Agreement And Plan of Merger

Exhibit 10.1


AGREEMENT AND PLAN OF MERGER


By and Among


PLAINS EXPLORATION & PRODUCTION COMPANY,


PXP GULF COAST INC.


and


3TEC ENERGY CORPORATION


Dated as of February 2, 2003


TABLE OF CONTENTS


ARTICLE I THE MERGER......................................................... 1
1.1 The Merger........................................................ 1
1.2 Effective Time of the Merger...................................... 1
1.3 Tax Treatment..................................................... 2


ARTICLE II THE SURVIVING CORPORATION......................................... 2
2.1 Certificate of Incorporation...................................... 2
2.2 Bylaws............................................................ 2
2.3 Directors and Officers............................................ 2


ARTICLE III CONVERSION OF SHARES............................................. 2
3.1 Conversion of Capital Stock....................................... 2
3.2 Surrender and Payment............................................. 5
3.3 Stock Options; Warrants; Restricted Stock......................... 6
3.4 No Fractional Shares.............................................. 7
3.5 Dissenter's Rights................................................ 7
3.6 Closing........................................................... 7


ARTICLE IV REPRESENTATIONS AND WARRANTIES OF TARGET.......................... 8
4.1 Organization and Qualification.................................... 8
4.2 Capitalization.................................................... 8
4.3 Authority......................................................... 9
4.4 Consents and Approvals; No Violation.............................. 9
4.5 Target SEC Reports................................................ 10
4.6 Financial Statements.............................................. 11
4.7 Absence of Undisclosed Liabilities; Liabilities as of Year End.... 11
4.8 Absence of Certain Changes........................................ 11
4.9 Taxes............................................................. 11
4.10 Litigation........................................................ 13
4.11 Employee Benefit Plans; ERISA..................................... 13
4.12 Environmental Liability........................................... 15
4.13 Compliance with Applicable Laws................................... 16
4.14 Insurance......................................................... 16
4.15 Labor Matters; Employees.......................................... 16
4.16 Reserve Reports................................................... 17
4.17 Permits........................................................... 18
4.18 Material Contracts................................................ 18
4.19 Required Stockholder Vote or Consent.............................. 18
4.20 Proxy/Prospectus; Registration Statement.......................... 19
4.21 Intellectual Property............................................. 19
4.22 Hedging........................................................... 19
4.23 Brokers........................................................... 19
4.24 Tax-Free Reorganization........................................... 20
4.25 Fairness Opinion.................................................. 23
4.26 Takeover Laws..................................................... 23


i


ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............ 23
5.1 Organization and Qualification.................................... 23
5.2 Capitalization.................................................... 24
5.3 Authority......................................................... 25
5.4 Consents and Approvals; No Violation.............................. 25
5.5 Parent SEC Reports................................................ 26
5.6 Parent Financial Statements....................................... 26
5.7 Absence of Undisclosed Liabilities................................ 27
5.8 Absence of Certain Changes........................................ 27
5.9 Taxes............................................................. 27
5.10 Litigation........................................................ 28
5.11 Employee Benefit Plans; ERISA..................................... 29
5.12 Environmental Liability........................................... 30
5.13 Compliance with Laws and Parent Material Contracts................ 31
5.14 Insurance......................................................... 32
5.15 Labor Matters; Employees.......................................... 32
5.16 Reserve Reports................................................... 33
5.17 Permits........................................................... 33
5.18 Required Stockholder Vote or Consent.............................. 33
5.19 Proxy/Prospectus; Registration Statement.......................... 33
5.20 Intellectual Property............................................. 34
5.21 Hedging........................................................... 34
5.22 Brokers........................................................... 34
5.23 Tax Matters....................................................... 34


ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER............................ 38
6.1 Conduct of Business by Target Pending the Merger.................. 38
6.2 Conduct of Business by Parent Pending the Merger.................. 40


ARTICLE VII ADDITIONAL AGREEMENTS............................................ 42
7.1 Access and Information............................................ 42
7.2 Acquisition Proposals............................................. 42
7.3 Directors' and Officers' Indemnification and Insurance............ 43
7.4 Further Assurances................................................ 44
7.5 Expenses.......................................................... 45
7.6 Cooperation....................................................... 45
7.7 Publicity......................................................... 45
7.8 Additional Actions................................................ 45
7.9 Filings........................................................... 46
7.10 Consents.......................................................... 46
7.11 Employee Matters; Benefit Plans................................... 46
7.12 Board, Committees and Executive Officers.......................... 46
7.13 Stockholders' Meetings............................................ 46
7.14 Preparation of the Proxy/Prospectus and Registration Statement.... 47
7.15 Stock Exchange Listing............................................ 48
7.16 Notice of Certain Events.......................................... 48


ii


7.17 Site Inspections.................................................. 49
7.18 Affiliate Agreements; Tax Treatment............................... 49
7.19 Stockholder Litigation............................................ 50
7.20 Certain Parent Board Approvals.................................... 50
7.21 Optional Redemption or Liquidation of Target D Preferred Shares... 50


ARTICLE VIII CONDITIONS TO CONSUMMATION OF THE MERGER........................ 50
8.1 Conditions to the Obligation of Each Party........................ 50
8.2 Conditions to the Obligations of Parent........................... 51
8.3 Conditions to the Obligations of Target........................... 52


ARTICLE IX SURVIVAL.......................................................... 53
9.1 Survival of Representations and Warranties........................ 53
9.2 Survival of Covenants and Agreements.............................. 53


ARTICLE X TERMINATION, AMENDMENT AND WAIVER.................................. 53
10.1 Termination....................................................... 53
10.2 Effect of Termination............................................. 54


ARTICLE XI MISCELLANEOUS..................................................... 55
11.1 Notices........................................................... 55
11.2 Severability...................................................... 57
11.3 Assignment........................................................ 57
11.4 Interpretation.................................................... 57
11.5 Counterparts...................................................... 57
11.6 Entire Agreement.................................................. 57
11.7 Governing Law..................................................... 57
11.8 Submission to Jurisdiction........................................ 57
11.9 Attorneys' Fees................................................... 57
11.10 No Third Party Beneficiaries...................................... 57
11.11 Disclosure Schedules.............................................. 57
11.12 Amendments and Supplements........................................ 58
11.13 Extensions, Waivers, Etc.......................................... 58


iii


INDEX OF DEFINED TERMS


Term Section Additional Cash 3.1(b)(i) Affiliated Group 4.24(y)(ii) Agreement Preamble Ancillary Agreements 4.3 Assessment 7.17 Audit 4.9(f) Cash Consideration 3.1(b)(i) Closing 3.6 Closing Date 3.6 Code Preamble Common Conversion Consideration 3.1(b)(i) Common Stock Certificate 3.1(b)(i) Common Stock Merger Consideration 3.1(b)(i) Confidentiality Agreements 7.1 Contract Employees 4.11(e) Customary Post-Closing Consents 4.4(b) D&O Insurance 7.3(c) de minimis Shares 3.1(b)(i) DGCL 1.1 Director Nominees 7.12 Dissenting Shares 3.5 Dissenting Stockholder 3.5 Effective Time 1.2 Enforceability Exception 4.3 Environmental Laws 4.12(a) ERISA 4.11(a) Exchange Act 4.4(b) Exchange Agent 3.2(a) Exchange Fund 3.2(a) Exchange Instructions 3.2(b) Exchange Ratio 3.1(b)(i) Expense Cap 10.2(b)(i) Expenses 7.5(b) GAAP 4.6 Governmental Authority 3.2(c) Hazardous Substances 4.12(b) Hydrocarbons 4.16(a) Indemnified Liabilities 7.3(a) Indemnified Party 7.3(a) Inspected Party 7.17 Inspecting Party 7.17 Intellectual Property 4.21 Liens 4.4(e) Market Price 3.1(b)(iii) Merger Preamble Merger Consideration 3.1(a) Merger Sub Preamble Minimum Market Price 3.1(b)(iii) Oil and Gas Interests 4.16(a) Parent Preamble Parent Benefit Plans 5.11(a) Parent Common Shares 3.1(b)(i)(y) Parent Disclosure Schedule 5.1(a), 5.2(b) Parent Engagement Letters 5.22 Parent ERISA Affiliate 5.11(a) Parent Incentive Plan 7.13(b) Parent Material Adverse Effect 5.1(c) Parent Material Contract 5.13 Parent Parties Preamble Parent Reserve Report 5.16(a) Parent SEC Reports 5.5 Parent Share Issuance Approval 5.18 Parent Special Meeting 7.13(b) Parent Stockholders' Approval 7.13(b) Parent Tax Certificate 8.3(c) PBGC 4.11(b), 5.11(b) PCBs 4.12(e) Permits 4.17 Person 3.2(c) Preferred Conversion Consideration 3.1(c) Preferred Stock Certificate 3.1(c) Preferred Stock Merger Consideration 3.1(c) proceeding 7.3(a) Proxy/Prospectus 4.20 Registration Statement 4.20 Related Person 4.24 SEC 4.5 Securities Act 4.4(b) Severance Package Table 4.11(e) Stock Certificates 3.1(c) Stock Consideration 3.1(b)(i) Subsidiary 4.1(c) Surviving Corporation 1.1 Target Preamble Target Acquisition Proposal 7.2 Target B Preferred Shares 4.2 Target Benefit Plans 4.11(a) Target Breach 10.1(d) Target Common Shares 3.1(a) Target D Preferred Shares 3.1(c) Target Disclosure Schedule 4.1(a) Target Employee Agreement 4.11(a) Target Employees 4.11(e) Target Engagement Letter 4.23 Target ERISA Affiliate 4.11(a) Target Material Adverse Effect 4.1(c) Target Material Contracts 4.18(a) Target Reserve Report 4.16(a) Target Restricted Stock 3.3(c) Target SEC Reports 4.5 Target Severance Policy 4.11(e) Target Special Meeting 7.13(a)


iv


Term Section Target Stock Options 3.3(a)(i) Target Stockholders' Approval 4.19 Target Superior Proposal 10.1(h) Target Tax Certificate 8.2(c) Target Wararnts 4.24(d) Tax Authority 4.9(f) Tax Returns 4.9(f) Taxes 4.9(f) Termination Date 10.1(b) $3.00 Warrant Consideration 3.3(b) Termination Fee 10.2(b)(i) Transactions 3.6 Voting Agreements Preamble WARN Act 4.15(b)


Exhibits


7.13(b) Parent Incentive Plan


7.18 Affiliate Agreement


8.2(c) Target Tax Certificate


8.3(c) Parent and Merger Sub Tax
Certificate


v


AGREEMENT AND PLAN OF MERGER


This Agreement and Plan of Merger (this "Agreement") dated February 2, 2003, by and among Plains Exploration & Production Company, a Delaware corporation ("Parent"), PXP Gulf Coast Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub," and, together with Parent, the "Parent Parties") and 3TEC Energy Corporation, a Delaware corporation ("Target").


WHEREAS, the respective Boards of Directors of the Parent Parties and Target deem it advisable and in the best interests of their respective corporations and stockholders that Target merge with and into Merger Sub (the "Merger") upon the terms and subject to the conditions set forth herein, and such Boards of Directors have approved the Merger; and


WHEREAS, concurrently with the execution and delivery of this Agreement, (i) with the approval of Target's Board of Directors, Parent has entered into voting agreements with each of EnCap Energy Capital Fund III, L.P., EnCap Energy Acquisition III-B, Inc., BOCP Energy Partners, L.P., ECIC Corporation, Floyd C. Wilson, R. A. Walker, and Stephen W. Herod under which such parties have among other things agreed to support the Merger upon the terms and conditions set forth therein, and (ii) with the approval of Parent's Board of Directors, Target has entered into voting agreements with each of EnCap Energy Capital Fund III, L.P., EnCap Energy Capital Fund III-B, L.P., BOCP Energy Partners, L.P., Energy Capital Investment Company PLC, Sable Management, L.P., and James C. Flores, under which such parties have among other things agreed to support the Merger upon the terms and conditions set forth therein (collectively, the "Voting Agreements"); and


WHEREAS, for federal income tax purposes, it is intended that the Merger will qualify as a reorganization under the provisions of Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code");


NOW, THEREFORE, in consideration of the premises and the representations, warranties and agreements contained herein, the parties hereto agree as follows:


ARTICLE I


THE MERGER


1.1 The Merger. Upon the terms and subject to the conditions hereof, at the Effective Time Target shall merge with and into Merger Sub and the separate corporate existence of Target shall thereupon cease and Merger Sub shall be the surviving corporation in the Merger (sometimes referred to herein as the "Surviving Corporation") as a wholly-owned subsidiary of Parent. The Merger shall have the effects set forth in Section 259 of the Delaware General Corporation Law (the "DGCL"), including the Surviving Corporation's succession to and assumption of all rights and obligations of Merger Sub and Target


1.2 Effective Time of the Merger. The Merger shall become effective (the "Effective Time") upon the later of (i) the date of filing of a properly executed Certificate of Merger relating to the Merger with the Secretary of State of Delaware in accordance with the DGCL, and (ii) at such later time as the parties shall agree and set forth in such Certificate of Merger. The


1


filing of the Certificate of Merger referred to above shall be made as soon as practicable on the Closing Date set forth in Section 3.6.


1.3 Tax Treatment. It is intended that the Merger shall constitute a reorganization under Section 368(a) of the Code.


ARTICLE II


THE SURVIVING CORPORATION


2.1 Certificate of Incorporation. The Certificate of Incorporation of Merger Sub in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation at and after the Effective Time until thereafter amended in accordance with the terms thereof and the DGCL.


2.2 Bylaws. The bylaws of Merger Sub as in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation at and after the Effective Time, and thereafter may be amended in accordance with their terms and as provided by the Surviving Corporation's Certificate of Incorporation and bylaws and the DGCL.


2.3 Directors and Officers. At and after the Effective Time, the directors and officers of Merger Sub shall be the directors and officer of the Surviving Corporation until their respective successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation's Certificate of Incorporation and bylaws and the DGCL.


ARTICLE III


CONVERSION OF SHARES


3.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holders of any capital stock described below:


(a) All shares of Common Stock of Target, par value $.02 ("Target Common Shares"), that are held in Target's treasury shall be canceled and cease to exist and no cash, Parent capital stock or other consideration shall be delivered in exchange therefor.


(b) Conversion of Target Common Shares.


(i) Subject to Sections 3.4 and 3.5, each issued and
outstanding Target Common Share (other than Target Common Shares
treated in accordance with Section 3.1(a) or Dissenting Shares)
shall be converted into the right to receive (x) $8.50 in cash
plus, if applicable, the Additional Cash (collectively the "Cash
Consideration") and (y) the number of shares of common stock, par
value $.01 per share, of Parent (the "Parent Common Shares") equal
to the Exchange Ratio (the "Stock Consideration" and, together with
the Cash Consideration, the "Common Conversion Consideration"). All
such Target Common Shares, when so converted, shall be retired,
shall cease to be outstanding and shall automatically


2


be cancelled, and the holder of a certificate ("Common Stock
Certificate") that, immediately prior to the Effective Time
represented such Target Common Shares shall cease to have any
rights with respect thereto, except the right to receive, upon the
surrender of such Common Stock Certificate in accordance with
Section 3.2: (A) the Common Conversion Consideration, (B) certain
dividends and other distributions under Section 3.1(f), and (C)
cash in lieu of fractional Parent Common Shares under Section 3.4
(the "de minimis Shares"), in each case without interest
(collectively, the "Common Stock Merger Consideration").
Notwithstanding the foregoing, if between the date hereof and the
Effective Time the Parent Common Shares or Target Common Shares are
changed into a different number of shares or a different class,
because of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the
Exchange Ratio and, with respect to the changes in the outstanding
Target Common Shares, the Cash Consideration, shall be
correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination
or exchange of shares.


(ii) If the Market Price is less than the Minimum Market
Price, Parent may either terminate this Agreement under Section
10.1(i) or pay the Additional Cash under Section 3.1(b)(i).


(iii) Additional Definitions


"Additional Cash" means an amount in cash equal to the product
of (i) the Minimum Market Price minus the Market Price and (ii) the
Exchange Ratio.


"Exchange Ratio" means 0.85 provided that if the Market Price
of the Parent Common Shares is:


. greater than $12.35, then the Exchange Ratio shall
equal the quotient of (A) $10.50 divided by (B) the Market
Price.


. less than $7.65, then the Exchange Ratio shall equal
the quotient of (A) $6.50 divided by (B) the Market Price. If
the Market Price, is less than the Minimum Market Price the
Market Price in the preceding sentence shall be deemed to be
the Minimum Market Price.


"Market Price" means the average of the closing prices of a
Parent Common Share on the New York Stock Exchange, as reported in
The Wall Street Journal, for the 20 consecutive trading days
immediately preceding the third trading day before the Closing.


"Minimum Market Price" means $6.25.


(c) Each share of Series D Preferred Stock of Target, par value $.02 per share (the "Target D Preferred Shares"), issued and outstanding immediately prior to the Effective Time, other than those Target D Preferred Shares held by a Dissenting Stockholder, shall be converted into the right to receive the amount of cash that would be required to redeem such


3


share pursuant to the Certificate of Designation filed with the Secretary of State of Delaware with respect thereto as of the Effective Time (the "Preferred Conversion Consideration"). All such Target D Preferred Shares, when so converted, shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and the holder of a certificate ("Preferred Stock Certificate" and, together with the Common Stock Certificates, the "Stock Certificates") that, immediately prior to the Effective Time, represented outstanding Target D Preferred Stock shall cease to have any rights with respect thereto, except the right to receive, upon the surrender of such Preferred Stock Certificate, the Preferred Conversion Consideration without interest (collectively, the "Preferred Stock Merger Consideration," and, together with the Common Stock Merger Consideration, the "Merger Consideration").


(d) The Merger shall not affect any common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time, which will remain outstanding and which will represent all of the issued and outstanding capital stock of the Surviving Corporation.


(e) The Merger shall not affect any Parent Common Share issued and outstanding immediately prior to the Effective Time.


(f) No dividends or other distributions declared or made after the Effective Time with a record date after the Effective Time shall be paid to the holder of any un-surrendered Common Stock Certificate with respect to the applicable Common Stock Merger Consideration represented thereby until the holder of record of such Common Stock Certificate has surrendered such Common Stock Certificate in accordance with Section 3.2. Subject to the effect of applicable laws (including escheat and abandoned property laws), following surrender of any such Common Stock Certificate, the record holder of the certificate or certificates representing the Common Stock Merger Consideration issued in exchange therefor shall be paid without interest, (i) the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to Common Stock Merger Consideration, and (ii) if the payment date for any dividend or distribution payable with respect to Common Stock Merger Consideration has not occurred prior to the surrender of such Common Stock Certificate, at the appropriate payment date therefor, the amount of dividends or other distributions with a record date after the Effective Time but prior to the surrender of such Common Stock Certificate and a payment date subsequent to the surren ...