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SECURITIES and EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
November 18, 1999
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Tengasco, Inc.
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(Exact Name of Registrant as specified in its charter)
Commission File Number 0-20975
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Tennessee 87-0267438
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
603 Main Avenue, Suite 500, Knoxville, Tennessee 37902
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(Address of Principal Executive Office)
(423) 523-1124
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(Registrant's Telephone number)
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Item 1. Business
On November 18, 1999, Tengasco, Inc. (the "Company") entered
into an agreement with Eastman Chemical Company ("Eastman") to deliver natural
gas to Eastman's chemical plant located in Kingsport, Tennessee.
The agreement provides that by December 31, 2000 the Company
will deliver daily to Eastman a minimum of the lesser of (i)5,000 MMBtu's
("MMBtu" means one million British thermal units) or (ii) forty percent (40%) of
the natural gas requirements of Eastman's plant and a maximum of 15,000 MMBtu's
per day. Under the terms of the agreement, the Company has the option to install
facilities to treat the delivered gas so that the total nonhydrocarbon content
of the delivered gas is not greater than two percent (2%) so that it may be used
in certain processes in the Eastman plant requiring low levels of
nonhydrocarbons. If the Company elects to perform this option by installing
additional facilities, the minimum daily amount of gas to be purchased by
Eastman from the Company will increase to the lesser of (i)10,000 MMBtu's or
(ii) eighty percent (80%) of the natural gas requirements of Eastman's chemical
plant. The Company is presently continuing discussions with Eastman regarding
increasing the allowable level of nonhydrocarbons in the delivered gas from the
level currently stated in the agreement to a higher allowable level. If such
agreement is reached, it would have the immediate effect of increasing the
minimum quantity under the agreement to the higher quantity stated above without
the need for the Company to elect to install some or all of the treatment
facilities as is presently required to reduce the level of hydrocarbons
permitted by the agreement. Although there can be no assurances that the
agreement with Eastman will be modified, discussions as to this subject are
continuing.
Eastman will pay the Company the index price plus $0.10 for
all natural gas quantities up to 10,000 MMBtu's delivered per day, the index
price plus $0.05 for all quantities in excess of 10,0000 MMBtu's up to 15,0000
MMBtu's per day and the index price for all quantities in excess of 15,000
MMBtu's per day. The index price means the price per MMBtu published in
McGraw-Hill's Inside F.E.R.C.'s Gas Market Report equal to the Henry Hub price
index as shown in the table labeled "Market Center Spot Gas Prices".
The Company will transport and deliver its gas to Eastman
through a 28 mile pipeline that will be constructed by the Company's wholly
owned subsidiary, Tengasco Pipeline Corporation. This pipeline will begin at the
terminus of the Company's existing pipeline and extend into Kingsport where it
will be connected to an existing pipeline and meter station at Eastman's plant.
The agreement is for a term of twenty years and will be
automatically extended, if the parties agree, for successive terms of one year.
The agreement will commence upon the Company's completion of construction of the
pipeline and connection to Eastman's facilities and
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commercial operation of that facility is approved. Completion of construction of
the pipeline and the connection to Eastman's facilities must be completed by
December 31, 2000.
Item 7. Financial Statements and Exhibits
The following exhibit is filed herewith:
10.10 Natural Gas Sales Agreement dated November 18, 1999
between Tengasco, Inc. and Eastman Chemical Company.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused and authorized this report to be signed on
its behalf by the undersigned.
Dated: November 19, 1999
Tengasco, Inc.
By: s/ Malcolm E. Ratliff
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Malcolm E. Ratliff,
Chief Executive Officer
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Exhibit 10.10
NATURAL GAS SALES AGREEMENT
THIS AGREEMENT, is made and entered into to be effective commencing the
18th, day of November, ("Contract Date") by and between EASTMAN CHEMICAL
COMPANY, ("Buyer"), and TENGASCO, INC. ("Seller").
W I T N E S S E T H:
WHEREAS, Seller has substantial natural gas reserves in Hawkins,
Hancock, Claiborne, and surrounding counties in Tennessee, and Tengasco Pipeline
Corporation, a wholly owned subsidiary of Tengasco, Inc. desires to construct a
pipeline to deliver such natural gas to customers that will purchase natural gas
for customer's use, and for other purposes; and,
WHEREAS, Seller has developed Natural Gas reserves and plans to produce
Natural Gas from its properties in Hawkins, Hancock, Claiborne, and surrounding
Counties in Tennessee and transport that natural gas through facilities to be
constructed and owned by Tengasco Pipeline Corporation; and,
WHEREAS, Buyer requires Natural Gas for its Chemical Plant ("Plant")
located in Kingsport, Sullivan County, Tennessee; and
WHEREAS, Seller desires to sell and Buyer desires to purchase Natural
Gas;
NOW, THEREFORE, in consideration of the mutual convenants hereinafter
set forth, Buyer and Seller agree as follows:
ARTICLE 1
QUANTITY
1.1 Subject to the other provisions of this Agreement, by December 31,
2000, each Day Seller shall make available at the delivery point, such
quantities as Buyer may request from time to time, except that Seller is not
obligated to provide more than the Maximum Volume available on any Day. "Maximum
Volume" will initially be 15,000 MMBtu's per day. Buyer shall purchase the
Minimum Volume. "Minimum Volume" means with respect to any Day, the lesser of i)
5000 MMBtu's or ii) forty percent (40%) of the Natural Gas requirements of
Buyer's Plant on such Day. If Seller and Buyer agree upon option 4.2(b) of the
General Terms and Conditions, then "Minimum Volume" means with respect to any
Day, the lesser of i) 10,000 MMBtu's or ii) eighty percent (80%) of the Natural
Gas requirements of Buyer's plant on such Day.
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1.2 Buyer does not have the ability to predict its exact total Natural
Gas fuel purchase requirement on a daily basis, and, as a result, may fail to
purchase the Minimum Volume on a given Day; provided, however, Buyer shall make
a reasonable effort to purchase and receive the Minimum Volume on each Day.
1.3 Seller's reserves in Hancock, Hawkins, Caliborne, and surrounding
Counties are being developed by Seller and Seller's capability to produce
additional volumes may increase over time. Buyer may from time to time, consider
additional projects at its Plant that would utilize Natural Gas. Should Buyer's
need for Natural Gas from Seller be greater than the Maximum Volume and if
Seller has additional Natural Gas available from its Tennessee property, Buyer
may increase the Maximum Volume in accordance with its increased needs.
1.4 Seller will provide a written report to Buyer annually, outlining
progress and expectations regarding its Tennessee reserves and development
program. The report will include proven reserves, deliverable volumes, quality
improvements, and other information as mutually agreed by Buyer and Seller.
ARTICLE II
PRICE
2.1 For the purpose of calculating the delivered price to be paid in
any Month pursuant to Section 2.2 of this Article, "Index Price" means the price
per MMBtu published in McGraw-Hill's Inside F.E.R.C's Gas Market Report ("Inside
FERC"), equal to the Henry Hub price index as shown in the table labeled "Market
Center Spot Gas Prices." The published price used to determine the Index Price
for Natural Gas purchased in any Month is the first published price for
deliveries in that Month.
2.2 If the Index Price is not published for any Month, then the parties
shall negotiate, in good faith, in an attempt to agree to a substitute index
which most closely approximates the Index Price in order to calculate the price
under Section 2.3 for that Month and any succeeding Month in which the Index
Price is not published. If the parties fail to agree upon a substitute index on
or before the date payment is due for the first Month for which the Index Price
is not published, the parties shall determine a substitute index by arbitration.
The arbitration shall be by a single impartial arbitrator in accordance with the
Federal Arbitration Act and the Commercial Arbitration Rules of the American
Arbitration Association to the extent not in conflict with such Act. The
arbitrator shall be selected by the American Arbitration Association if the
parties are unable to agree on an arbitrator. If the parties fail to agree upon
substitute index on or before the date payment is due for any Month for which
the Index Price is not published and a substitute index has not been established
by arbitration, then Buyer shall pay Seller for all Natural Gas purchased in
that Month the price per MMBtu in effect or paid subject to adjustment during
the immediately preceding Month subject to adjustment as hereinafter provided.
Once the substitute index is determined by arbitration, adjustment shall be
made in the prices previously paid for any Month, for which the Index Price was
not published, to implement the substitute index.
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2.3 Subject to Section 2.2 and 2.5, Buyer shall pay Seller the Index
Price plus $0.10 per MMBtu for all Natural Gas quantities up to 10,000 MMBtu per
day delivered by Seller under this Agreement, Index Price plus $0.05 per MMBtu
for Natural Gas quantities above 10,000 MMBtu per day up to 15,000 MMBtu per
day, and at a price equal to the Index Price for Natural Gas quantities above
15,000 MMBtu per day.
2.4 Either party may propose that new pricing provisions become
effective ("Proposal Effective Date") on the commencement of the sixth (6th)
Contract Year (i.e., October 1, 2005) or the commencement of any succeeding
Contract Year by giving written notice to the other party at least twelve (12)
Months prior to the Proposal Effective Date. If either party proposes a new
pricing methodology in the manner provided above but the parties do not agree in
writing on a new pricing methodology at least seven (7) Months before the
Proposal Effective Date, the existing pricing methodology will continue in
effect but either party may terminate this Agreement effective in 2019 on the
Proposal Effective Date by giving the other party written notice of termination
at least (6) Months prior to the Proposal Effective Date. If either party
proposes a new pricing methodology in the manner provided above, and the parties
agree in writing on a new pricing methodology by the Proposal Effective Date,
that pricing methodology is effective on the Proposal Effective Date and
continues in effect until a new price becomes effective under this Agreement.
2.5 If Buyer has a competitive offer for similar volumes under similar
terms and conditions as hereunder, but at a better price, buyer may notify
Seller of the competitive offer ("Market Price Notice"). If Buyer gives a Market
Price Notice in accordance with its rights under the foregoing provisions of
this Section, Seller will provide written notice that it either agrees to meet
such competitive offer or to release Buyer form its purchase obligations herein.
2.6 Should Seller offer to sell Natural Gas to another buyer for
similar volumes under similar terms and conditions as hereunder but at a price
lower than the price determined by 2.3, 2.4, or 2.5, Seller shall immediately
extend such lower price to Buyer.
ARTICLE III
DELIVERY POINT
3.1 Seller shall deliver all Natural Gas quantities at the outlet side
of Seller's meter station located at Buyer's Plant site as specified by Buyer,
so long as such site location does not unduly burden Seller, near Kingsport,
Tennessee ("Delivery Point"). Title shall transfer to Buyer at such Delivery
Point.
3.2 Seller shall, at Seller's sole cost and expense, install at the
Delivery Point all necessary meters, values, fittings, controllers, pressure
control valve, knock-out
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tanks, and telemetry as required to effect and monitor deliveries hereunder. In
addition, to provide Buyer with requested signals and real-time delivery
quantity parameters, certain check metering and electronic monitoring abilities
shall also be installed by Seller at Seller's expense. Buyer shall provide any
necessary surface site, easement and rights of ingress and egress that may be
required for the installation and operation of such measurement and regulation
station, as well as any and all necessary electrical power, connections and
junction boxes at a mutually agreeable location within such site. Buyer shall
have the right to review and approve the station design and site preparation
scope, specifications and all construction drawings prior to initiation of any
work hereunder. Ownership, calibration, and operation of the installed equipment
shall be in accordance with Exhibit 1.
ARTICLE IV
TERM
4.1 Unless terminated earlier in accordance with one of the other
provisions of this Agreement, this Agreement is in effect on the Date the
construction of the Tengasco Pipeline Corporation facilities and connection to
Buyer's facilities is completed and commercial operation of that facility is
approved and commences and continues in effect for twenty (20) consecutive
Contract Years ("Primary Term"). This Agreement is automatically extended for
successive terms of one (1) Contract Year each unless and until it is terminated
by either party at the end of the Primary Term or then end of any successive
Contract Year by giving written notice at least twelve (12) Months prior to such
termination.
ARTICLE V
NOTICES
5.1 Any notice, request, demand, or statement provided for in this
Agreement must be in writing and is deemed given when actually delivered to a
party at the address indicated below for such party or, if mailed, it is deemed
given three (3) business Days after it is mailed by first class mail, postage
paid, to a party at the address indicated below for such party or, if sent by
facsimile transmission, when receipt of a legible facsimile is confirmed by such
party.
BUYER: SELLER:
All Notices Notices and Nominations
Eastman Chemical Company Tengasco, Inc.
P.O. Box 431 Medical Arts Bldg.
Kingsport, Tennessee 37660 603 Main Ave., Suite 500
Attention: Director, Global Chemicals Knoxville, Tennessee 37902
And Energy Procurement
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Facsimile: (423) 229-1107 Attention:
Facsimile: (423) 523-9894
For confirmation of facsimile receipt: For confirmation of facsimile receipt:
(423) 229-5106 (423) 523-1124
Statement and Payments: Statement and Payments:
Eastman Chemical Company Tengasco, Inc.
P.O. Box 431 Medical Arts Bldg.
Kingsport, Tennessee 37660 603 Main Ave., Suite 500
Attention: Accounts Payable Knoxville, Tennessee 37902
Either party may, from time to time, designate a new address as its address for
such purposes by registered or certified letter or facsimile transmission
addressed to the other party.
ARTICLE VI
FAILURE TO DELIVER
6.1 If Seller fails to fulfill its delivery quota, both on time and as
to quality or quantity, ("Seller's Deficiency") of Natural Gas that it is
obligated to make available under this Agreement, and such failure is not
excused by this Agreement or law, Buyer may, as its sole and exclusive remedy,
except for remedies under 4.3 of the General Conditions, cover Seller's
Deficiency and recover from Seller (a) any positive remainder of i) the costs
that Buyer actually and reasonably incurred to purchase Seller's Deficiency from
a thirty party less ii) the costs that Buyer would have paid for Seller's
Deficiency if delivered hereunder, plus (b) any reasonable and necessary
attorney's fees and court costs, incurred by Buyer in order to recover such
damages from Seller. However, in no event may Buyer recover a total amount in
excess of $0.40 for each MMBtu of Seller's Deficiency.
ARTICLE VII
GENERAL TERMS AND CONDITIONS
7.1 All the General Terms and Conditions attached as Appendix A hereto
are incorporated by this reference and made a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
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ATTEST: BUYER:
EASTMAN CHEMICAL COMPANY
By: [illegible] By: Terry K Begley
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Title: Vice President, Global
Customer Supply Chain
SELLER:
TENGASCO, INC.
ATTEST:
By: Elizabeth A. Wendelken By: Malcolm E. Ratliff
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Title: CEO
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APPENDIX A
GENERAL TERMS AND CONDITIONS
Attached hereto and made a part of, by mutual agreement of the parties,
that certain Natural Gas Sales Agreement ("Agreement") dated November 18, 1999
between TENGASCO, INC. ("Seller") and EASTMAN CHEMICAL COMPANY ("Buyer").
ARTICLE A-1
DEFINITIONS
Except in those certain instances where the context requires another
meaning, the following terms when used in this Agreement shall have the
following meanings:
1.1 "Natural Gas" means natural gas produced from natural gas wells and
natural gas produced in association with oil (casinghead gas) and/or the residue
natural gas resulting from processing both casinghead gas and Natural Gas-well
gas. Natural Gas shall mean only such Natural Gas as is being or may be produced
from wells of Seller in Hawkins, Hancock, Claiborne and surrounding counties,
Tennessee.
1.2 "Day" means the period of twenty-four (24) consecutive hours
beginning at 7:00 a.m. Eastern Standard or Daylight Time on any calendar Day and
ending at 7:00 a.m. Eastern Standard Time on the calendar Day immediately
following.
1.3 "Month" means a period beginning at 7:00 a.m. Eastern Standard or
Daylight Time on the first Day of a calendar Month and ending at 7:00 a.m.
Eastern Standard or Daylight Time on the first Day of the calendar Month
immediately following, except that the first Month shall begin on the date
initial deliveries of Natural Gas hereunder and shall end at 7:00 a.m. Eastern
Standard or Daylight Time on the first Day or the calendar Month immediately
following.
1.4 "Contract Year" means a period of (12) consecutive calendar Months
beginning on the Contract Date, provided that upon termination of this
Agreement, the Contract Year then in progress shall end.
1.5 "PSIA" means pounds per square inch absolute.
1.6 "PSIG" means pounds per square inch gauge.
1.7 "Mcf" means on thousand (1000) cubic feet at a pressure of fourteen
and sixty-five hundredths (14.65) psia and at a temperature of sixty degrees
(60) Fahrenheit.
1.8 "Btu" means a British thermal unit.
1.9 "MMBtu" means one million (1,000,000) Btu.
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1.10 "Heating Value" means the gross number of British Thermal Units
which would be contained in the volume of one (1) cubic foot of Natural Gas at a
temperature of sixty degrees (60) Fahrenheit, when saturated with water vapor
and under a pressure of fourteen and sixty-five hundredths (14.65) pounds per
square inch absolute and adjusted to reflect the actual water vapor content of
the Natural Gas delivered provided, however, if the water vapor content is seven
(7) pounds per million cubic feet or less, the Natural Gas shall be deemed dry.
1.11 "Seller's Transporter" means, with respect to any Delivery Point,
any entity other than Seller that delivers the Natural Gas sold hereunder for
Seller at such Delivery Point.
1.12 "Buyer's Transporter" means, with respect to any Delivery Point,
any entity other than Buyer that receives the Natural Gas delivered hereunder
for Buyer at said Delivery Point.
1.13 "Meter Operator" means Seller or Seller's Transporter and Seller
shall perform or cause Seller's Transporter to perform in any duties ascribed to
the "Meter Operator".
ARTICLE A-II
MEASUREMENT AND TESTS
2.1 The Meter Operator shall measure the quantities delivered. The
measuring equipment shall be constructed, installed and operated as follows:
2.1.1 Orifice Meters - in accordance with ANSI/API 2530, American Gas
Association Report No. 3, and any subsequent amendments,
revisions or modifications thereof.
2.1.2 Positive Meters - in accordance with American Gas Association
Measurement Committee Report No. 6, and any subsequent
amendments, revisions or modifications thereof.
2.1.3 Turbine Meters - in accordance with American Gas Association
Measurement Committee Report No. 7, and any subsequent
amendments, revisions or modifications thereof.
2.1.4 Electronic Transducers and Flow Computers - in accordance with
the applicable American Gas Association Standards including, but
not limited to American Gas Association Measurement Committee
Report Nos. 3, 5, 6 and 7, and any subsequent amendments,
revisions or modifications thereof.
2.2 The unit of volume for purposes of measurement shall be one (1)
cubic foot of Natural Gas at a temperature base of sixty degrees (60 degrees)
Fahrenheit and at a pressure base of fourteen and sixty-five hundredths (14.65)
psia.
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2.3 The Meter Operator shall use the arithmetical average of the
temperatures recorded during each Day, the factor for specific gravity
determined by a recording gravitometer or chromatographic device installed and
located at a suitable point to record representative specific gravity of the
Natural Gas being metered, and adjustments to measured Natural Gas volumes for
the effects of supercompressibility, made in accordance with accepted American
Gas Association standards, to make computations of quantity delivered under this
Agreement. Seller shall obtain appropriate carbon dioxide and nitrogen mole
fraction values for the Natural Gas delivered as may be required to compute such
supercompressibility adjustments in accordance with standard testing procedures.
2.4 The Meter Operator shall determine temperature by a recording
thermometer continuously used and installed so as to record properly the
temperature of the Natural Gas flowing through the meter.
2.5 The Meter Operator shall determine specific gravity with accuracy
to the nearest one-thousandth by taking samples of the Natural Gas at the point
of measurement at such times as may be determined to be necessary in practice by
the use of chromatographic analysis or other methods commonly used and accepted
in the industry.
2.6 The assumed atmospheric (barometric) pressure for the Delivery
Point is 14.5 psia.
2.7 The Meter Operator shall calculate the deviation of the Natural Gas
from Ideal Gas Laws, at the pressures, temperatures and specific gravity under
which said Natural Gas is delivered by Buyer, shall be calculated in accordance
with API 2530.
2.8 The Meter Operator shall determine the Heating Value of the Natural
Gas at the Delivery Point(s) by using a Cutler-Hammer or other standard type
calorimeter or by calculating the heating value from an online chromatograph or
a Natural Gas analysis of a continuous Natural Gas sample. A Party to this
Agreement that is not the Meter Operator may, at such time or times as it may
desire, determine the Heating Value of the Natural Gas using an industry
accepted method. In the event of any material variance between such test by
Meter Operator and the last or next succeeding test made by the non-operating
party, a joint test, the cost of which shall be shared equally by both parties,
will be run employing the method utilized by the Meter Operator, and the result
thereof will be controlling, effective the first day of the calendar Month
preceding such joint test. The Btu content of any volume of Natural Gas shall be
determined for all purposes, including payment, under this Agreement by
multiplying the Heating Value of the Natural Gas as determined by the last test
in accordance with this Section 2.8 by the number of cubic feet contained in
such volume, as determined in accordance with Section 2.2 and 2.3.
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2.9 Except as provided in Section 2.8, the Meter Operator shall test
the quality of the Natural Gas delivered hereunder by approved standard methods
from time to time as requested by any party hereto.
2.10 The Meter Operator shall install, and maintain, at its expense,
measuring equipment, housing devices, and materials of standard manufacture. Any
party that is not the Meter Operator at a Delivery Point may install and operate
check-measuring equipment, that does not interfere with the use of meter
Operator's equipment. The Meter Operator shall maintain, operate and furnish, at
its expense, testing equipment of standard manufacture.
2.11 The Meter Operator shall test the accuracy of its measuring and
testing equipment at necessary intervals, and at least approximately every
thirty (30) Days. The Meter Operator shall give notice of the time and nature of
each test to the other party sufficiently in advance to permit the other party
to have a representative present. The Meter Operator shall test measuring and
testing equipment by reasonable means and methods in the presence of
representatives of both Seller and Buyer, if present. If the non-operating party
fails to have a representative present after proper notice, the Meter Operator
shall provide the results of such tests of equipment and/or Natural Gas quality
to the non-operating party but the results of such tests shall nevertheless be
considered accurate until the next test. All tests shall be made at the Meter
Operator's expense, except that the non-operating party shall bear the expense
of tests made at its request if the inaccuracy found is one percent (1%) or
less.
2.12 If at any time any of the measuring or testing equipment is found
to be out of service, or registering inaccurately in any percentage, the Meter
Operator shall adjust it at once to read accurately within the limits prescribed
by the manufacturer. If such equipment is out of service, or inaccurate by an
amount exceeding one percent (1%) at a reading corresponding to the average rate
of flow for the period since the last preceding test, the previous reading of
such equipment is disregarded for any period definitely known or agreed upon, or
if not so known or agreed upon, for a period of sixteen (16) Days or one-half
(1/2) of the elapsed time since the last test, whichever is shorter. The
quantity of Natural Gas delivered during such period shall be estimated by:
a) Using the data recorded by any check-measuring equipment
if installed and accurately registering; or
b) if not installed or registering accurately, by correcting
the error if the percentage of error is ascertainable by
calibration, test or mathematical calculation; or
c) If neither such method is feasible, by estimating the
quantity, or quality, delivered based upon deliveries
under similar conditions during a period when the
equipment was registering accurately.
No corrections shall be made for recorded inaccuracies of one percent (1%) or
less.
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2.13 Each party has the right to inspect equipment installed or
furnished by the other, and the charts and other measurement or testing data of
the other, at all times during business hours, but the reading, calibration and
adjustment of such equipment and changing of charts shall be done only by the
party furnishing such equipment. Each party shall preserve all original test
data, charts and other similar records in such party's possession for a period
of at least two (2) years.
ARTICLE A-III
DELIVERY PRESSURE
3.1 Seller shall deliver the Natural Gas to Buyer at a pressure
sufficient to effect delivery into the facilities of Buyer, up to five hundred
(500) psig, with a minimum pressure of two hundred (200) psig, controlled to
plus or minus 10 psig of that pressure. Buyer will take the Natural Gas at the
pressure of delivery and thereafter regulate and control such pressure as may be
required for its own usage.
ARTICLE A-IV
QUALITY
4.1 Seller shall cause the Natural Gas quantities to be delivered to
Buyer under this Agreement at the Delivery Point to be free of gum, gum-forming
constituents, and other liquid or solid matter that may become separated from
the Natural Gas during transportation, and to conform to the following
specifications:
a) Dust, rust and other solids None
b) Carbon Dioxide Not more than 2.0% by volume
c) Oxygen Not more than 0.5% by volume
d) Hydrogen Sulfide Not more than 0.25 grains per 100 cubic feet
e) Total Sulfur Not more than 2.0 grains per 100 cubic feet
f) Free Water None
g) Heating Value Not less than 970 Btu per cubic foot and less
than one (1) percent variation within any 30
minute period
h) Temperature Not less than 40 F nor more than 120 F.
i) Water Vapor Not more than 7 lbs. Per million cubic feet
j) Nitrogen Not more than 5.0% by volume, and to be
reduced as provided in Section 4.2 below
k) Isopentane and heavier Not more than 4/10 of 1 gallon per McF
Hydrocarbon
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l) Total Nonhydrocarbons Not more than 5.0% by volume (Nonhydrocarbons
shall include, but not be limited to, hydrogen
sulfide, sulfur, carbon dioxide, oxygen, and
nitrogen) and to be reduced as provided in
Section 4.2 below.
In the event Seller is unable to meet these quality specifications, Seller shall
notify Buyer and if Buyer refuses to accept such off quality Natural Gas, Seller
shall immediately stop delivery of off quality Natural Gas into the pipeline,
and take whatever steps are necessary to resume delivery of Natural Gas meeting
these quality specifications.
4.2 A portion of Buyer's Plant requires natural gas with Total
Nonhydrocarbons (including Nitrogen) below 2% by volume. To accommodate this
separate specification, Seller agrees to provide, at its expense, one of the
following alternatives to Buyer, as determined by mutual agreement of Buyer and
Seller, prior to the beginning of gas supply:
(a.) Provide and construct separate supply piping from Buyer's
alternate natural gas source to the portion of Buyer's
Plant requiring the lower Total Nonhydrocarbons.
(b.) Installation of a Nitrogen Removal Unit to reduce the
Total Nonhydrocarbons in the Natural Gas to below 2%. The
Nitrogen Removal Unit could be located at Seller's
facilities, adjacent to Buyer's Plant, or in Buyer's
Plant.
4.3 If any Natural Gas tendered under this Agreement fails to meet the
applicable quality specifications as provided above in Sections 4.1 or 4.2,
Buyer may refuse to accept such Natural Gas. If Buyer refuses any such Natural
Gas because it fails to meet the applicable quality specifications set forth in
Sections 4.1 or 4.2, Buyer must give Seller written notice ("Quality Notice")
within five (5) Days of such refusal of the particular specifications that
Seller or Seller's Transporter has failed to meet. If Seller or Seller's
Transporter fails to correct the cause of any failure to meet the applicable
quality specifications within the thirty (30) Days ("Correction Period")
immediately following Seller's receipt of any Quality Notice, and such failure
is not excused by law or the provisions of the Agreement, Buyer may by
additional notice immediately suspend purchase of any volume of Natural Gas
hereunder for an additional period not less than 90 days ("Suspension Period")
during which time Seller may continue to correct the cause of any failure to
meet the applicable quality specifications. If the correction is not made by the
end of the Suspension Period, Buyer may terminate this Agreement, at any time in
the thirty (30) Days immediately following the end of the Suspension Period,
upon written notice to Seller.
4.4 If any Natural Gas tendered under this Agreement fails to meet
applicable quality specifications as provided above in Sections 4.1 or 4.2 on
five separate
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occasions within any six (6) month period, Buyer may, upon thirty (30) days
written notice, terminate this Agreement.
ARTICLE A-V
PAYMENTS
5.1 After delivery of Natural Gas has commenced, Seller shall, on or before
the twentieth (20th) Day of each Month, ("Invoice Month"), render to Buyer a
statement showing the quantity of Natural Gas sold at the Delivery Point in the
immediately preceding Month ("Production Month") and the amount owed Seller.
Buyer shall provide or cause to be provided any information that may be
necessary in order to permit Seller to render statements in accordance with this
Section 5.1. Buyer shall pay Seller on or before the 15th Day of each Month
following the Invoice Month, for all Natural Gas delivered hereunder during the
preceding Production Month, provided, if presentation of said statement is
delayed after the twentieth (20th) of the Month, then the time for payment shall
be extended until (25) Days after receipt of such statement by Buyer. Should
Buyer question, in good faith, any portion of Seller's statement, then Buyer may
withhold payment, if applicable, for the amount in question if Buyer gives
Seller written notice of the reason it questions that amount on or before the
date it would otherwise be due. Buyer shall, however, make timely payment of the
portion of the invoice amount not in question. The parties agree to meet, if
necessary, to resolve any questions and, upon resolution, any additional amounts
owned by Buyer to Seller shall be promptly paid.
5.2 Each party is entitled, at any and all reasonable times, to examine the
books and records of the other, to the extent necessary to verify the accuracy
of any statement, charge, computation or demand made under this Agreement.
ARTICLE A-VI
TAXES
6.1 Seller shall pay or cause to be paid the royalties and takes lawfully
levied on Seller, and applicable to the Natural Gas produced, transported and
delivered hereunder prior to its delivery to Buyer or Buyer's designee. Buyer
shall pay all taxes lawfully levied on Buyer applicable to such Natural Gas
after delivery to Buyer or Buyer's designee. Each Party shall indemnify, defend
and hold harmless the other Party for any Claims for Taxes for which such Party
is responsible hereunder. Upon request, a Party shall provide a certificate of
exemption of other evidence of exemption from any Tax and each Party agrees to
cooperate with the other in obtaining an exemption and minimizing Taxes payable
in respect of all Transactions.
<PAGE>
ARTICLE A-VII
WARRANTIES, LIABILITIES AND REMEDIES
7.1 Seller warrants title to all Natural Gas delivered by it, that it
has the right to sell the same, and that such Natural Gas is free from valid
liens and valid adverse claims of every kind.
7.2 Title to the Natural Gas sold and delivered hereunder shall pass to
Buyer at the Delivery Point. As between the parties hereto, Seller shall be in
control and possession of the Natural Gas and responsible for any cost, loss,
liability, damage and/or injury to or death of any persons (including, without
limitation, reasonable attorney fees) occurring until same shall have been
delivered at the Delivery Point, after which delivery Buyer shall be deemed to
be in exclusive control and possession thereof and shall be responsible for any
cost, loss, liability, damage and/or injury to or death of any persons
(including, without limitation, reasonable attorney's fees) caused thereby,
except for unknown or unknowable defects in the Natural Gas which cause in whole
or in part damage, injury, or loss.
SELLER SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS BUYER, ITS SUCCESSORS, AND
ASSIGNS AS WELL AS ITS OFFICERS, EMPLOYEES, AND AGENTS (COLLECTIVELY THE
"INDEMNITIES") FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, CAUSES OF
ACTION, FINES, PENALTIES, SUITS, LIABILITIES, AND JUDGEMENTS OF EVERY KIND AND
CHARACTER, INCLUDING ALL EXPENSES OF LITIGATION, COURT COSTS, AND REASONABLE
ATTORNEY'S FEES, FOR ANY INJURY TO OR DEATH OF ANY PERSON, AND FOR ANY DAMAGE TO
ANY PROPERTY, WHICH RESULTS FROM OR IN CONNECTION WITH THE NATURAL GAS BEFORE
ITS RECEIPT AT THE DELIVERY POINT REGARDLESS OF WHETHER ANY SUCH INJURIES,
DEATH, OR DAMAGES ARE CAUSED OR ALLEGEDLY CAUSED BY THE JOINT, CONCURRING OR
SOLE NEGLIGENCE, OR STRICT LIABILITY OF (i) BUYER AND SELLER, (ii) BUYER AND ANY
OTHER PERSON OR ENTITY, OR (iii) BUYER OR ANY OTHER ENTITY OR COMBINATION OF
ENTITIES.
BUYER SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS SELLER, ITS SUCCESSORS, AND
ASSIGNS AS WELL AS ITS OFFICERS, EMPLOYEES, AND AGENTS (COLLECTIVELY THE
"INDEMNITIES") FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES, CAUSES OF
ACTION, FINES, PENALTIES, SUITS, LIABILITIES, AND JUDGEMENTS OF EVERY KIND AND
CHARACTER, INCLUDING ALL EXPENSES OF LITIGATION, COURT COSTS, AND REASONABLE
ATTORNEY'S FEES, FOR ANY INJURY TO OR DEATH OF ANY PERSON, AND FOR ANY DAMAGE TO
ANY PROPERTY, WHICH RESULTS FROM OR IN CONNECTION WITH THE NATURAL GAS AFTER ITS
RECEIPT AT THE DELIVERY POINT, REGARDLESS OF WHETHER ANY SUCH INJURIES, DEATH,
OR DAMAGES ARE CAUSED OR ALLEGEDLY CAUSED BY THE JOINT, CONCURRING OR SOLE
NEGLIGENCE, OR STRICT LIABILITY OF (i) SELLER AND BUYER, (ii) SELLER AND
<PAGE>
ANY OTHER PERSON OR ENTITY, OR (iii) SELLER OR ANY OTHER ENTITY OR COMBINATION
OF ENTITIES.
7.3 Unless either Party is limited to a different sole and exclusive
remedy by the other provisions of this Agreement, either Party's sole and
exclusive remedy for any breach by the other Party of any obligation, covenant,
representation, or warranty is only the recovery of actual damages for any
direct economic losses to the extent recoverable under applicable law.
Notwithstanding any other provision to the contrary or the invalidity or
unenforceability of any sole and exclusive remedy or other provision of this
Agreement, neither Party is entitled to recover (in contract, tort, equity, or
otherwise) any incidental, special, punitive or consequential damages which
arise out of or relate to this Agreement or in connection with the performance
or breach thereof, and any right to recover any of said damages is hereby waived
and released.
ARTICLE A-VIII
FORCE MAJEURE
8.1 In the event either Party is rendered unable, wholly or in part, by
Force Majeure to carry out its obligations under this Agreement, except for the
obligations to make payments hereunder, it is agreed that, on such Party's
giving notice and reasonably full particulars of such Force Majeure, orally as
soon as practical and followed in writing or by electronic transmission, to the
other Party within a reasonable time after the occurrence of the Force Majeure
relied on, the obligations of the Party giving such notice, so far as they are
affected by such Force Majeure, shall be suspended during the continuance of any
inability so caused, but for no longer period, and such Force Majeure shall, so
for as possible, be remedied with all reasonable dispatch. The term "Force
Majeure" shall mean, for purposes of this Agreement, acts of God, strikes,
lockouts, or industrial disputes, interruptions by government or court orders,
present and future valid orders of any governmental authority, inability to
secure or delay in securing easements, rights-of-way, materials (including those
occasioned by reason of allocations promulgated by authorized governmental
agencies), washouts, explosions, breakage, accident, repairs, alterations or
freezing of pipelines, or other equipment, the termination or interruption by
others of Natural Gas supplies or any other cause, whether of the kind herein
enumerated or otherwise, which is not reasonably within the control of the party
claiming Force Majeure. The foregoing enumerated and other causes of Force
Majeure shall constitute "Force Majeure" regardless of whether or not they are
foreseeable. The Force Majeure shall, so far as possible, be remedied with all
reasonable dispatch. The settlement of strikes or lockouts or industrial
disputes or disturbances shall be entirely within the discretion of the party
having the difficulty, and the above requirement that any Force Majeure shall be
remedied with all reasonable dispatch shall not require the settlement of
strikes, lockouts, or industrial disputes or disturbances, or the settlement or
negotiation by Seller of purchase or transportation contracts, by acceding to
the demands of any opposing party therein when such course is inadvisable in the
discretion of the party having the difficulty. In no event shall any curtailment
of obligations hereunder due to these Force Majeure conditions exceed the extent
of the shortages caused by the Force Majeure condition.
<PAGE>
ARTICLE A-IX
GOVERNMENTAL RULES, REGULATIONS AND AUTHORIZATIONS
9.1 This Agreement is subject to all valid applicable State, Local, and
Federal laws, orders, directives, rules and regulations of any governmental
authority having jurisdiction. Each party has the right to question the validity
and applicability of any such laws, orders, directives, rules and regulations
and the jurisdiction of any governmental authority. Neither Buyer nor Seller
shall institute any proceeding before any governmental authority seeking to
obtain sales or service from Seller except as expressly provided under the
provisions of this Agreement. If the sums due Seller under this Agreement are
now or become subject to rate regulation by any governmental authority, it is
stipulated and agreed (i) that any price, rate or fee that Seller is or
hereafter becomes entitled to collect in accordance with this Agreement, is just
and reasonable, fair and equitable and not preferential or discriminatory, and
(ii) that no price, rate or fee that Seller is or hereafter becomes entitled to
collect in accordance with this Agreement, shall constitute an increase or
change in rates.
9.2 If at any time while this Agreement is in effect, any governmental
authority takes any action as to either party ("Affected Party") or any
transporter of the Affected Party whereby the sale or purchase of Natural Gas
under this Agreement, or transportation or other handling (including, without
limitation, compression or treating), of the Natural Gas sold under this
Agreement is proscribed or subjected to terms, conditions, regulations,
restraints, taxes, price or rate controls that are, in the Affected Party's good
faith opinion, unduly burdensome to the Affected Party, the Affected Party may
thereafter terminate this Agreement by giving at least ninety (90) Days prior
written notice to the other party, provided the Affected Party terminates all of
the Affected Party's other contracts, which are similarly affected by the
government action, to the extent the Affected Party has the right to terminate
such other contracts under a clause that is similar to this clause.
9.3 Buyer shall, upon Seller's request, consent to the granting of any
governmental approval that may be required, in order for Seller a) to abandon
any and all facilities and services arising out of or in connection with this
Agreement, if this Agreement is terminated in accordance with its provisions, or
b) to charge and collect any price, rate, change, or fee that Seller is entitled
to receive under this Agreement.
9.4 Seller warrants that it complies with governmental acquisition
rules, natural gas exploration and transport rules, and Public Service Authority
rules and Buyer is entitled to rely fully on Seller's compliance with these
rules.
ARTICLE A-X
ASSIGNMENT
10.1 The provisions of this Agreement are binding upon and inure to the
benefit of the successors, assigns, and legal representatives of the parties
hereto. Subject to
<PAGE>
the other provisions of this Section, this Agreement may not be assigned, in
whole or in part, without the prior written consent of the other party, which
consent can not be unreasonably withheld.
ARTICLE A-XI
OTHER TERMS AND CONDITIONS
11.1 Waiver. No waiver, by either Seller or Buyer, of any default of
the other under this Agreement operates as a waiver of any other default,
whether of like or different character on nature.
11.2 Headings. The headings used throughout this Agreement are inserted
for reference purposes only, and are not to be construed or taken into account
in interpreting the provisions of any Article, nor to be deemed in any way to
supplement, modify or explain the effects of any provision.
11.3 Modification. No amendment, release, waiver or other modification
of this Agreement is effective unless made in writing and executed by duly
authorized representatives of both parties.
11.4 Integration. This Agreement is the final, complete, and exclusive
statement of the agreement between the parties.
11.5 No Third Party Beneficiaries. Nothing contained in this Agreement
shall confer any rights, as a third party beneficiary or otherwise, upon any
entity other than Buyer, Seller and their successors and assigns.
11.6 Severability. The invalidity or unenforceability of any provision
of this Agreement does not invalidate or affect the enforceability of any
provision of this Agreement.
11.7 Preparation. This Agreement was prepared by all parties to it and
not by any party to the exclusion of the other parties. Neither Seller nor Buyer
had an unfair advantage during the negotiation of this Agreement.
11.8 APPLICABLE LAW. AS TO ALL MATTERS OF CONSTRUCTION AND
INTERPRETATION, THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES IS
GOVERNED BY THE LAWS OF THE STATE OF TENNESSEE. VENUE AND SOLE JURISDICTION FOR
ANY LITIGATION UNDER THIS AGREEMENT SHALL BE IN SULLIVAN COUNTY, TENNESSEE.
11.9 Confidentiality. Neither party shall disclose the provisions of
this Agreement to any person except to the extent disclosure is required by any
governmental authority, financing entity, or reasonably necessary for the
performance and enforcement of this Agreement without the prior written consent
of the other party.
<PAGE>
Seller agrees to have its employees execute individual secrecy agreements that,
at a minimum, include the terms found in this Agreement.
11.10 Relationship of Parties. Neither this Agreement nor the performance
of this Agreement creates, expressly, impliedly, or otherwise, a fiduciary
relationship or any other special relationship between Buyer and Seller. All the
duties owed by one party to the other in connection with this Agreement are
solely contractual in nature and these duties do not arise in tort or sound in
tort.
<PAGE>
Exhibit 1, Component
List for a Natural Gas
Metering Station
<TABLE>
<CAPTION>
Component Purchase Install Owner Calibration Maintain
<S> <C> <C> <C> <C> <C>
Metering and Pressure Control
-----------------------------
Straightening Vanes T T T N/A T
Sales Meter T T T T T
Check Meter T T E E T
Pressure Element and T T T T T
Transmitters
Temperature Element and T T T T T
Transmitters
PMI Calorimeter (with Specific T T T T T
Gravity Capability) and
Transmitters
Local Pressure Indicator T T T T T
Pressure Control Valve and T T T N/A T
Single Loop Controller
Pressure Relief Valve and Vent T T T N/A T
System
Remote Terminal Unit (RTU) T E E N/A E
Remote Power Supply T T T N/A T
Modem or Line Driver T T T N/A E
Data Transmission Lines (could T E E N/A E
be telephone line) to Eastman
designated location
Gas Clean-Up and Liquid
Removal
-----------------------------
Liquid/Gas Separator with mist T T T N/A T
pad or wire mesh coalescer
Liquid Holding Tank with level T T T T T
indication
</TABLE>
