Company, Sub and Union Oil, enforceable against the Company, Sub and Union
Oil, as applicable, to the extent it is a party thereto, in accordance with
their respective terms, except that such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights generally and (ii) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
3.5 Approvals; No Conflict. Neither the execution and delivery of this
----------------------
Agreement nor the performance by any of the Company, Sub or Union Oil of its
obligations hereunder, nor the consummation of the transactions contemplated
hereby by the Company, Sub or Union Oil, will (i) conflict with the charter or
bylaws, or partnership or joint venture agreement, of the Company, Sub or Union
Oil; (ii) assuming satisfaction of the requirements set forth in clause (iii)
below, violate any provision of law applicable to the Company, Sub or Union Oil;
(iii) except for (A) requirements of federal or state securities laws and (B)
requirements arising out of the HSR Act, if applicable, require any consent or
approval of, or filing with or notice to, any Governmental Entity, domestic or
foreign, under any provision of law applicable to the Company, Sub or Union Oil;
or (iv) except as set forth in Section 3.5 of the Union Oil Disclosure Letter or
Exhibit A, require any consent, approval or notice under, or violate, breach, be
in conflict with or constitute a default (or any event
14
<PAGE>
that, with notice or lapse of time or both, would constitute a default) under,
or permit the termination of any provision of, or result in the creation or
imposition of any lien upon the Assets or any other properties, assets or
business of the Company, Sub or Union Oil under, any note, bond, indenture,
mortgage, deed of trust, lease, franchise, permit, authorization, license,
contract, instrument, partnership agreement or other agreement or commitment or
any order, judgment or decree to which such entity is a party or by which it or
any of its assets or properties is bound or encumbered, except (A) those that
have already been given, obtained or filed and (B) those that, in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on the
Company or the Assets. No Asset is subject to a preferential right to purchase
that is applicable to the transactions contemplated by this Agreement, except
for such rights that, in the aggregate and if exercised, would not have a
Material Adverse Effect on the Company following the Merger.
3.6 Financial Statements. Attached as Section 3.6 of the Union Oil
--------------------
Disclosure Letter are accurate and complete copies of (i) Union Oil's Permian
Basin Properties' audited consolidated balance sheets as of December 31, 1997
and 1998, and the related audited consolidated statements of earnings, owner's
net investment and cash flows for the years ended December 31, 1996, 1997 and
1998, and the notes and schedules thereto (excluding supplemental information on
oil and gas exploration and production disclosure ("SMOG Data"), together with
the unqualified report thereon of PricewaterhouseCoopers, independent public
accountants (the "Audited Financial Statements"), and (ii) Union Oil's Permian
Basin Properties' unaudited consolidated balance sheets as of September 30, 1998
and 1999, and the related unaudited consolidated statements of earnings, parent
company investment and cash flows for the nine-months ended September 30, 1998
and 1999 (the "Unaudited Financial Statements"), certified by Union Oil's chief
financial officer (collectively, the "Financial Statements"), which (i) have
been prepared from the books and records of Union Oil in conformity with GAAP
applied on a consistent basis and (ii) fairly present the financial position of
Union Oil's Permian Basin Properties (which does not include the Excluded
Assets) as of the respective dates thereof and its results of operations and
cash flows for the periods then ended. For purposes of this Agreement, the
"Latest Balance Sheet" means the balance sheet dated September 30, 1999 set
forth in the Unaudited Financial Statements.
3.7 Absence of Undisclosed Liabilities. Neither the Company nor Sub has
----------------------------------
any liabilities or obligations of the type required to be reflected on the
Financial Statements, except (i) liabilities reflected on the Financial
Statements, (ii) liabilities which have arisen since the date of the Latest
Balance Sheet in the ordinary course of business, (iii) liabilities arising
under contracts entered into in the ordinary course of business and (iv) other
liabilities which, in the aggregate, would not have a Material Adverse Effect on
the Company or the Assets.
3.8 Absence of Certain Changes. Since the date of the Latest Balance
--------------------------
Sheet, (i) there has not been any change, development, or effect on the Assets
or the Company, individually or in the aggregate, that has had, or might
reasonably be expected to have, a Material Adverse Effect on the Company or the
Assets; (ii) the operation of the Assets and the business of the Company have
been conducted in the ordinary course consistent with past practice; (iii) the
Company has not incurred any material liability, engaged in any transaction or
entered into any agreement outside the ordinary course of business consistent
with past practice; (iv) the Company or the Assets have not suffered any loss,
damage, destruction or other casualty (whether or not covered by insurance)
which has had,
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<PAGE>
or might reasonably be expected to have, a Material Adverse Effect on the
Company; and (v) neither Union Oil nor the Company has taken any action that
would not be permitted to be taken by such entity under Section 5.1.
3.9 Tax Matters.
-----------
(a) Except as set forth in Section 3.9 of the Union Oil Disclosure
Letter, all Tax Returns of or relating to any Tax that are required to be
filed on or before the Closing Date by or with respect to the Company, Sub
or the Assets have been or will be duly and timely filed other than those
returns on which an immaterial amount of Taxes would properly be shown the
failure of which to file would not have a Material Adverse Effect on the
Company, Sub or the Assets, and all Taxes, including interest and
penalties, due and payable pursuant to such Tax Returns have been or will
be paid. Except as set forth in Section 3.9 of the Union Oil Disclosure
Schedule, there is no material claim against the Company, Sub or the Assets
with respect to any Taxes, and no material assessment, deficiency or
adjustment has been asserted or proposed with respect to any Tax Return of
or with respect to the Company, Sub or the Assets that has not been
adequately provided for in reserves established by the Company. The
Company has (and as of the Closing Date will have) made all deposits
required with respect to Taxes. No waiver or extension of any statute of
limitations as to any federal, local or foreign Tax matter has been given
by or requested from the Company or Sub. Except for statutory liens for
current Taxes not yet due, no lien for Taxes exists upon the Assets of the
Company or Sub.
(b) All ad valorem, property, production, severance and similar Taxes
and assessments based on or measured by the ownership of property or the
production or removal of hydrocarbons or the receipt of proceeds therefrom
and relating to the Assets, to the extent such taxes and assessments have
become due and payable, have been timely paid and all applicable Tax
Returns required to be filed have been filed and there are no material
claims by any applicable Taxing Authority pending against Union Oil, the
Company, Sub or any other subsidiary or parent of Union Oil applicable to
the Assets.
3.10 Compliance With Laws. To the knowledge of the Company, Sub and Union
--------------------
Oil, each of the Company, Sub and (to the extent related to the Assets) Union
Oil and the other subsidiaries of Union Oil (i) has complied with, and is in
compliance with, all Applicable Laws (including without limitation Applicable
Laws relating to securities, properties, production, sales, gathering and
transportation of hydrocarbons, occupational safety and health and product
safety), except for matters which would not reasonably be expected to have a
Material Adverse Effect on the Assets or the Company; (ii) has not received any
written notice, which has not been dismissed or otherwise disposed of, that it
has not so complied; (iii) has not been charged or, to the best knowledge of the
Company, Sub and Union Oil, threatened with or under investigation with respect
to any violation of any Applicable Law; and (iv) except for routine orders of
the Texas Railroad Commission, is not a party to or subject to the provisions of
any judgment, order, writ, injunction, decree or award of any court, arbitrator,
board, panel or Governmental Entity.
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3.11 Litigation. Except as otherwise identified in Section 3.11 of
----------
the Union Oil Disclosure Letter, there are no Proceedings pending or, to the
knowledge of the Company, Sub and Union Oil, threatened against or affecting the
Assets, the Company, Sub or any of the Company's properties at law or in equity,
or before or by any Governmental Entity or before any arbitration board or
panel, wherever located, that individually or in the aggregate if adversely
determined would reasonably be expected to have a Material Adverse Effect on the
Company or the Assets, or that involve the risk of criminal liability.
3.12 Employees; Employee Benefit Plans.
---------------------------------
(a) All "employee benefit plans," as defined in Section 3(3) of ERISA,
maintained or contributed to by the Company, Sub or its affiliates are in
compliance with all applicable provisions of ERISA and the Code, and the
Company, Sub, and its affiliates do not have any liabilities or obligations
with respect to any such employee benefit plans, whether or not accrued,
contingent or otherwise, except for instances of noncompliance or
liabilities or obligations that would not, individually or in the aggregate
have a Material Adverse Effect on the Company. Except as set forth in
Section 3.12 of the Company Disclosure Letter, no employee of the Company
or Sub will be entitled to any additional benefits or any acceleration of
the time of payment or vesting of any benefits under any employee incentive
or benefit plan, program or arrangement as a result of the transactions
contemplated by this Agreement.
(b) Neither the Company nor Sub: (i) is a party to or otherwise bound
by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is any such
contract or agreement presently being negotiated; (ii) is a party to, or
bound by, any consent decree with, or citation by, any governmental agency
relating to employees or employment practices which would reasonably be
expected to have a Material Adverse Effect on the Company; or (iii) is the
subject of any proceeding asserting that it has committed an unfair labor
practice or is seeking to compel it to bargain with any labor union or
labor organization nor, as of the date of this Agreement, is there pending
or, to the knowledge of the Company and Union Oil, threatened, any labor
strike, dispute, walkout, work stoppage, slow-down or lockout involving
Union Oil with respect to the operation of the Assets which, with respect
to any event described in this clause (iii), would reasonably be expected
to have a Material Adverse Effect on the Company.
3.13 Environmental Matters. Except as set forth in Section 3.13 of the
---------------------
Union Oil Disclosure Letter, and except for matters that would not have a
Material Adverse Effect on the Company or the Assets: (i) the properties,
operations and activities of the Company and of Union Oil with respect to the
Assets are in compliance with all applicable Environmental Laws; (ii) the
Company and its properties and operations and the Assets and the operations
thereon are not subject to any existing, pending or, to the knowledge of Union
Oil, threatened action, suit, investigation, inquiry or proceeding by or before
any court or Governmental Entity under any Environmental Law; (iii) all Permits,
if any, required to be obtained or filed by Union Oil with respect to the Assets
or by the Company in connection with the business of the Company under any
Environmental Law have been obtained or filed and are valid and currently in
full force and effect; (iv) there has been no
17
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release of any Hazardous Material, pollutant or contaminant into the environment
by Union Oil on or with respect to the Assets or the Company or in connection
with the Company's properties or operations; (v) there has been no exposure of
any Person or property to any Hazardous Material, pollutant or contaminant in
connection with the properties, operations and activities of the Company or the
Assets; and (vi) Union Oil has made available to Titan all internal and external
environmental audits and studies and all correspondence on substantial
environmental matters (in each case relevant to the Company or the Assets) in
the possession of Union Oil.
3.14 Title to Assets. Union Oil has, and on the Closing Date the Company
---------------
will (subject to Section 2.5) have, good and indefeasible title to the Assets,
subject to Permitted Encumbrances. Without limiting the generality of the
foregoing, Union Oil has, and on the Closing Date the Company will have,
ownership of each well, unit or lease, royalty interest set forth in Exhibit A
which (i) entitles it to receive, after giving effect to the Permitted
Encumbrances, a decimal share of the oil, gas and other hydrocarbons produced
from such well, unit or lease not less than the decimal share set forth in
Exhibit A as the net revenue interest for such well, unit or lease under the
heading "N.I." and (ii) causes it to be obligated to bear a decimal share of the
cost of operation of such well, unit or lease not greater than the decimal share
set forth in Exhibit A as the working interest for such well, unit or lease
under the heading "W.I.", and such shares of production and shares of expenses
are not subject to change except as indicated on Exhibit A or as a result of
non-consent operations.
3.15 No Well Abandonments, No P&A Liabilities. Except as set forth in
----------------------------------------
Section 3.15 of the Union Oil Disclosure Letter, to the knowledge of the
Company, Sub and Union Oil, no proposals are currently outstanding (whether made
by Union Oil, the Company or by any other party) to deepen, plug back, rework or
abandon any wells included in the Assets, to conduct other operations with
respect to the Assets for which consent is required under the applicable
operating agreement, or to conduct any other operations with respect to the
Assets other than routine operation of the producing wells located on the
Properties the cost of which, individually, would not exceed $250,000.
3.16 Production Marketing. The Assets are not subject to any contractual
--------------------
or other arrangements for the sale, processing or transportation of production,
or otherwise relating to the marketing of production, other than contracts or
other arrangements which either (i) will terminate in 92 days or less, or are
subject to cancellation on not more than 92 days' notice, in each case without
penalty or other detriment or (ii) are set forth in Section 3.16 of the Union
Oil Disclosure Letter.
3.17 Gas Balancing, Take or Pay, Allowables. Except as set forth in
--------------------------------------
Section 3.17 of the Union Oil Disclosure Letter, as of the date set forth
therein there was no well included in the Assets with respect to which Union Oil
or its subsidiaries has taken more (referred to herein as "overproduced") or
less (referred to herein as "underproduced") production from such well than the
ownership of such party would entitle such party (absent any gas balancing
agreement or arrangement) to receive. The overproduced and underproduced
positions disclosed in Section 3.17 of the Union Oil Disclosure Letter on a
field by field basis are, in each case, accurate in all material respects as of
the dates shown on such schedule.
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3.18 Leases and Contracts in Force, Operatorship. The oil, gas and/or
-------------------------------------------
mineral leases, interests that comprise parts of the Assets, and all other
material contracts and agreements, including but not limited to transportation
agreements, gas contracts, saltwater disposal agreements, road use agreements,
farmin agreements, farmout agreements, unit agreements, pooling agreements,
joint venture agreements, areas of mutual interest, contract alliances, water
injection agreements, line well injection agreements, gas balancing agreements,
and licenses and permits relating to the Assets (such leases and such material
contracts, agreements, licenses, and permits being herein called the "Union Oil
Basic Documents"), are to Union Oil's knowledge, in full force and effect and
constitute valid and binding obligations of the parties thereto, except for such
agreements, licenses and permits that would not have a Material Adverse Effect
on the Assets or the Company, and, to Union Oil's knowledge, all royalties and
other payments have been and are being properly paid thereunder, except for
royalties held in suspense in accordance with applicable law and customary
industry practice and except for such royalties and other payments of which the
failure to pay would not have a Material Adverse Effect on the Assets or the
Company. Except as set forth in Section 3.18 of the Union Oil Disclosure
Letter, neither Union Oil nor the Company is in breach or default (and, to Union
Oil's knowledge, no situation exists which with the passing of time or giving of
notice would create a breach or default) of its obligations under the Union Oil
Basic Documents, and (to Union Oil's knowledge) no breach or default by any
third party (or situation which with the passage of time or giving of notice
would create a breach or default) exists except for such breaches and defaults
as would not have a Material Adverse Effect on the Assets or the Company. Union
Oil (as of the date of this Agreement) operates, and (on the Closing Date) the
Company will operate, the Assets shown in Exhibit A as being operated by Union
Oil.
3.19 Permits. Except as would not have a Material Adverse Effect on the
-------
Company or the Assets, Union Oil or one of its subsidiaries, as applicable, has
all Permits necessary or appropriate to own and operate the Assets that it
operates as presently being owned and operated, and such Permits are in full
force and effect, and, except as would not have a Material Adverse Effect on the
Company or the Assets, to Union Oil's knowledge, there have not been any
violations with respect to any such Permits. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not
result in any revocation cancellation, suspension or modification of any such
Permit except as would not have a Material Adverse Effect on the Assets or the
Company.
3.20 Current Commitments. To Union Oil's and the Company's knowledge,
-------------------
Section 3.20 of the Union Oil Disclosure Letter contains a true and complete
list as of the date of this Agreement of all authorities for expenditures
("AFEs") to drill or rework any of the Properties, or for other capital
expenditures, involving amounts in excess of $250,000 pursuant to any of the
contracts included in the Assets for which all of the activities anticipated in
such AFEs or commitments have not been completed by the date of this Agreement.
3.21 Tax Partnerships. Except as set forth in Section 3.21 of the Union
----------------
Oil Disclosure Letter, to Union Oil's and the Company's knowledge, none of the
Assets is subject to a tax partnership, including, without limitation, any
operating agreement or other arrangement under which the parties thereto have
not made an effective election pursuant to Section 761 of the Code,
19
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and the Treasury Regulations promulgated thereunder, to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Code.
3.22 No Demands. Except as set forth in Section 3.22 of the Union Oil
----------
Disclosure Letter, neither Union Oil nor the Company has received any notice of
any claimed defaults, offsets or cancellations from any lessors with respect to
the Assets, and to the best knowledge of the Company and Union Oil, there exists
no default existing with respect to any of the Assets or any express or implied
term of any Asset.
3.23 No Other Activities. Except as contemplated by this Agreement, the
-------------------
Company has not engaged in any material business activity.
3.24 Liability for Brokers' Fees. No broker, finder or investment banker
---------------------------
(other than Donaldson, Lufkin & Jenrette, the fees and expenses of which will be
paid by Union Oil) is entitled to any brokerage, finder's fee or other fee or
commission payable by the Company, Union Oil, its parent or any of Union Oil's
subsidiaries in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Union Oil or any of its
subsidiaries or its parent.
3.25 Registration Statement and Proxy Statement/Prospectus Information.
-----------------------------------------------------------------
None of the information furnished by Union Oil or the Company for inclusion in
the Registration Statement and Proxy Statement/Prospectus, at the time the
Registration Statement becomes effective or the Proxy Statement/Prospectus is
first mailed to Titan's stockholders or at the time Titan's stockholders vote on
the transaction or at the Closing Date, will 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 contained therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TITAN
Titan represents and warrants to, Union Oil, the Company and Sub that:
4.1 Organization and Compliance with Law. Each of Titan and its
------------------------------------
consolidated subsidiaries (the "Titan Subsidiaries") is a corporation or
partnership duly organized, validly existing and, to the extent applicable, in
good standing under the laws of the jurisdiction in which it is chartered or
organized and has all requisite corporate or partnership power and corporate or
partnership authority and all necessary governmental authorizations to own,
lease and operate all of its properties and assets and to carry on its business
as now being conducted, except where the failure to be so organized, existing or
in good standing or to have such authority would not reasonably be expected to
have a Material Adverse Effect on Titan and the Titan Subsidiaries. Except as
set forth in Section 4.1(a) of the disclosure letter delivered by Titan to Union
Oil and the Company the date hereof (the "Titan Disclosure Letter"), each of
Titan and the Titan Subsidiaries is duly qualified as a foreign corporation or
partnership to do business, and, to the extent applicable, is in good standing,
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in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except in such jurisdictions where the failure to be duly qualified does not and
would not, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Titan and the Titan Subsidiaries. Each of
Titan and the Titan Subsidiaries is in compliance with all applicable laws,
judgments, orders, rules and regulations, domestic and foreign, except where
failure to be in such compliance would not reasonably be expected to have a
Material Adverse Effect on Titan and the Titan Subsidiaries, taken as a whole.
Except as set forth in Section 4.1(b) of the Titan Disclosure Schedule, no
action or proceedings to dissolve Titan or any Titan Subsidiary are pending.
Titan has heretofore made available to Union Oil true and complete copies of (i)
Titan's Certificate of Incorporation, as amended, and bylaws as in existence on
the date hereof and (ii) the minutes of all meetings of the Board of Director of
Titan, and committees of such Board, and the stockholders of Titan. Other than
the Titan Subsidiaries, Titan does not beneficially own or control, directly or
indirectly, 5% or more of any class of equity or similar securities of any
person, whether incorporated or unincorporated.
4.2 Capitalization.
--------------
(a) The authorized capital stock of Titan consists of 60,000,000
shares of Titan Common Stock and 10,000,000 shares of preferred stock, par
value $.01 per share (of which 515,000 shares are designated as Series A
Junior Participating Preferred Stock). As of the date of this Agreement,
there were issued and outstanding 40,189,843 shares of Titan Common Stock,
3,804,000 shares of Titan Common Stock were held as treasury shares and no
shares of Series A Junior Participating Preferred Stock were outstanding
(all of which shares of Series A Junior Participating Preferred Stock are
reserved for issuance in accordance with the Rights Agreement (the "Titan
Rights Agreement"), dated as of June 10, 1999, between Titan and First
Union National Bank, as Rights Agent, as amended, pursuant to which Titan
has issued rights ("Titan Rights") to purchase the Series A Junior
Participating Preferred Stock). As of the date of this Agreement, an
aggregate of 1,133,175 shares of Titan Common Stock were reserved for
issuance and issuable pursuant to the Titan Exploration, Inc. Option Plan,
1996 Incentive Plan and 1999 Non-Officer Stock Option Plan and the Offshore
Energy Development Corporation 1996 Stock Awards Plan or upon the exercise
of outstanding employee or non-employee director stock options granted
under Titan's stock option plans and agreements. All issued shares of Titan
Common Stock are validly issued, fully paid and nonassessable and were not
issued in violation of any preemptive rights. Except as contemplated by
this Agreement or set forth in Section 4.2(a) of the Titan Disclosure
Schedule, Titan is not a party to, and is not aware of, any voting
agreement, voting trust or similar agreement or arrangement relating to any
class or series of its capital stock, or any agreement or arrangement
providing for registration rights with respect to any capital stock or
other securities of Titan or any Common Stock issuable in respect of
securities of Titan upon consummation of the Merger.
(b) As of the date of this Agreement, there were outstanding options
to purchase 1,067,743 shares of Titan Common Stock pursuant to the plans
referenced in Section 4.2(a) above (the "Titan Options"). Other than as set
forth in this Section 4.2 and except for issuances contemplated by this
Agreement, there are not now, and at the Closing Date there
21
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will not be, any (A) shares of capital stock or other equity securities of
Titan outstanding (other than Titan Common Stock issued pursuant to the
exercise of Titan Options as described herein) or (B) except for (i)
options granted pursuant to any of the plans referenced above, and (ii) the
Titan Rights Agreement, outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
any class of capital stock of Titan, or contracts, understandings or
arrangements to which Titan is a party, or by which it is or may be bound,
to issue, transfer, sell, redeem or repurchase shares of its capital stock
or options, warrants, scrip or rights to subscribe for, or securities or
rights convertible into or exchangeable for, any additional shares of its
capital stock.
(c) Except as set forth in Section 4.2 of the Titan Disclosure
Letter, all outstanding shares of capital stock of the Titan Subsidiaries
are validly issued, fully paid and nonassessable and are owned by Titan or
a wholly-owned subsidiary of Titan. As of the date of this Agreement, there
were no outstanding options, warrants, scrip, rights to subscribe for,
calls or commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of any class of
capital stock of any Titan Subsidiary, or contracts, understandings or
arrangements to which any Titan Subsidiary is a party, or by which it is or
may be bound, to issue, transfer, sell, redeem or repurchase shares of its
capital stock or options, warrants, scrip or rights to subscribe for, or
securities or rights convertible into or exchangeable for, any additional
shares of capital stock of any Titan Subsidiary.
4.3 Authorization and Validity of Agreement. Titan has all requisite
---------------------------------------
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder, and the execution and delivery by Titan of this Agreement
and the consummation by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action (subject only to the approval
thereof by the stockholders of Titan described in Section 6.4 ("Stockholder
Approval")). On or prior to the date of this Agreement, (i) the Board of
Directors of Titan has received an opinion of Petrie Parkman & Co. dated the
date hereof to the effect that the Exchange Ratio is fair, from a financial
point of view, to the stockholders of Titan (a copy of which opinion has been
delivered to Union Oil), and (ii) the Board of Directors of Titan has
unanimously determined to recommend the approval of the transaction to the
stockholders of Titan, and such determination is in effect as of the date
hereof. This Agreement has been duly executed and delivered by Titan and
constitutes, and each other agreement, instrument or document executed or to be
executed by Titan in connection with the transactions contemplated hereby has
been, or when executed will be, duly executed and delivered by Titan and
constitutes, or when executed and delivered will constitute, the valid and
binding obligation of Titan, enforceable against Titan, in accordance with their
respective terms, except that such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights generally and (ii) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
4.4 Approvals; No Conflict. Subject to Stockholder Approval, neither the
----------------------
execution and delivery of this Agreement nor the performance by Titan of its
obligations hereunder, nor the
22
<PAGE>
consummation of the transactions contemplated hereby by Titan, will (i) conflict
with the charter or bylaws, or partnership or joint venture agreement, of Titan
or of any of the Titan Subsidiaries; (ii) assuming satisfaction of the
requirements set forth in clause (iii) below, violate any provision of law
applicable to Titan or any of the Titan Subsidiaries; (iii) except for (A)
requirements of federal or state securities laws and (B) requirements arising
out of the HSR Act, if applicable, require any consent or approval of, or filing
with or notice to, any Governmental Entity, domestic or foreign, under any
provision of law applicable to Titan or any of the Titan Subsidiaries; or (iv)
except as set forth in Section 4.4 of the Titan Disclosure Letter, require any
consent, approval or notice under, or violate, breach, be in conflict with or
constitute a default (or any event that, with notice or lapse of time or both,
would constitute a default) under, or permit the termination of any provision
of, or result in the creation or imposition of any lien upon any properties,
assets or business of Titan or any of the Titan Subsidiaries under, any note,
bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument, partnership agreement or other
agreement or commitment or any order, judgment or decree to which such entity is
a party or by which it or any of its assets or properties is bound or
encumbered, except (A) those that have already been given, obtained or filed,
(B) those that are required pursuant to bank loan agreements, which will be
obtained prior to the Closing Date, and (C) those that if not obtained, in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Surviving Corporation. No property of Titan or any of the Titan Subsidiaries
is subject to a preferential right to purchase that is applicable to the
transactions contemplated by this Agreement, except for such rights that, in the
aggregate and if exercised, would not have a Material Adverse Effect on Titan
following the Merger .
4.5 Commission Filings; Financial Statements.
----------------------------------------
(a) Titan and each of the Titan Subsidiaries have filed all reports,
registration statements and other filings, together with any amendments
required to be made with respect thereto, that they have been required to
file with the Commission under the Securities Act and the Exchange Act. All
reports, registration statements and other filings (including all notes,
exhibits and schedules thereto and documents incorporated by reference
therein) filed by Titan with the Commission since December 31, 1996,
through the date of this Agreement, together with any amendments thereto,
are sometimes collectively referred to as the "Titan Commission Filings."
As of the respective dates of their filing with the Commission, the Titan
Commission Filings complied in all material respects with the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder, and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading.
(b) Each of the consolidated financial statements (including any
related notes or schedules) included in the Titan Commission Filings was
prepared in accordance with GAAP applied on a consistent basis (except as
may be noted therein or in the notes or schedules thereto) and complied
with all applicable rules and regulations of the Commission. Such
consolidated financial statements fairly present the consolidated financial
position of Titan and the Titan Subsidiaries as of the dates thereof and
the results of operations, cash flows and changes in shareholders' equity
for the periods then ended (subject, in the case of the
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unaudited interim financial statements, to normal year-end audit
adjustments on a basis comparable with past periods).
4.6 Absence of Undisclosed Liabilities. Neither Titan nor any Titan
----------------------------------
Subsidiary has any liabilities or obligations of the type required to be
reflected on the financial statements of Titan included in the Commission
Filings, except (i) liabilities which have arisen in the ordinary course of
business, (ii) liabilities arising under contracts entered into in the ordinary
course of business and (iii) other liabilities which, in the aggregate, would
not have a Material Adverse Effect on Titan.
4.7 Absence of Certain Changes. Except as set forth in Section 4.7 of
--------------------------
the Titan Disclosure Letter or (with respect to the period from the date of this
Agreement to and including the Closing) as contemplated by this Agreement, since
September 30, 1999, (i) there has not been any change, development, or effect on
Titan or the Titan Subsidiaries, individually or in the aggregate, that has had,
or might reasonably be expected to have, a Material Adverse Effect on Titan;
(ii) the business of Titan has been conducted in the ordinary course consistent
with past practice; (iii) neither Titan nor any Titan Subsidiary has incurred
any material liability or engaged in any transaction or entered into any
agreement outside the ordinary course of business consistent with past practice;
(iv) neither Titan nor any Titan Subsidiary has suffered any loss, damage,
destruction or other casualty to any of its assets (whether or not covered by
insurance) which has had, or might reasonably be expected to have, a Material
Adverse Effect on Titan; and (v) neither Titan nor any Titan Subsidiary has
taken any action that would not be permitted to be taken by such entity under
Section 5.2.
4.8 Tax Matters.
-----------
(a) Except as set forth in Section 4.8 of the Titan Disclosure
Schedule, Titan and the Titan Subsidiaries have timely filed, or has had filed
on its behalf in a timely manner (within any applicable extension periods), with
the appropriate Taxing Authority all Tax Returns with respect to Taxes of Titan
and each of the Titan Subsidiaries, other than those returns on which an
immaterial amount of Taxes would properly be shown the failure of which to file
would not have a Material Adverse Effect on Titan. All such Tax Returns were
correct and complete in all material respects. All Taxes, including interest
and penalties, owed by Titan and the Titan Subsidiaries (whether or not shown on
any Tax Return) have been or will be paid.
(b) Except as set forth in Section 4.8 of the Titan Disclosure
Schedule, all ad valorem, property, production, severance and similar Taxes and
assessments based on or measured by the ownership of property or the production
or removal of hydrocarbons or the receipt of proceeds therefrom and relating to
the assets of Titan and the Titan Subsidiaries, to the extent such Taxes and
assessments have become due and payable, have been timely paid and all
applicable Tax Returns required to be filed have been filed and there are no
claims by any applicable Taxing Authority pending against Titan and the Titan
Subsidiaries applicable to the assets of Titan and the Titan Subsidiaries
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(c) All Taxes shown to be due and payable on all filed Tax Returns
of or with respect to Titan and the Titan Subsidiaries have been paid in full or
have been provided for in Titan's filings with the Commission in accordance with
GAAP.
(d) Except as set forth in Section 4.8 of the Titan Disclosure
Schedule, there are no outstanding agreements or waivers extending the statutory
period of limitations applicable to any federal, state, local or foreign income
or other material Tax Returns required to be filed by or with respect to Titan
or any of the Titan Subsidiaries.
(e) Except as set forth in Section 4.8 of the Titan Disclosure
Schedule, none of the Tax Returns of or with respect to Titan or any of the
Titan Subsidiaries is currently being audited or examined by any Taxing
Authority; and no material claim has ever been made by an authority in a
jurisdiction where Titan and the Titan Subsidiaries do not file Tax Returns that
such parties are or may be subject to taxation by that jurisdiction.
(f) There is no material claim against Titan or any of the Titan
Subsidiaries with respect to any Taxes, and no material assessment, deficiency
or adjustment has been asserted or proposed with respect to any Tax Return of or
with respect to Titan or any of the Titan Subsidiaries that has not been
adequately provided for in reserves established by Titan or any of the Titan
Subsidiaries. Titan and the Titan Subsidiaries have (and as of the Closing Date
will have) made all deposits required with respect to Taxes.
(g) Except as set forth in Section 4.8 of the Titan Disclosure
Schedule, there are no liens on any of the assets of Titan or any of the Titan
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax, other than liens for Taxes not yet due.
(h) Except as set forth in Section 4.8 of the Titan Disclosure
Schedule, the unpaid Taxes of Titan and the Titan Subsidiaries (A) did not
exceed the reserve for Tax Liability (rather than any reserve for deferred taxes
established to reflect timing differences between book and tax income) set forth
on the face of the most recent financial statements of Titan included in the
Titan Commission Filings (rather than in any notes thereto) and (B) will not
exceed by any material amount that reserve as adjusted for operations and
transactions through the Closing Date in accordance with past custom and
practice of Titan and the Titan Subsidiaries in filing their Tax Returns.
4.9 Compliance With Laws. To the knowledge of Titan, each of Titan and
--------------------
Titan Subsidiaries (i) has complied with, and is in compliance with, all
Applicable Laws (including without limitation Applicable Laws relating to
securities, properties, production, sales, gathering and transportation of
hydrocarbons, occupational safety and health and product safety), except for
matters which would not reasonably be expected to have a Material Adverse Effect
on Titan; (ii) has not received any written notice, which has not been dismissed
or otherwise disposed of, that it has not so complied; (iii) has not been
charged or, to the best knowledge of Titan, threatened with or under
investigation with respect to any violation of any Applicable Law; and (iv)
except for routine orders of the Texas Railroad Commission, is not a party to or
subject to the provisions of any judgment, order, writ, injunction, decree or
award of any court, arbitrator, board, panel or Governmental Entity.
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4.10 Litigation. Except as disclosed in the Titan Commission Filings or
----------
as set forth in Section 4.10 of the Titan Disclosure Letter, there are no
Proceedings pending or, to the knowledge of Titan, threatened against or
affecting Titan or any of the Titan Subsidiaries or any of their respective
properties at law or in equity, or before or by any Governmental Entity, or
before any arbitration board or panel, wherever located, that individually or in
the aggregate if adversely deter mined would reasonably be expected to have a
Material Adverse Effect on Titan, or that involve the risk of criminal
liability.
4.11 Voting Requirements. The affirmative vote of the holders of a
-------------------
majority of the outstanding shares of Titan Common Stock and the affirmative
vote of the holders of a majority of the shares of Titan Common Stock, other
than shares held by officers of Titan, present at the Titan special
stockholders' meeting convened in accordance with Section 6.4 and entitled to
vote thereon are the only votes of the holders of any class or series of the
capital stock of Titan necessary to approve this Agreement.
4.12 Employees; Employee Benefit Plans.
---------------------------------
(a) All "employee benefit plans," as defined in Section 3(3) of
ERISA, maintained or contributed to by Titan or the Titan Subsidiaries are
in compliance with all applicable provisions of ERISA and the Code, and
Titan and the Titan Subsidiaries do not have any liabilities or obligations
with respect to any such employee benefit plans, whether or not accrued,
contingent or otherwise, except for instances of noncompliance or
liabilities or obligations that would not, individually or in the
aggregate, have a Material Adverse Effect on Titan. Except as set forth in
Section 4.12 of the Titan Disclosure Letter, no employee of Titan or any of
the Titan Subsidiaries will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any
employee incentive or benefit plan, program or arrangement as a result of
the transactions contemplated by this Agreement.
(b) Neither Titan nor any of the Titan Subsidiaries: (i) is a party
to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization,
nor is any such contract or agreement presently being negotiated, nor is
there, nor has there been in the last five years, a representation question
respecting any of the employees of Titan or the Titan Subsidiaries, and, to
the knowledge of Titan, there are no campaigns being conducted to solicit
cards from employees of Titan or the Titan Subsidiaries to authorize
representation by any labor organization; (ii) is a party to, or bound by,
any consent decree with, or citation by, any governmental agency relating
to employees or employment practices which would reasonably be expected to
have a Material Adverse Effect on Titan; or (iii) is the subject of any
proceeding asserting that it has committed an unfair labor practice or is
seeking to compel it to bargain with any labor union or labor organization
nor, as of the date of this Agreement, is there pending or, to the
knowledge of Titan, threatened, any labor strike, dispute, walkout, work
stoppage, slow-down or lockout involving Titan or any of the Titan
Subsidiaries which, with respect to any event described in this clause
(iii), would reasonably be expected to have a Material Adverse Effect on
Titan.
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4.13 Environmental Matters. Except as set forth in Section 4.13 of the
---------------------
Titan Disclosure Letter and except for matters that would not have a Material
Adverse Effect on Titan: (i) the properties, operations and activities of Titan
and the Titan Subsidiaries are in compliance with all applicable Environmental
Laws; (ii) Titan, the Titan Subsidiaries and their properties and operations and
the operations thereon are not subject to any existing, pending or, to the
knowledge of Titan, threatened action, suit, investigation, inquiry or
proceeding by or before any court or Governmental Entity under any Environmental
Law; (iii) all Permits, if any, required to be obtained or filed by Titan and
the Titan Subsidiaries in connection with the business of Titan and the Titan
Subsidiaries under any Environmental Law have been obtained or filed and are
valid and currently in full force and effect; (iv) there has been no release of
any Hazardous Material, pollutant or contaminant into the environment by Titan
or the Titan Subsidiaries or in connection with their properties or operations;
(v) there has been no exposure of any Person or property to any Hazardous
Material, pollutant or contaminant in connection with the properties, operations
and activities of Titan or the Titan Subsidiaries; and (vi) Titan and the Titan
Subsidiaries have made available to Union Oil all internal and external
environmental audits and studies and all correspondence on substantial
environmental matters in the possession of Titan and the Titan Subsidiaries.
4.14 Title to Assets. Each of Titan and the Titan Subsidiaries has, and
---------------
on the Closing Date will have, good and indefeasible title to its assets.
Without limiting the generality of the foregoing, each of Titan and the Titan
Subsidiaries has, and on the Closing Date will have, ownership of each well,
unit, lease or royalty interest set forth in Section 4.14 of the Titan
Disclosure Schedule which (i) entitles it to receive, after giving effect to the
Permitted Encumbrances, a decimal share of the oil, gas and other hydrocarbons
produced from such well, unit or lease not less than the decimal share set forth
in Section 4.14 of the Titan Disclosure Schedule as the "Net Revenue Interest"
for such well, unit or lease and (ii) causes it to be obligated to bear a
decimal share of the cost of operation of such well, unit or lease not greater
than the decimal share set forth in Section 4.14 of the Titan Disclosure
Schedule as the "Working Interest" for such well, unit or lease, and such shares
of production and shares of expenses are not subject to change except as
indicated in Section 4.14 of the Titan Disclosure Schedule or as a result of
non-consent operations.
4.15 No Well Abandonments, No P&A Liabilities. Except as set forth in
----------------------------------------
Section 4.15 of the Titan Disclosure Letter, to the knowledge of Titan, no
proposals are currently outstanding (whether made by Titan, the Titan
Subsidiaries or by any other party) to deepen, plug back, rework or abandon any
wells included in the assets of Titan and the Titan Subsidiaries, to conduct
other operations with respect to the assets of Titan and the Titan Subsidiaries
for which consent is required under the applicable operating agreement, or to
conduct any other operations with respect to the assets of Titan and the Titan
Subsidiaries other than routine operation of the producing wells located on the
Properties the cost of which, individually, would not exceed $250,000.
4.16 Production Marketing. The assets of Titan and the Titan Subsidiaries
--------------------
are not subject to any contractual or other arrangements for the sale,
processing or transportation of production, or otherwise relating to the
marketing of production, other than contracts or other arrangements which either
(i) will terminate in 92 days or less, or are subject to cancellation on not
more than 92 days' notice, in each case without penalty or other detriment or
(ii) are set forth in Section 4.16 of the Titan Disclosure Letter.
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4.17 Gas Balancing, Take or Pay, Allowables. Except as set forth in
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Section 4.17 of the Titan Disclosure Letter, as of the date set forth therein
there was no well included in the assets of Titan and the Titan Subsidiaries
with respect to which Titan, or the Titan Subsidiaries, has taken more (referred
to herein as "overproduced") or less (referred to herein as "underproduced")
production from such well than the ownership of such party would entitle such
party (absent any gas balancing agreement or arrangement) to receive. The
overproduced and underproduced positions disclosed in Section 4.17 of the Titan
Disclosure Letter are on a field by field basis, in each case, accurate in all
material respects as of the dates shown on such schedule.
4.18 Leases and Contracts in Force, Operatorship. The oil, gas and/or
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mineral leases, interests, and all other material contracts and agreements,
including but not limited to transportation agreements, gas contracts, saltwater
disposal agreements, road use agreements, farmin agreements, farmout agreements,
unit agreements, pooling agreements, joint venture agreements, areas of mutual
interest, contract alliances, water injection agreements, line well injection
agreements, gas balancing agreements, and licenses and permits relating to such
assets of Titan and the Titan Subsidiaries (such leases and such material
contracts, agreements, licenses, and permits being herein called the "Titan
Basic Documents"), are to Titan's knowledge, in full force and effect and
constitute valid and binding obligations of the parties thereto, except for such
agreements, licenses and permits that would not have a Material Adverse Effect
on Titan, and, to Titan's knowledge, all royalties and other payments have been
and are being properly paid thereunder, except for royalties held in suspense in
accordance with applicable law and customary industry practice and except for
such royalties and other payments of which the failure to pay would not have a
Material Adverse Effect on Titan. Neither Titan nor any of the Titan
Subsidiaries is in breach or default (and, to Titan's knowledge, no situation
exists which with the passing of time or giving of notice would create a breach
or default) of its obligations under the Titan Basic Documents, and (to Titan's
knowledge) no breach or default by any third party (or situation which with the
passage of time or giving of notice would create a breach or default) exists
except for such breaches and defaults as would not have a Material Adverse
Effect on Titan. Titan, or the Titan Subsidiaries (as of the date of this
Agreement), operates, and (on the Closing Date) Titan, or the Titan
Subsidiaries, will operate, the assets shown in Section 4.14 of the Titan
Disclosure Letter as being operated by Titan or the Titan Subsidiaries.
4.19 Permits. Except as would not have a Material Adverse Effect on
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Titan, Titan or one of the Titan Subsidiaries, as applicable, has all Permits
necessary or appropriate to own and operate the assets that they operate as
presently being owned and operated, and such Permits are in full force and
effect, and, except as would not have a Material Adverse Effect on Titan, to
Titan's knowledge, there have not been any violations with respect to any such
Permits. Such Permits are in full force and effect, and to the knowledge of
Titan, there have not been any material violations with respect to any such
Permits. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not result in any revocation
cancellation, suspension or modification of any such Permit except as would not
have a Material Adverse Effect on Titan.
4.20 Current Commitments. To Titan's knowledge, Section 4.20 of the Titan
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Disclosure Letter contains a true and complete list as of the date of this
Agreement of all AFEs to drill or rework any of the properties of Titan and the
Titan Subsidiaries, or for other capital expenditures, involving amounts in
excess of $250,000 pursuant to any of the contracts included in the assets of
Titan and
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the Titan Subsidiaries for which all of the activities anticipated in such AFEs
or commitments have not been completed by the date of this Agreement.
4.21 Tax Partnerships. Except as set forth in Section 4.21 of the Titan
----------------
Disclosure Letter, to Titan's knowledge, none of the assets of Titan or the
Titan Subsidiaries is subject to a tax partnership, including, without
limitation, any operating agreement or other arrangement under which the parties
thereto have not made an effective election pursuant to Section 761 of the Code,
and the Treasury Regulations promulgated thereunder, to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Code.
4.22 Liability for Brokers' Fees. No broker, finder or investment banker
---------------------------
(other than Petrie Parkman & Co., Inc., the fees and expenses of which will be
paid by Titan) is entitled to any brokerage, finder's fee or other fee or
commission payable by Titan or any of the Titan Subsidiaries in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Titan or any of the Titan Subsidiaries. True and correct copies
of all agreements and engagement letters currently in effect with Petrie Parkman
& Co., Inc. (the "Titan Engagement Letters") have been provided to Union Oil.
4.23 Anti-Takeover Provisions. Titan and the Board of Directors of Titan
------------------------
have each taken all action required to be taken by it in order to exempt this
Agreement, and the transactions contemplated hereby from, and this Agreement and
the transactions contemplated hereby are exempt from, the requirements of any
"moratorium," "control share," "fair price," "affiliate transaction," "business
combination" or other antitakeover laws and regulations of any state, including,
without limitation, the State of Delaware, and including, without limitation,
Section 203 of the DGCL. Neither the execution of this Agreement, the Voting
Agreement, the Stockholders Voting Agreement nor the consummation of any of the
transactions contemplated hereby or thereby will trigger any event under the
Titan Rights Agreement or result in any adverse consequence to Union Oil
thereunder. Titan has taken all action that may be necessary under the Titan
Rights Agreement so that (i) the execution of this Agreement, t