UNITED STATES
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): October 22, 1997
USX Corporation
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(Exact name of registration as specified in its charter)
Delaware 1-5153 25-0996816
- -------- ------ ----------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
600 Grant Street, Pittsburgh, PA 15219-4776
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(Address of principal executive offices) (Zip Code)
(412) 433-1121
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(Registrant's telephone number,
including area code)
Item 2. Acquisition or Disposition of Assets.
On October 22, 1997, USX Corporation announced that it had entered into a
definitive agreement for USX to sell its stock in Delhi Gas Pipeline Corporation
and the other subsidiaries of USX that comprise all of the Delhi Group to Koch
Midstream Enterprises, Inc., an affiliate of Koch Industries, Inc. The
transaction involves a gross purchase price of $762 million, which, based upon
September 30, 1997, financial information, USX estimates will result in net
proceeds available for distribution to the holders of USX-Delhi Common Stock
("Delhi Stock") of between $19 and $21 cash per share of Delhi Stock.
The net proceeds are calculated in accordance with USX's Restated Certificate of
Incorporation (the "USX Certificate") which (in relevant part) defines net
proceeds as an amount equal to the gross proceeds of a disposition after any
payment of, or reasonable provision for, (i) any taxes payable by the
Corporation in respect of such disposition, (ii) any taxes payable by the
Corporation in respect of any dividend or redemption, (iii) any transaction
costs, including, without limitation, any legal, investment banking and
accounting fees and expenses, and (iv) any liabilities (contingent or otherwise)
of, or allocated to, the Delhi Group, including, without limitation, any
indemnity obligations incurred in connection with the disposition.
Set forth below is a sample calculation of the midpoint of the $19 to $21 per
share estimated range of net proceeds which is based on Delhi Group data as of
September 30, 1997. The estimate of the net proceeds included herein is a
forward-looking statement. A number of the factors used in the calculation may
change between September 30 and the effective date including, among other
things, the amount of debt attributed to the Delhi Group, which is impacted by
the Delhi Group's cash flow through the effective date, and the taxes to be
incurred, which are impacted by changes in the tax basis of the Delhi Group's
assets after September 30. Actual net proceeds will be based on data as of the
effective date, currently expected to be October 31, 1997. Accordingly, the
actual net proceeds may vary from the estimated range set forth below.
<TABLE>
<CAPTION>
$ Millions
----------
<S> <C>
Gross Purchase Price $762
Less: Estimated adjustments to purchase price for
liabilities retained by the Delhi Companies 27
----
Estimated Adjusted Purchase Price $735
Less: Estimated attributed debt, preferred stock, transaction
costs and other liabilities of the Delhi Group 317
Less: Estimated taxes payable1 220
----
Estimated net proceeds $198
Estimated net proceeds per share available for distribution2 $ 20
</TABLE>
Under the USX Certificate, USX is required to elect one of three options to
return the value of the net proceeds received in the transaction to the Delhi
Group shareholders within sixty days of the closing of the transaction.
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[FN]
1-Based on estimated tax basis of $165 million at September 30, 1997, and
assuming a tax rate of 38.5%.
2-Based on 9.45 million shares outstanding at September 30, 1997, and assuming
the settlement of outstanding employee stock options to purchase approximately
409,000 shares of Delhi Stock.
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Following is an excerpted summary of the three options:
USX is required to
(A)declare and pay a dividend to the holders of Delhi Stock in an amount
equal to the net proceeds of such disposition; or
(B)redeem the outstanding shares of Delhi Stock with such net proceeds; or
(C)exchange each outstanding share of Delhi Stock for a number of fully paid
and nonassessable shares of Marathon Stock equal to 110% of the average
daily ratio of the market value of one share of Delhi Stock to the market
value of one share of Marathon Stock during a specified ten-business day
period.
Of the three options, USX currently anticipates that it will elect to use the
net proceeds to redeem all shares of Delhi Stock. USX is required to give
public notice of which option it has elected not less than thirty or more than
sixty days after the closing. Due to the time required to finalize the
calculation of the net proceeds, USX anticipates that it will give the required
notice thirty days after the closing of the transaction.
The transaction is subject to the receipt of Hart-Scott-Rodino approval and
other customary conditions. The parties expect the closing to occur in
November.
Lehman Brothers acted as financial advisor to USX in conjunction with the
transaction.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
2. Stock Purchase and Sale Agreement.
99. Press Release
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
USX CORPORATION
By /s/ Kenneth L. Matheny
--------------------------------
Kenneth L. Matheny
Vice President & Comptroller
Dated: October 23, 1997
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STOCK PURCHASE AND SALE AGREEMENT
This STOCK PURCHASE AND SALE AGREEMENT is entered into this 21st day of
October, 1997 by and between USX CORPORATION, a Delaware corporation ("USX") and
KOCH MIDSTREAM ENTERPRISES, INC., a Delaware corporation ("Buyer").
WITNESSETH
Whereas: USX owns all of the issued and outstanding stock of Delhi Gas
Pipeline Corporation and certain other subsidiaries as listed on Attachment I
(collectively the "Subject Companies") which engage in the purchasing,
gathering, processing, treating, transporting and marketing of natural gas;
Whereas: Pursuant to USX's Restated Certificate of Incorporation, USX has
issued and outstanding a class of common stock titled USX--Delhi Group Common
Stock (the "USX--Delhi Group Stock") which is intended to reflect the financial
position, results of operations and cash flows of the business of the Subject
Companies, including the effect of attributing a portion of financial
activities, tax effects, corporate general and administrative costs and certain
other assets or liabilities primarily attributable to headquarters' functions of
USX ("Delhi Group") which results are reported in annual audited and quarterly
unaudited financial statements prepared by USX (the "Delhi Group Statements");
Whereas: Buyer is an indirect wholly owned subsidiary of Koch Industries,
Inc., a Kansas corporation ("Koch"); and
Whereas: USX desires to sell and Buyer desires to purchase all of the
issued and outstanding stock of the Subject Companies the exact number of shares
of which is indicated on Attachment I (the "Subject Company Stock").
Article I
Purchase and Sale of Subject Company Stock
1.1 Purchase and Sale. Subject to the terms and conditions hereof USX
agrees to sell transfer and assign and Buyer agrees to purchase and assume
ownership of the Subject Company Stock.
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1.2 Purchase Price.
(a) The purchase price for the Subject Company Stock will be
$762,000,000, adjusted by any adjustment pursuant to (b), (c) and (e) below,
payable by wire transfer of immediately available United States dollars (the
"Purchase Price").
(b) The Purchase Price will be reduced by (i) the amounts of current
liabilities (except for accrued taxes) in excess of current assets as of the
Effective Date and (ii) any deferred credits and other long term liabilities as
of the Effective Date that remain the responsibility of the Subject Companies as
set forth under column G of Schedule 4.4.
(c) The Purchase Price will be increased by (i) the amount of current
assets in excess of current liabilities (except for accrued taxes) as of the
Effective Date as set forth under column G of Schedule 4.4 and (ii)deferred
credits as of the Effective Date for which the Subject Companies will not be
obligated to make payments to anyone pursuant to Section 4.4.1 (g).
(d) There shall be no adjustment to the Purchase Price for accrued
taxes which appear in Column G of Schedule 4.4 or for deferred income taxes.
(e) In connection with the existing authorizations for 1997 spending
for the South Texas expansion project (the "Project"), there shall be a purchase
price adjustment equal to the amount of expenditures remaining to be made under
such existing authorizations after the Effective Date. Remaining expenditures
shall exclude all amounts which are accrued on the books of the Subject
Companies as of the Effective Date.
1.3 Allocation. The Purchase Price will be allocated as set forth in the
Tax Matters Agreement
Article II
Representations and Warranties
2.1 Representations and Warranties of USX. USX represents and warrants to
Buyer the following:
2.1.1 Existence and Organization.
(a) Each of USX and the Subject Companies is a corporation duly
incorporated validly existing and in good standing under the law of the state of
its incorporation and is duly qualified and in good standing as a foreign
corporation in each jurisdiction where such qualification is required to carry
out its obligations hereunder or where the failure to be so qualified would
result in a material adverse effect on the
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business, properties, financial condition or results of operations of the
Subject Companies, taken as a whole. For purposes of this Agreement, "material
adverse effect" shall not include effects resulting from (i) changes in general
economic or business conditions or in the gas industry specifically, (ii)
changes in laws and regulations impacting the gas industry generally or (iii)
the impact on the Company's business of the loss or reduction of any customer or
supplier relationship or the resignation of any employee resulting from the
transactions contemplated by this Agreement.
(b) USX has previously delivered to Buyer complete and accurate
copies of the Certificate of Incorporation, By-laws or other constituent
document of each of the Subject Companies (the "Constituent Documents"). No
amendments or modifications thereto have been adopted or are contemplated and
each remains in full force and effect on the date hereof.
(c) None of the Subject Companies is the subject of any
voluntary or involuntary bankruptcy, liquidation, reorganization, or dissolution
and none is contemplated.
(d) The authorized capital stock of each of the Subject
Companies is as set forth in the Constituent Documents and the number of shares
outstanding for each Subject Company as of the date hereof is set forth in
Attachment I. There are no options, warrants, or other rights outstanding
obligating any of the Subject Company's to issue any shares of its capital
stock.
2.1.2 Corporate Authority.
(a) Each of USX and the Subject Companies has full power and
authority to own its properties and to conduct its business and operations as
currently conducted.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have been approved by the
Board of Directors of USX and no shareholder or other corporate approval or
action is required on the part of USX or any of the Subject Companies. This
Agreement constitutes a legal valid and binding obligation of USX enforceable
against it in accordance with its terms.
2.1.3 Conflicts and Consents. The execution and delivery by USX
of this Agreement and the consummation of the transactions contemplated herein
does not conflict with, violate, constitute an event of default, require the
consent of any government entity or result in the creation of a lien or
encumbrance under (a) the Constituent Documents of USX or any of the Subject
Companies; (b) any law, regulation, ordinance, judicial decree or administrative
order binding upon USX, the Subject Companies or their respective properties
except for approvals required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR") and (c) any mortgage, indenture, lease, contract
or other agreement binding upon USX, any Subject Company or their respective
properties, except with respect to clause(c) for such
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violations or defaults which would not have a material adverse effect on the
business, properties, financial condition or results of operation of the Subject
Companies, taken as a whole, and assuming that there are no facts or
circumstances concerning Buyer or its affiliates that require registration or
filing with the Federal Energy Regulatory Commission or any state public utility
agency.
2.1.4 Subject Company Stock. Each share of Subject Company Stock (a)
has been duly and validly authorized and issued, is fully paid and non
assessable and is not the subject of any preemptive or other right; and (b) is
legally and beneficially owned by USX on the date hereof free and clear of any
lien, encumbrance or other claim.
2.1.5 USX Disclosure Documents. USX has previously delivered to
Buyer true and complete copies of its Annual Report on Form 10-K for the year
ended December 31, 1996; Quarterly Reports on Form 10-Q for the Quarters ended
March 31 and June 30, 1997 and the Current Reports on Form 8-K dated May 15,
1997 and May 16, 1997 (the "USX Disclosure Documents"). The USX Disclosure
Documents conform in all material respects to the requirements of the Securities
and Exchange Act of 1934, as amended, and the rules and regulations thereunder
(the "Exchange Act"). As of the dates of such documents, as they relate to the
Delhi Group, and assuming that the Delhi Group was an independent reporting
company under the Exchange Act unaffiliated with the Marathon Group or the U.S.
Steel Group, the USX Disclosure Documents 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 therein in light of the
circumstances in which they were made not misleading.
2.1.6 Financial Statements. The consolidated financial statements
of USX and the Delhi Group Statements contained in the USX Disclosure Documents
were prepared in accordance with generally accepted accounting principles
consistently applied (except for changes noted therein, if applicable) and
fairly present in all material respects the financial position of USX on a
consolidated basis and of the Delhi Group, as the case may be, as of the dates
thereof and the results of operations and statement of cash flows of USX on a
consolidated basis and of the Delhi Group, as the case may be, for the periods
ended on such dates subject in the case of unaudited interim financial
statements to normal year end adjustments. To the knowledge of USX, Price
Waterhouse, LLP, whose report on the annual financial statements contained
therein, are independent public accountants as defined by regulations of the
Securities and Exchange Commission.
2.1.7 Legal Proceedings and Violations.
(a) Except as disclosed in the USX Disclosure Documents, (i)
there are no legal proceedings pending, or to the knowledge of USX, threatened,
against any of the Subject Companies which, individually or in the aggregate, if
adversely decided, would have a material adverse effect on the business,
properties, financial condition or results of operations of the Subject
Companies, taken as a whole; (ii) none of the Subject Companies is in violation
of any law, regulation, ordinance, judicial decree or administrative order
(including, but not limited to, any environmental or employee
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benefit law) which violation, individually or in the aggregate, would have a
material adverse effect on the business, properties, financial condition or
results of operation of the Subject Companies, taken as a whole and (iii) each
of the Subject Companies has all licenses, permits and other governmental grants
of authority ("Permits") necessary to own its respective assets and conduct its
business as currently conducted except for the absence of Permits which,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, financial condition or results of operation of the
Subject Companies, taken as a whole.
(b) USX has previously delivered to Buyer a complete and
accurate list of all current actions, lawsuits, investigations, audits (other
than tax audits), proceedings pending (or, to USX's knowledge, threatened)
against or involving the Subject Companies or the assets of the Subject
Companies before any arbitrator or federal, state or municipal court,
department, board, agency or instrumentality.
2.1.8 Changes Since June 30, 1997. Except as disclosed in the USX
Disclosure Documents or as set forth in Schedule 2.1.8, since June 30, 1997, (a)
the business of the Subject Companies has been conducted in the ordinary course,
consistent with past practice; (b) none of the Subject Companies or their
respective properties has suffered any fire, loss or other casualty that has
resulted in or is likely to result in the future in a material adverse effect on
the business, properties, financial condition or results of operation of the
Subject Companies, taken as a whole; and (c) there has not occurred any
condition that has, had, or with the passage of time, the giving of notice or
both, will have a material adverse effect on the business, properties financial
condition or results of operation of the Subject Companies taken as a whole.
2.1.9 Benefit Plans.
(a) USX has previously delivered to Buyer complete and accurate
copies of all pension, retirement, profit sharing, Section 401(k), thrift-
savings, individual retirement account, excess benefit plan, deferred
compensation (other than the deferred compensation agreement of the former Texas
Oil and Gas Corporation dated as December 1, 1985 which has been assumed by
USX), incentive compensation, stock bonus, stock option, restricted stock, cash
bonus, employee stock ownership (including, without limitation, payroll related
employee stock ownership), severance pay, cafeteria, flexible compensation, life
insurance, medical, dental, disability, or vacation plans or arrangements of any
kind and any other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan (as defined in Section 3 of the Employee Retirement Income Security Act of
1974, as amended, 29 U.S.C. 1001 "ERISA"), incentive compensation plan or
fringe benefit or any combination of the foregoing established, maintained,
sponsored, contributed to or otherwise participated in by any of the Subject
Companies for any of its current or past employees.
(b) USX has previously delivered to Buyer complete and accurate
copies of all outstanding employment or consulting, severance or termination
agreements
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or other similar commitments which cover any current or past officer or
employee of the Subject Companies.
2.1.10 Material Contracts.
(a) USX previously delivered to Buyer complete and accurate
copies of all Material Contracts, as hereinafter defined. All Material
Contracts are in full force and effect and neither USX nor the Subject Companies
have given or received written notice of any event of force majeure, breach,
default or condition which with the passage of time, the giving of notice or
both would constitute a breach or default.
(b) Material Contracts shall mean any contract, indenture,
purchase order or other agreement to which any Subject Company is a party and
which (i) is outside of the ordinary course of business; (ii) one of the five
largest in terms of year to date 1997 transaction dollars for each of the
purchase, sale or transportation of any of natural gas, natural gas liquids,
condensate or sulphur; (iii) involves expenditures or receipts by the Subject
Companies of more than $1,000,000 other than those for the purchase, sale or
transportation of natural gas, natural gas liquids, condensate sulphur or
electric power and (iv) any contract with an affiliate of USX other than those
for the purchase, sale or transportation of natural gas, natural gas liquids,
condensate, sulphur or electric power.
2.1.11 Insurance. USX has previously delivered to Buyer a list of
all liability or property insurance currently in effect covering the Subject
Companies.
2.1.12 Title to Properties. The Subject Companies own or lease all
of their assets, including rights of way, free and clear of any and all security
interests, mortgages or other monetary lien, except for precautionary, security
interest filings in connection with leases, matters previously disclosed in
writing to Buyer or other matters which individually or in the aggregate would
not have a material adverse effect on the business, properties financial
condition or results of operation of the Subject Companies taken as a whole.
2.1.13 Condition and Sufficiency of Assets. The physical condition
of the assets owned or leased by the Subject Companies (a) are adequate for the
uses to which they are being put; (b) are in good operating condition consistent
with their age; and (c) have been maintained consistent with standard practice
in the natural gas industry except in each case for such defects which,
individually or in the aggregate, would not have a material adverse effect on
the business, properties, financial condition or results of operation of the
Subject Companies taken as a whole.
2.1.14 Accounts Receivable. All accounts receivable of the Subject
Companies that are reflected in the accounting records of the Subject Companies
represent obligations of the customer arising from sales actually made in the
ordinary course of business. The reserves established in relation to such
accounts were established consistent with past practice and such reserves have
historically been sufficient.
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2.1.15 Gas Purchase Contracts. As of the date of this Agreement,
the Subject Companies' natural gas throughput exceeds 1.2 TBtu/day and, to the
best of the Subject Companies' knowledge after due inquiry, of this amount
approximately 12% is under contracts that have expiration dates between October
1, 1997 and September 30, 1998.
2.1.16 Imbalances. Imbalances receivable and payable as recorded
on the balance sheets of the Subject Companies reflects net cash or volumes to
be received or paid by the Subject Companies.
2.2 Representations and Warranties of Buyer. Buyer represents and
warrants to USX the following:
2.2.1 Existence and Organization. Buyer and Koch are corporations
duly incorporated validly existing and in good standing under the law of the
state of their incorporation and are duly qualified and in good standing as a
foreign corporation in each jurisdiction where such qualification is required to
carry out its obligations hereunder.
2.2.2 Corporate Authority.
(a) Buyer and Koch each has full power and authority to own its
properties and to conduct its business and operations as currently conducted.
(b) The execution and delivery of this agreement and the
consummation of the transactions contemplated herein have been approved by the
Boards of Directors of Buyer and Koch and no shareholder or other corporate
approval or action is required on the part of Buyer and Koch. This Agreement
constitutes a legal, valid and binding obligation of Buyer enforceable against
it in accordance with its terms and of Koch as to Section 4.6 hereof as to which
it is a party.
2.2.3 Conflicts and Consents. The execution and delivery by Buyer
and Koch of this Agreement and the consummation of the transactions contemplated
herein does not conflict with, violate, constitute an event of default, require
the consent of any government entity or result in the creation of a lien or
encumbrance under (a) the Constituent Documents of Buyer or Koch ; (b) any law,
regulation, ordinance, judicial decree or administrative order binding upon
Buyer or Koch or its properties except for approvals required under HSR and (c)
any material mortgage, indenture, lease, contract or other agreement binding
upon Buyer or its properties except with respect to clause (c) for violations or
defaults which will not have a material adverse effect on the financial position
or results of operation of Koch taken as a whole and assuming that there are no
facts or circumstances concerning USX or its affiliates that require
registration or filing with the Federal Energy Regulatory Commission or any
state public utility agency.
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2.2.4 Investment Intent. Buyer is acquiring the Subject Company
Stock for its own account for investment purposes with no intent to engage in a
distribution or public offering thereof.
2.2.5 Financing. Buyer has available to it sufficient funds to
permit Buyer to purchase the Subject Company Stock and to consummate the
transactions contemplated herein.
2.2.6 Ownership of USX Shares. Neither Buyer, Koch nor any
subsidiary of Koch beneficially owns any shares of USX Delhi Group Stock, and in
the aggregate own more than 5% of the outstanding shares of any other series or
class of USX capital stock.
2.2.7 Ownership of Buyer. Buyer is an indirect wholly owned
subsidiary of Koch. Koch owns the Buyer for its own account for investment
purposes with no intent to engage in a distribution or public offering thereof.
2.3 Representations Exclusive. The representations and warranties of USX,
Koch and Buyer contained herein are the sole and exclusive representations and
warranties of each party and USX represents to Buyer, and Buyer represents to
USX, that such party has not relied upon any other representation or warranty,
whether expressed or implied.
Article III
Covenants
3.1 Covenants of USX. USX covenants and agrees as follows:
3.1.1 Interim Operations. From the date hereof USX agrees that,
subject to the prior consent of Buyer (which consent shall not be unreasonably
withheld or delayed), that it will cause each of the Subject Companies to:
(a) Conduct their business and maintain their assets only in the
ordinary course and consistent with past practice;
(b) Duly and punctually pay and perform all of its contractual
obligations in accordance with the terms thereof;
(c) Not to sell, pledge or assign any of the Subject Company
Stock nor issue or agree to issue any share of capital stock of any of the
Subject Companies;
(d) Not amend any of the Constituent Documents of any of the
Subject Companies;
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(e) Not acquire any assets or the securities of any person other
than in the purchase of natural gas and supplies in the ordinary course of
business consistent with past practice or, in the case of other items, would
involve a purchase price of more than $150,000;
(f) Not dispose of any assets other than the sale of natural
gas, natural gas liquids, condensate, sulphur or electric power in the ordinary
course of business consistent with past practice or, in the case of other items,
would involve a purchase price of more than $150,000;
(g) Not (i) make any capital expenditures greater than $10,000
for any item or $100,000 in the aggregate other than amounts and items included
in the 1997 Capital Plan, a copy of which has been supplied to Buyer or (ii)
cancel or materially delay any capital expenditure underway on the date hereof;
(h) Not enter into any contract or agreement that would
constitute a Material Contract or for a term longer than 12 months (assuming
that all cancellation rights are promptly exercised on the Closing Date or as
soon thereafter as possible);
(i) Not establish nor amend any employee benefit plan except as
contemplated in Section 4.2 hereof;
(j) Not grant any salary or wage increase or pay any bonus
except for increases granted to non-officers in accordance with the Subject
Companies existing programs or as contemplated in Section 4.2 hereof;
(k) Not incur, guarantee or become liable for any indebtedness
for money borrowed other than to USX or wholly-owned subsidiaries of USX and
guarantees made by one of the Subject Companies for the benefit of another of
the Subject Companies;
(l) Not declare, set aside, pay or make any distribution in
respect of any of its capital stock or purchase, redeem, otherwise acquire any
of its capital stock (except as authorized by Section 4.4 hereof); or
(m) Not authorize, agree with any person nor make any commitment
to do any of (c) through (l) above.
3.1.2 Access to Information. Until the Closing Date, allow Buyer
and Buyer's accountants and counsel, reasonable access during normal business
hours to all of the properties, books and records of the Subject Companies and
to hold discussions with the officers and senior employees of the Subject
Companies. All such visits and discussions shall be conducted during normal
business hours and shall be coordinated in advance with such person as may be
designated by USX.
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3.1.3 Further Assurances. After the Closing Date, undertake at
its sole cost any action reasonably requested by Buyer to further vest in Buyer
ownership of the Subject Company Stock free and clear of any lien or
encumbrance.
3.1.4 Accounts Receivable Financing. USX shall cause the release
of the lien on the receivables of the Subject Companies granted pursuant to
USX's accounts receivable sales program.
3.2 Covenants of Buyer. From the date hereof, Buyer agrees that it will:
3.2.1 Due Diligence Activities. All information received by Buyer
in connection with the transaction contemplated herein, including its due
diligence activities, shall be treated in accordance with the Confidentiality
Agreement between USX and Koch dated September 5, 1997 (the "Confidentiality
Agreement") and, in the event that the Closing does not occur, all information
and material received shall be returned to USX in accordance with the
Confidentiality Agreement.
3.2.2 Stock Acquisition. Abide by the provisions regarding
acquisition of USX securities set forth in the Confidentiality Agreement.
3.2.3 Closing of Financial Books and Access to Records. After the
Closing Date, Buyer shall provide USX with access to all records and the
cooperation of all employees of the Subject Companies as may be reasonably
necessary in connection with the final closing of the financial books of the
Subject Companies as USX Subsidiaries; the preparation of year-end or interim
period financial statements for periods during which the Subject Companies were
USX Subsidiaries; the calculation of dividends or redemption payments required
to be paid to the holders of USX--Delhi Group Stock; preparation of tax returns
and any administrative or judicial proceeding relating to taxes.
3.3 Joint Covenants. USX and Buyer agree that:
3.3.1 Government Filings. Promptly upon the execution of this
Agreement, USX and Buyer shall make all filings required under HSR with the
Federal Trade Commission and the Department of Justice.
3.3.2 Consents. If Buyer identifies any contract or business
relationship between any of the Subject Companies and any third party or any
Permit as to which Buyer would like to obtain the consent of such third party or
government authority to this transaction, Buyer shall notify USX and USX and
Buyer shall use all commercially reasonable efforts to obtain such consent,
provided that the failure to obtain any such consent (other than to a Material
Contract) shall not be a condition precedent to the consummation of the
transaction contemplate herein.
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3.3.3 Notification. Each will promptly notify the other in
writing if it becomes aware of any fact or condition which makes untrue, or
shows to have been untrue when made, any representation or warranty made by such
party in this Agreement.
3.3.4 Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each party shall use all commercially reasonable efforts to
cause the Closing to occur and to fulfill all of its obligations hereunder.
3.3.5 Replacement of Guarantees. Each party will use commercially
reasonable efforts to cause USX to be released on the Closing Date from all
guarantees, letters of credit and other financial obligations entered into by
USX for the benefit of the Subject Companies other than guarantees or letters of
credit outstanding on the date hereof to the extent they relate to existing
contracts of the electric power marketing business.
Article IV
Certain Other Agreements
4.1 Tax Matters. USX and Buyer shall elect, for federal income tax
purposes, to treat the purchase and Sale of Subject Company Stock as a purchase
and sale of Subject Company assets pursuant to Internal Revenue Code Section
338(h)(10) so as to provide Buyer with a stepped-up tax basis in Subject Company
assets, as more particularly set forth in the Tax Matters Agreement attached
hereto as Attachment II. Simultaneously with the execution hereof, the parties
shall execute the Tax Matters Agreement.
4.2 Employee Matters.
(a) USX and Buyer by letter dated of even date herewith have
designated certain employees of the Subject Companies (the "Designated
Employees"). USX may discuss with any Designated Employee the possibility of
transferring such Designated Employee to USX or a subsidiary of USX. Prior to
the Closing (or such latter date that may be reasonably agreed by USX and
Koch), USX may transfer to its payroll or to one of its subsidiaries any or all
of the Designated Employees. Except for the Designated Employees or employees
who are terminated by Buyer, USX agrees that for a period of two years it will
not, and it will cause its subsidiaries not to, employ any person who at the
date hereof was an officer of any of the Subject Companies or was an employee
receiving a salary of more than $ 75,000 per year, provided this covenant shall
not apply to any person whose employment is terminated by any of the Subject
Companies, including, for purposes of this Section 4.2, any person whose
employment by the Subject Companies ends as the result of such person declining
a transfer to another position with the Subject Companies, Buyer or any
affiliate of Buyer.
-11-
(b) USX shall be responsible for the settlement of all stock options
to purchase USX--Delhi Stock or restrict stock grants of USX--Delhi Stock
granted to employees or former employees of USX and its affiliates including
the Subject Companies.
(c) USX shall amend or cause to be amended the 1986 Stock Option
Incentive Plan, and the 1990 Stock Plan, to treat continuous employment after
the Closing Date with the Buyer, any Subject Company or any subsidiary of the
Buyer as employment by USX or one of its subsidiaries for eligibility and
vesting purposes under such plans provided that USX shall make no further grants
or contributions thereunder in respect of employees of the Subject Companies.
(d) Promptly following the Closing Date, the Subject Companies shall
commence all actions necessary to cause the Amended and Restated Retirement Plan
for Employees of Delhi Gas Pipeline Corporation (the "Plan") to transfer to a
pension plan sponsored by USX or an affiliate those portions of the Plan's
assets attributable (i) to accrued benefits for the approximately three hundred
current employees of USX affiliates, other than the Subject Companies and (ii)
to the accrued benefits for any of the Designated Employees transferred to USX
or a subsidiary of USX pursuant to Section 4.2 (a) who have accrued benefits
under the Plan (the collectively "Former Employees"). In connection with such
transfer, USX shall cause the receiving plan to assume all obligations the Plan
has to provide benefits to the Former Employees.
4.3 Alternative Proposals.
(a) After the date hereof and prior to the termination of this
Agreement in accordance with Section 6.3 hereof, USX agrees that neither it nor
any of its directors, officers, employees, agents or representatives (including
any investment banker, attorney or accountant retained by USX) will directly or
indirectly initiate, solicit, engage or make inquiries concerning any proposal
or offer to acquire all or a substantial part of the Subject Company Stock; or
the business and assets of the Subject Companies whether by purchase of assets,
merger, tender offer or otherwise; or of USX--Delhi Stock, other than the sale
thereof pursuant to existing stock option, 401K or other employee benefit plans
(collectively an "Alternative Transaction").
(b) Notwithstanding the provisions of (a) above, in response to an
unsolicited proposal or indication of interest for or with respect to a
potential Alternative Transaction (an "Alternative Proposal"), USX may (i)
engage in discussions and negotiations concerning such Alternative Proposal with
the person making it and (ii) subject to the execution by USX and such person of
a confidentiality agreement substantially similar to the Confidentiality
Agreement, disclose to such person material non-public information concerning
the Subject Companies provided that such activities are undertaken only if in
the reasonable good faith business judgment of USX's Board of Directors (the
"Board"), including the advice of such in house or outside counsel as the Board
may consult, undertaking such activities would be consistent with the Board's
fiduciary duties to the holders of USX--Delhi Stock.
-12-
(c) USX shall immediately notify Buyer of the receipt of any
Alternative Proposal or any request for non public information in connection
with an Alternative Proposal and shall keep Buyer fully informed of the status
and details of any such Alternative Proposal unless in the good faith business
judgment of the Board such disclosure is inconsistent with the Board's fiduciary
duties to the holders of USX--Delhi Common Stock.
(d) The Board may, upon written notice to Buyer, terminate this
Agreement if, in the reasonable good faith business judgment of the Board (after
consultation with such in-house or outside counsel, investment bankers and other
advisors as the Board deems appropriate) such termination is consistent with the
Board's fiduciary duty to the holders of USX--Delhi Stock.
(e) In the event that the Board terminates this Agreement pursuant to
(d) above, then USX shall pay to Buyer the sum of $20,000,000, by wire transfer
of immediately available funds not later than two business days after the giving
of written notice of termination. Such payment shall be in full and complete
satisfaction of any obligations owed by USX to Buyer in connection with this
Agreement.
4.4 Satisfaction of Certain Obligations. On or before the Closing Date
USX shall undertake steps to adjust the assets and liabilities of the Subject
Companies on a combined basis as necessary so that had these steps been
undertaken on the Effective Date, the balance sheet of the Subject Companies on
a combined basis would have been as reflected in column G of Schedule 4.4 (which
is based upon September 30, 1997 assets and liabilities). Schedule 4.4 details,
by way of example, assuming that the Effective Date was September 30, 1997 the
assets and liabilities listed under column G on Schedule 4.4 for which the
Subject Companies are to be responsible and those assets and liabilities listed
under columns C, D, and E on Schedule 4.4 for which USX is to be responsible.
4.4.1 Subject Company Items. The procedures involve the following
adjustments at the Subject Company level:
(a) All cash and cash equivalents shall remain with USX. To the
extent that cash is not used to settle other items, there shall be a dividend
declared immediately prior to the Closing of all cash held by any of the Subject
Companies on such date.
(b) The Subject Companies shall repurchase from USX all
receivables previously sold to USX.
(c) All accounts payable (both third party and intercompany) and
all employee obligations (both current and long-term) shall remain the
responsibility of the Subject Companies.
-13-
(d) All accrued taxes (other than accrued taxes that are
reasonably expected to be payable or receivable within one year and which are
eliminated in column B of Schedule 4.4) shall remain the responsibility of the
Subject Companies and shall be settled in accordance with the Tax Matters
Agreement.
(e) All intercompany debt and related interest shall be settled
by USX or USX shall cause its subsidiaries to settle all such intercompany debt
and related interest.
(f) All external debt, both current and long-term, and related
accrued interest shall be settled by USX or there shall be an adjustment to the
Purchase Price to reflect retention of such obligations by the Subject
Companies.
(g) All deferred credits and other liabilities shall remain the
responsibility of the Subject Companies
(h) Adjustments to deferred income taxes as determined to be
appropriate by USX.
4.4.2 Group Items. USX shall remain responsible for and the
Subject Companies shall have no responsibility for the items reflected in the
columns C, D and E as set forth in Schedule 4.4, provided that the Subject
Companies shall remain responsible for the payment of taxes as set forth in the
Tax Matters Agreement.
4.5 Indemnification.
(a) Except as set forth in the Tax Matters Agreement and (d) below,
USX shall indemnify Buyer and its affiliates and hold them harmless from any
loss, liability, claim or damage incurred arising from the operations of USX
Corporation (including, without limitation, USX headquarters' functions and any
claims made by current or former shareholders of USX), the U.S. Steel or
Marathon Group, including, without limitation, Marathon Oil Company ("Marathon")
businesses prior to, on or after the Closing Date but excluding from such
indemnity the operations of the Subject Companies prior to, on or after the
Closing Date.
(b) Except as set forth in the Tax Matters Agreement and (d) below,
Buyer shall and shall cause the Subject Companies to jointly and severally
indemnify USX and its affiliates and hold them harmless from any loss,
liability, claim or damage incurred arising from the operations of the Subject
Companies prior to, on or after the Closing Date, but excluding from such
indemnity the operations of USX Corporation (including, without limitation, USX
headquarters' functions and any claims made by current or former shareholders of
USX), the U.S. Steel or Marathon Group, including, without limitation, Marathon
Oil Company ("Marathon"), businesses prior to, on or after the Closing Date.
-14-
(c) The indemnification herein shall include both known and unknown
matters; whether arising under statute, regulation, order, contract or tort;
whether disclosed or undisclosed; whether innocent or involving negligence,
gross negligence or intentional misconduct and whether the liability thereon is
absolute or contingent on the date hereof.
(d) The indemnification set forth above shall not excuse any of USX,
Buyer, the Subject Companies, any subsidiary of USX or the Buyer from performing
their respective obligations under any agreement for the purchase or sale of
goods or services, or relating to indemnification obligations entered into
between them in the ordinary course of business consistent with past practice,
including the indemnification agreed to in the Termination Agreements dated
August 9, 1990 between Marathon, as successor in interest to TXO Production
Corp., and the Subject Companies. USX shall cause Marathon to continue to abide
by and perform all of Marathon's obligations under the Termination Agreements,
including the obligation to indemnify and hold the Subject Companies harmless
against certain litigation as provided therein.
4.6 Commitments of Koch.
(a) Koch agrees that it will provide Buyer with sufficient funds to
pay the Purchase Price hereunder.
(b) Koch agrees that in the event that Buyer breeches (i) its
obligation to consummate the Closing, (ii) its representations set forth in
Section 2.2 or (iii) its covenants in Sections 3.2.1 and 3.2.2 Koch will be
liable for any damages awarded to USX by a court as a result of such breech.
(c) Koch agrees that for a period until December 31, 2001, if at any
time during such period the consolidated net worth of the Subject Companies, or
their successors and assigns, is less than $75,000,000 then during the period of
such deficiency Koch shall guarantee, up to the level of the deficiency below
$75,000,000, the due and timely payment by the Subject Companies under Section
4.5 provided that in no event shall Koch be obligated to pay more than
$75,000,000 under such guarantee of the indemnity.
4.7 Electric Power Business. In
connection with the decision to exit the electric power marketing business, USX
shall reimburse the Subject Companies for the amount by which Shutdown Costs (as
hereinafter defined) incurred by the Subject Companies after the Effective Date
exceed $500,000. Shutdown Costs shall mean the costs actually incurred for (i)
severance and other termination obligations relating to the eleven (11)
employees employed full-time in the existing electric power marketing business;
(ii) the liquidation of any contract positions taken in connection with the sale
of electric power; (iii) any futures contracts entered into by the Subject
Companies concerning the sale of electric power entered into prior to the
Closing Date; and (iv) operating expenses incurred after the Effective Date
relating solely to the electric power marketing business, in each case, net of
any revenues generated. Such reimbursement
-15-
obligation shall be paid monthly upon receipt by USX of documentation supporting
the incurrence of Shutdown Costs. Buyer will cause the Subject Companies to
take all commercially reasonable steps to minimize Shutdown Costs. Buyer agrees
that USX will not be responsible for costs arising from a decision by the Buyer
to re-enter the electric power marketing business after the Closing Date.
Article V
Conditions to Closing
5.1 Conditions Precedent to USX's Obligations. All obligations of USX
arising pursuant to this Agreement are subject to performance at or prior to the
Closing Date of all of Buyer's obligations hereunder and to the satisfaction of
each of the following conditions, unless expressly waived in writing by USX.
5.1.1 Opinion of Counsel. USX shall be furnished with the opinion
of Lawrence R. Purtell, Esquire, General Counsel of Koch, or John H.
Bomgardener, II, Assistant General Counsel of Koch, addressing the
representations contained in Sections 2.2.1, 2.2.2, and 2.2.3.
5.1.2 Representations and Warranties. The representations and
warranties made by Buyer herein shall be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
all representations and warranties had been made on and as of such date, and the
Buyer's Chairman of the Board of Directors, President or Vice President have so
certified on behalf of Buyer.
5.1.3 Covenants and Agreements. Buyer shall have performed or
complied in all material respects with all obligations, covenants and agreements
required by this Agreement to be performed or complied with by Buyer by the time
of Closing and the Buyer's Chairman of the Board of Directors, President or Vice
President shall have so certified on behalf of Buyer.
5.2 Conditions Precedent to Buyer's Obligations. All obligations of Buyer
arising under this Agreement are subject to the performance at or prior to the
Closing Date of all of USX's obligations hereunder and to the satisfaction of
each of the following conditions, unless expressly waived in writing by Buyer.
5.2.1 Opinion of Counsel. Buyer shall be furnished with the
opinion of Dan D. Sandman, General Counsel, or John A. Hammerschmidt, Assistant
General Counsel, of USX addressing the representations contained in Sections
2.1.1, 2.1.2, 2.1.3, 2.1.4 and 2.1.5 (other than concerning financial statements
contained therein).
5.2.2 Representations and Warranties. The representations and
warranties made by USX herein shall be true and correct in all material respects
on and as of the Closing Date with the same force and effect as though all such
representations and
-16-
warranties have been made on and as of such date and USX's Chairman of the Board
of Directors, Vice Chairman & Chief Financial Officer, or Vice President &
Treasurer and the President, Senior Vice President-Administration, General
Counsel & Secretary, or the Vice President-Finance & Accounting of Delhi Gas
Pipeline Corporation shall have so certified on behalf of USX in substantially
the form attached hereto as Schedule 5.2.2.
5.2.3 Covenants and Agreements. USX shall have performed or
complied in all material respects with all obligations, covenants and agreements
required by this Agreement to be performed or complied with by USX by the time
of Closing and USX's Chairman of the Board of Directors, Vice Chairman & Chief
Financial Officer or Vice President & Treasurer shall have so certified on
behalf of USX.
5.2.4 Material Contract Consents. Receipt of any consent to the
sale of the Subject Company Stock required under any Material Contract.
5.3 Mutual Conditions Precedent. The obligations of both USX and Buyer
shall be subject to the satisfaction on or prior to the Closing Date of each of
the following, unless expressly waived in writing by both parties.
5.3.1 No Injunctions. No temporary restraining order, preliminary
or permanent injunction or other legal restraint or prohibition preventing the
purchase and sale of the Subject Company Stock shall be in effect.
5.3.2 HSR Filing. All waiting periods under HSR have expired, no
order enjoining the consummation of the transaction contemplated herein has been
entered by any court, no action seeking to enjoin the consummation of this
transaction has been commenced by any person and neither the Federal Trade
Commission or the Department of Justice have threatened to seek to enjoin the
transaction.
Article VI
Closing
6.1 Closing Date. The closing of this transaction shall occur on the
latter of (a) November 14, 1997 or (b) the second Business Day following the
satisfaction of the conditions set forth in Section 5.3 hereof. Business Day
shall mean any day other than a Saturday, Sunday or day on which commercial
banks are permitted to be closed in New York, NY, Pittsburgh, PA or Wichita,
KS(the "Closing Date").
6.2 The Closing.
(a) The Closing shall be held at the offices of USX at 600 Grant
Street, Pittsburgh, PA, or such other place as the parties shall agree at 11:00
A.M. on the Closing Date.
-17-
(b) A pre-closing shall be held on the Business Day immediately prior
to the Closing Date and, to the extent possible, all documents delivered by
either party shall be examined at the pre-closing.
(c) At the Closing, USX shall deliver:
(i)Certificates for the Subject Company Stock duly endorsed for
transfer to the Buyer vesting in Buyer legal and beneficial
title to the Subject Company Stock free and clear of all
liens, pledges, security interests or other encumbrances
other than any arising out of Buyer's actions;
(ii) Resignations of each director of any Subject Company;
(iii) The opinion of counsel specified in Section 5.2.1;
(iv) The officer's certificate specified in Section 5.2.2; and
(v) Such other documents and certificates as Buyer or its counsel
may reasonably request.
(d) At the Closing, Buyer shall deliver:
(i)The Purchase Price by wire transfer of immediately available
funds to a domestic bank account specified by USX in writing
at least two (2) Business Days prior to the Closing Date;
(ii) The opinion of counsel specified in Section 5.1.1;
(iii) The officer's certificate specified in Section 5.2.1;
(iv) An agreement by each of the Subject Companies to jointly
and severally assume the indemnification obligations set
forth in Section 4.5 (b); and
(v)Such other documents and certificates as USX or its counsel
may reasonably request.
6.3 Effective Date.
(a) The transaction contemplated herein shall be effective upon the
Effective Date, as defined below. The parties intend that if the Closing occurs
that the risks and rewards of the Subject Companies between the Effective Date
and the Closing Date shall be for the account of the Buyer .To implement such
result (i) if the amount of cash and cash equivalents (the "Cash Balance") of
the Subject Companies on a combined basis on the Closing Date is greater than
the Cash Balance reflected in column A of Schedule 4.4 as of the Effective Date
("Column A Cash Balance"), USX shall pay the amount of such difference to Buyer,
and, if the Cash Balance on the Closing Date is less than Column A Cash Balance,
then Buyer shall pay the amount of such difference to USX and (ii) if the
intercompany debt balance (including accrued interest related thereto) (the
"Debt Balance") of the Subject Companies on a combined basis on the Closing Date
is greater than the Debt Balance reflected in column A of Schedule 4.4 as of the
Effective Date (the "Column A Debt Balance"), Buyer shall pay the amount of such
difference to
-18-
USX and, if the Column A Debt Balance is less than the Debt Balance on the
Closing Date, then USX shall pay the amount of such difference to Buyer.
(b) If the Closing occurs between November 14, 1997 and December 14,
1997, the Effective Date shall mean October 31, 1997, and, if the Closing occurs
on or after December 15, 1997 the Effective Date shall be November 30, 1997.
(c) Within two weeks of the Closing Date, USX shall supply Buyer with
its calculation of the payment due to or from USX to satisfy the obligations set
forth in Section 1.2 and 6.3(a) if different than the calculation at Closing.
Within two weeks of receipt of such calculation, Buyer shall supply USX with any
objection to the calculation. If there is such an objection, the matter should
be submitted to resolution by a panel of three arbitrators, a representative of
Price Waterhouse selected by USX, a representative of KMPG Peat Marwick (or its
successor) selected by Buyer, and a third accountant selected by the other two
(the "Panel"). Within two weeks of their selection, the Panel shall resolve any
issue in dispute by selecting in total the calculation submitted by one party.
The decision of the Panel shall be final and binding and the loser shall pay the
total costs and expenses of the Panel.
6.4 Termination.
(a) This Agreement may be terminated by either party by written
notice to the other if the Closing does not occur by December 31, 1997,
provided, however, that the party seeking termination pursuant to this clause
(a) is not in breach in any material respect of any of its representations,
warranties, covenants or agreements contained in this Agreement. Except in the
case of a material breach of this Agreement, in the event of such termination,
no party shall be liable to the other party for any damages, costs or expenses
incurred in connection with the negotiation and execution of this Agreement and
the Tax Matters Agreement, and no party shall have any further obligation under
this Agreement or the Tax Matters Agreement.
(b) This Agreement may be terminated by USX at any time in accordance
with the provisions of Section 4.3(d).
6.4 Time Is Of The Essence. The parties agree that time is of the essence
in this Agreement.
Article VII
Miscellaneous
7.1 Expenses. Except as expressly provided in this Agreement, whether or
not the transactions contemplated hereunder shall be consummated, each party
shall pay its own expenses incident to the preparation of this Agreement and for
consummating the transaction, including all outside counsel and accountant fees
incurred by it. Each party
-19-
shall also pay all filing fees, taxes and other expenses required to be
paid by it under applicable laws, regulations or contracts to perform the
covenants and obligations hereunder.
7.2 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given if actually
delivered by any reasonable means or if mailed by registered or certified mail,
return receipt requested, to the following addresses or to such other address as
any party may subsequently designate in writing:
(a)If to USX, then to:
USX Corporation
600 Grant Street
Pittsburgh, PA 15219-4776
Attention: T. J. Usher
Chairman of the Board of Directors
& Chief Executive Officer
With copy to:
D. D. Sandman, Esquire
General Counsel
USX Corporation
600 Grant Street
Pittsburgh, PA 15219-4776
(b)If to Buyer, then to:
Koch Midstream Enterprises, Inc.
600 Travis Street
Houston, TX 77251
Attention: John Gibson
President
With a copy to:
Lawrence R. Purtell, Esquire
General Counsel
Koch Industries, Inc.
4111 E. 37th Street North
Wichita, KS 67220
William C. Pitcher, Esquire
Assistant General Counsel
Koch Industries, Inc.
600 Travis Street
Houston, TX 77251
-20-
7.3. Applicable Laws; Counterparts. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware. This Agreement
may be executed simultaneously in two or more counterparts, including by
facsimile, each of which shall be deemed an original but all of which together
shall constitute but one and the same instrument.
7.4. Entire Agreement. This Agreement, including the Attachment hereto and
any document incorporated by reference therein and herein, and the
Confidentiality Agreement contains the full agreement between the parties
hereto, supersedes any and all agreements and amendments thereto which may have
been heretofore negotiated or entered into between them. There are no further
understandings written or oral between the parties.
7.5. Advisors. USX acknowledges that it has consulted with Lehman Brothers
in connection with this matter and that any fees or compensation due Lehman
Brothers shall be paid solely by USX. Except for the foregoing, neither party
has retained any advisor or broker and each party shall indemnify the other
against any claim arising for an action taken by such party concerning any
commission or other fees.
7.6. Publicity. Each Party agrees to issue a joint press release promptly
upon the execution and delivery of this Agreement and USX may file a Current
Report on Form 8-K with the Securities and Exchange Commission within ten (10)
days of the date hereof. Except for such disclosure or as otherwise required by
law or pursuant to request of any governmental agency, each party agrees that
neither it nor its attorneys, advisors, accountants and agents shall make any
press release or other disclosure concerning the transaction contemplated herein
without the consent of the other party, which consent shall not be unreasonably
withheld or delayed. Each party agrees that prior to making any press release
or other disclosure concerning the transaction, it will make available a copy of
the proposed press release or other disclosure for the other party's comments.
7.7. Descriptive Heading. The descriptive headings of this Agreement are
inserted for convenience only and are not intended to indicate all of the matter
following them. Accordingly, they shall not control or affect the meaning or
construction of any of the provisions hereof.
7.8. Severability. If any provisions of this Agreement shall be determined
to be invalid or unenforceable, the remainder of this Agreement shall not be
effected thereby and shall remain enforceable to the maximum extent permitted by
law.
7.9. Survival. All representations, warranties and covenants of the
parties shall terminate on the Closing Date except for those covenants requiring
performance after the Closing Date.
7.10 Parties. This Agreement is intended solely for the benefit of the
parties and no rights are created or intended to be created in favor of any
third parties. This
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Agreement cannot be assigned by either party hereto without the written
consent of the other party.
7.11. Amendment. This Agreement may not be amended or modified other
than by written agreement executed by the parties hereto expressly stating that
it is a modification of this Agreement.
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed this
Agreement as of the date first set above.
USX CORPORATION
By:/s/ G. R. Haggerty
--------------
G. R. Haggerty
Vice President and Treasurer
KOCH MIDSTREAM ENTERPRISES, INC.
By: /s/ John Gibson
-----------
John Gibson
President
KOCH INDUSTRIES, INC., as to Section 4.6 only
By:/s/ Kyle D. Vann
------------
Kyle D. Vann
Senior Vice President
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<TABLE>
ATTACHMENT I
<CAPTION>
SUBJECT COMPANIES
Name Shares Shares
Authorized Issued
<S> <C> <C>
Delhi Gas Pipeline Corporation 4,000 4,000
Delhi Energy Services Inc. 1,000 1,000
Delhi Gasmark, Inc. 1,000,000 1,000,000
Delhi Gas Marketing Corp. 1,000 1,000
The Nueces Company 3,000 2,000
Sweetwater Pipeline 1,000 1,000
Corporation
Tonkawa Gas Processing Company 2,000 1,000
</TABLE>
<TABLE>
Schedule 4.4
USX-DELHI GROUP - BALANCE SHEET
SEPTEMBER 30, 1997
<CAPTION>
Col. Col. Col. Col. Col. Col. Col.
A B C D E F G
Delhi
Delhi Section Cor- Tax Debt Busi-
Busi- 4.4.1 porate nesses
nesses Adjust- Allo- Alo- Allo- after
ments cations catiions settle-
cations Total ment
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash ewuivalents 48.0 (48.0) 0.4 0.4 0.0
Receivables
Trade 173.3 0.8 174.1 173.3
Intercompany 1.7 1.7 1.7
Taxes receivable to other groups 6.7 6.7 0.0
Sales to USX (126.5) 126.5 0.0 0.0
Sale to third parties (50.0) (50.0) 0.0
---- ---- ---- ---- ---- ---- ----
Total receivables 48.5 126.5 (43.3) 0.0 0.8 132.5 175.0
Inventories 5.5 5.5 5.5
Deferred income taxes 1.2 1.2 0.0
Other current assets 3.9 3.9 3.9
---- ---- ---- ---- ---- ---- ----
TOTAL CURRENT ASSETS 105.9 78.5 (43.3) 1.2 1.2 143.5 184.4
Investments and long-term
receivables 4.5 0.2 4.7 4.5
Property, plant and equipment 595.7 0.3 596.0 595.7
Other noncurrent assets 8.1 2.4 0.6 11.1 8.1
---- ---- ---- ---- ---- ---- ----
TOTAL ASSETS 714.2 78.5 (40.4) 1.2 1.8 755.3 792.7
---- ---- ---- ---- ---- ---- ----
LIABILITIES AND EQUITY
Notes payable 6.4 6.4 0.0
Accounts payable
Trade 173.6 0.3 0.1 174.0 173.6
Intercompany 13.7 (0.8) 12.9 12.9
---- ---- ---- ---- ---- ---- ----
Total accounts payable 187.3 (0.8) 0.3 0.0 0.1 186.9 186.5
Payroll and benefits payable 4.5 (0.1 0.9 5.3 4.4
Accrued taxes 5.7 (5.7)(A) 4.3 (A) 4.3 0.0
Accrued interest 0.1 (0.1) 0.1 3.7 3.8 0.0
Long-term debt due within one year 36.8 36.8 0.0
---- ---- ---- ---- ---- ---- ----
TOTAL CURRENT LIABILITIES 197.6 (6.7) 5.6 0.0 47.0 243.5 190.9
Long-term debt
External 1.6 (1.6) 227.9 227.9 1.6
Intercompany 146.3 (146.3) 0.0 0.0
---- ---- ---- ---- ---- ---- ----
Total long-term debt 147.9 (146.3) (1.6) 0.0 227.9 227.9 1.6
Long-term taxes payable to USS Group 1.6 1.6 0.0
Deferred income taxes 144.9 5.2 (0.5) (4.5) 145.1 0.0(B)
Employee benefits 13.0 0.4 13.4 13.0
Deferred credits and other
liabilities 5.8 5.8 5.8
---- ---- ---- ---- ---- ---- ----
TOTAL LIABILITIES 509.2 (147.8) 5.5 (4.5) 274.9 637.3 211.3
Preferred stock of consolidated
subsidiary 3.8 3.8 0.0
EQUITY
Subsidiary equity 205.0 226.3 (431.3) 0.0 581.4(B)
Common shareholders' equity 114.2 114.2 0.0
Equity in allocations 271.2 5.7 (276.9) 0.0 0.0
---- ---- ---- ---- ---- ---- ----
TOTAL EQUIY 205.0 226.3 (45.9) 5.7(276.9) 114.2 581.4
---- ---- ---- ---- ---- ---- ----
TOTL LIABILITIES AND
EQUITY 714.2 78.5 (40.4) 1.2 1.8 755.3 792.7
- --------------------------
<FN>
(A) Elimination of portion of accrued taxes reasonably
estimated to be due within one year.
(B) Deferred income tax liabilities reclassified to equity.
</TABLE>
Schedule 2.1.8
Changes Since June 30, 1997
1. Decision to exit the electric power marketing
distribution business.
2. Letter of intent executed to acquire various gas
gathering plants in Oklahoma that ONEOK Products owns
jointly with one of the Subject Companies and a pipeline
facility in Oklahoma that is wholly owned by an
affiliate of ONEOK for a total price of $ 30,500,000.
3. Decision to shutdown the Gilmer and Grapeland treaters.
4. Agreement to settle the Mills litigation for a payment
of $675,000.
TAX MATTERS AGREEMENT
This Tax Matters Agreement made and entered into as of
the 21st day of October, 1997, by and among USX Corporation,
a Delaware corporation (the "Seller"), and Koch Midstream
Enterprises, Inc., a Delaware corporation (the "Buyer").
WITNESSETH:
WHEREAS, the Buyer and Seller are entering into a Stock
Purchase and Sale Agreement, dated the date hereof, pursuant
to which Seller will sell and the Buyer will purchase all of
the issued and outstanding stock of Delhi Gas Pipeline
Corporation and certain other subsidiaries, listed on
Attachment I of the Stock Purchase and Sale Agreement, (each
a "Subject Company" and collectively the "Subject
Companies") such stock purchase and sale being the
"Transaction"; and
WHEREAS, the parties desire to enter into this
Agreement to provide for the allocation between the Buyer,
the Seller and the Subject Companies and their respective
affiliates, of all responsibilities, liabilities and
benefits relating to or affecting any Taxes paid or payable
by any of them for any taxable period, whether beginning
before, on or after the Closing Date, and to provide for
certain other matters including, but not limited to, the
making of joint elections under section 338 of the Code by
the Buyer and Seller.
NOW, THEREFORE, in consideration of the mutual terms,
conditions and other agreements set forth herein and
intending to be legally bound hereby, the Buyer, the Seller
and the Subject Companies hereby agree as follows:
ARTICLE I
DEFINITIONS
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Return or Returns" shall mean all returns,
declarations, reports, claims for refund or information
returns or statements relating to Taxes, including any
schedule or attachment thereto, and including any amendment
thereof filed or to be filed with any Tax Authority in
connection with the determination, assessment or collection
of Taxes.
"Short Period" shall mean any tax period of less than
twelve months which includes the "Effective Date" and ends
on the Effective Date.
"Tax or Taxes" shall mean all United States federal,
state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, employee withholding,
unemployment insurance, workers' compensation, use,
property, real estate,
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excise value added, estimated, stamp, alternative or add-on
minimum, environmental tax, withholding and any other taxes,
duties or assessments, together with all interest, penalties
and additions imposed with respect to such amounts.
"Tax Authority" and "Taxing Authority" shall mean any
domestic, federal, national, state, county or municipal or
other local government, any subdivision, agency, commission
or authority thereof, or any quasi-governmental body
exercising any taxing authority or any other authority
exercising Tax regulatory authority.
Capitalized terms not defined herein shall have the
same meaning assigned in the Stock Purchase and Sale
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties Concerning the
Subject Companies:
2.1.1 Filing of Returns and Payment of Taxes.
Except as set forth in Schedule A, to the best knowledge of
Seller: (i) all Returns required to be filed by, or with
respect to any activities of the Subject companies have been
timely filed (except those under valid extension), and, such
Returns are true, correct and complete in all material
respects, (ii) all Taxes which are due (whether or not
actually shown on such Returns), for which Seller is liable
pursuant to Article 111, have been paid or have been accrued
on the balance sheets as of the Effective Date of the
Subject Companies in accordance with GAAP, and (iii) there
is no material action, suit, proceeding, investigation,
claim or audit now pending against, or with respect to, the
Subject Companies in respect of any Taxes or assessments.
2.1.2 Liens. There are no liens for Taxes (other
than for Taxes not yet due and payable) upon the assets of
the Subject Companies.
2.1.3 Foreign Person. Seller is not a "foreign
person" within the meaning of Section 1445 of the Code.
2.1.4 Safe Harbor Lease Property. None of the Purchased Assets is
property which is required to be treated as being owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former section
168(f)(8).
2.1.5 Section 280G Payments. Seller is not in any
way obligated to make any payments or is a party to any
agreement that could obligate Buyer or the Subject Companies
to make any payments that will not be deductible under
Section 28OG of the Code.
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2.1.6 Statute of Limitations. Except as provided
in Schedule B, none of the Subject Companies have executed
any outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to
any Taxes or Returns.
ARTICLE III
FILING OF RETURNS AND PAYMENT OF TAXES
3.1 Tax Return Preparation, Liability and Indemnity.
3.1.1 Tax Indemnification. (a) Except as provided
in Section 3.1.1(b), regarding Buyer's liability for up to
$1,000,000 of certain taxes, the Seller shall indemnify and
save the Buyer and the Subject Companies harmless from any
and all (i) Taxes imposed on the Subject Companies in
respect of their income, business, property or operations or
for which the Subject Companies may otherwise be liable for
any period ending prior to or on the Effective Date,
including any Short Period or Interim Period (as defined in
Section 3.1.2(b)), and (ii) reasonable costs or expenses
with respect to Taxes indemnified hereunder. Any indemnity
payment required to be made by the Seller pursuant to this
Article III shall be made within 30 days of written notice
from the Buyer.
(b) Following the Effective Date, the Buyer
shall, and shall cause each Subject Company to, indemnify
and save the Seller and its affiliates harmless from any and
all (i) liability for Taxes of the Subject Companies for any
taxable period ending after the Effective Date (except to
the extent such taxable period began before the Effective
Date ("Interim Period"), in which case the Buyer's indemnity
will cover only that portion of any such Taxes that are not
attributable to the Short Period), (ii) federal and state
income taxes that exceed one million one hundred sixty-five
thousand dollars ($1,165,000) up to one million dollars
($1,000,000) and (iii) all liability for reasonable costs and
expenses with respect to Taxes indemnified hereunder. Any
indemnity payment required to be made by the Buyer pursuant
to this Article III shall be made within 30 days of written
notice from the Seller. The indemnity provided in (b)(ii)
shall only apply to federal and state income Taxes resulting
from those adjustments which are considered to be permanent
differences of the Subject Companies and which are
attributable to tax periods commencing after 12/31/91 and
ending before 1/1/97. The indemnity provided above in
(b)(ii) shall not apply to adjustments which are considered
to be temporary differences and which affect the basis of
assets owned by the Subject Companies or result in credits
or refunds which are to be realized by Seller in any tax
period. Subject to the provisions of Section 3.2.1, Buyer
and the Subject Companies will not have any responsibility
to indemnify Seller for any claim made pursuant to this
subsection (b) to the extent such claim is made after the
date which is five years after the Effective Date.
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3.1.2 Apportionment of Taxes. (a) In order
appropriately to apportion any Taxes relating to a period
that includes the Effective Date, the parties hereto will,
to the extent permitted by applicable law, elect with the
relevant taxing authority to treat for all purposes the
Effective Date as the last day of a taxable period of each
of the Subject Companies (a "Short Period"), and such period
shall be treated as a Short Period and a period ending prior
to or on the Effective Date for purposes of this Agreement.
(b) In any
case where applicable law does not permit one or more of the
Subject Companies to treat the Effective Date as the last
day of a Short Period, then for purposes of this Agreement,
the portion of each Tax that is attributable to the
operations of whichever among the Subject Companies cannot
make the election required by Section 3.1.2(a), above, for
the period which would have qualified as a Short Period if
such election had been permitted by applicable law (an
"Interim Period") shall be (i) in the case of a Tax that is
not based on net or gross income, the total amount of such
Tax for the period in question multiplied by a fraction, the
numerator of which is the number of days in the Interim
Period, and the denominator of which is the total number of
days in such period, and (ii) in the case of a Tax that is
based on net or gross income, the Tax that would be due with
respect to the Interim Period if such Interim Period were a
Short Period determined based upon an interim closing of the
books. Notwithstanding this Section 3.1.2(a), Seller shall
be responsible for all Taxes directly attributable to the
deemed sale of assets pursuant to elections made under
Section 338(h)(10) of the Code or similar applicable
statutes, regulations or rules provided by other taxing
jurisdictions.
3.1.3 Calculation of lndemnity Payments. The
Seller and Buyer agree to treat all indemnity payments made
pursuant to this Article III as an adjustment to the
purchase price of the Purchased Assets. With the exception
of indemnity payments which are made pursuant to Section
3.1.1(b)(ii), the Seller and Buyer agree that, with respect
to any payment or indemnity to or for the benefit of the
party to be indemnified (each being a "Tax Indemnitee")
under this Article III, the indemnifying party's indemnity
obligations shall include the payment of such amount, if
any, as shall be necessary to hold the Tax Indemnitees
harmless on an after-Tax basis from all Taxes required to be
paid by the Tax lndemnitees with respect to such payment or
indemnity (including any payments made pursuant to this
Section 3.1.3) under any law.
3.1.4 Tax Returns. (a) (i) Seller, with the
cooperation of Buyer and the Subject Companies, shall be
responsible for the timely filing (taking into account any
extensions received from the relevant Tax Authorities) of
all Returns required by law to be filed by the Subject
Companies for periods ending on or prior to the Effective
Date, (ii) such Returns shall be true, correct and complete
in all material respects, and (iii) all Taxes indicated as
due and payable on such Tax Returns shall be paid or will be
paid by Seller as and when required by law, except to the
extent such Taxes have been accrued on the balance sheet as
of the Effective Date of the Subject Companies in accordance
with GAAP.
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(b) Buyer, with the cooperation of Seller, shall be
responsible for the timely filing (taking into account any
extensions received from the relevant tax authorities) of
all Returns required by law to be filed by the Subject
Companies for periods ending after the Effective Date, it
being understood that all Taxes indicated as due and payable
on such Returns shall be paid or will be paid by Buyer as
and when required by law, except for such Taxes which are
the responsibility of Seller pursuant to this Article III.
3.1.5 Refund or Credit. In the event that the
Buyer or the Subject Companies receives a refund or credit
of Taxes for which the Seller or its affiliates bas made a
payment pursuant to this Article III (a "Seller's Payment"),
the Buyer shall promptly pay to the Seller that portion of
such refund or credit which is related to such Seller's
Payment. In the event that the Seller receives a refund or
credit of Taxes for which Buyer or the Subject Companies has
made a payment pursuant to this Article III (a "Buyer's
Payment"), the Seller shall promptly pay to the Buyer or the
Subject Companies that portion or such refund or credit
which is related to such Buyer's Payment. In the event that
any refund or credit of Taxes for which a payment has been
made pursuant to this section is subsequently reduced or
disallowed, the receiving party shall indemnify, defend and
hold harmless the paying party from any liability for Taxes,
assessed against the paying party by reason of the reduction
of disallowance.
3.1.6 Survival. Representations set forth in
Article II herein shall not survive the Closing Date. With
the exception of Buyer's obligation which is set forth in
Section 3.1.1(b)(ii), all obligations under this Article III
shall survive the Closing hereunder and continue until 30
days following the expiration of the statute of limitations
on assessment of the relevant Tax. The Buyer's obligation
which is set forth in Section 3.1.1 (b)(ii) shall survive
the Closing and shall continue until date specified in
Section 3.1.1 (b). Notwithstanding the foregoing, any claim
for indemnification shall survive such termination date if
any party, prior to such termination date, shall have
advised the other party in writing of facts that constitute
or may give rise to an alleged claim for indemnification
under this Article III (such claim, a "Tax Claim"),
specifying in reasonable detail the basis under this
Agreement for such claim.
3.1.7 Resolution of Disputes
Between the Parties. As to any tax matters objected to
between the Seller and Buyer, the parties shall negotiate in
good faith to resolve such issues. If the parties are
unable to resolve such issues within thirty (30) days of the
receipt of either party's objections, the items in dispute
shall be submitted to Ernst & Young as tax consultants (the
"Tax Consultants"), for determination and the decision of
the Tax Consultant shall be final and binding. Each party
shall submit to the Tax Consultant its calculation of the
disputed items and any other written statements and
documents as it desires. The Tax Consultant shall be asked
to reach its decision within a reasonable period or time.
The parties shall share the cost of the Tax Consultant
services in proportion to the relationship that each party's
calculation of the disputed items bear to the Tax
Consultant's Final determination of such item (accordingly,
by way of example, if Buyer claims that Seller understated a
tax by $100 and the Tax Consultant decides the
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understatement is only $60, Seller would bear 60% of the
Tax Consultant fees and expenses and Buyer would bear 40%).
3.2 Tax Contests.
3.2.1 Contests. If any claim for Tax is asserted
in a Contest (as defined below) against any Tax Indemnitee
that would result in the indemnification of any such Tax
Indemnitee pursuant to this Article III of the Agreement,
then the Tax Indemnitees and the indemnifying party (the
"Tax Indemnitor") agree that the following provisions of
this Section 3.2.1 will apply in handling any such claim.
For purposes of this Agreement, a "Contest" is any audit,
court proceeding or other dispute with respect to any Tax
matter that affects any of the Subject Companies. Unless
the Tax Indemnitor has previously received written notice
from the Tax Indemnitee of the existence of such Contest,
the Tax Indemnitee shall give written notice to the Tax
Indemnitor of the existence of any Contest relating to a Tax
matter that is or may be the Tax Indemnitor's responsibility
under this Article III promptly upon the receipt by the Tax
Indemnitee of any written notice of such Contest, but no
failure to give such notice shall relieve the Tax Indemnitor
of any liability hereunder except to the extent, if any,
that the rights of the Tax Indemnitor with respect to such
claim are actually prejudiced. Unless the Tax Indemnitor has
previously received written notice from the Tax Indemnitee
of the existence of such Contest, the Tax Indemnitor shall
give written notice to the Buyer of the existence of any
Contest promptly upon the receipt by the Tax Indemnitor of
any written notice of such Contest. The Tax Indemnitee, on
the one hand, and the Tax lndemnitor, on the other, agree,
in each case at no cost to the other party, to cooperate
with the other and the other's representatives in a prompt
and timely manner in connection with any Contest. Such
cooperation shall include, but not be limited to, making
available to the other party, during normal business hours,
all books, records, returns, documents, files, other
information (including, without limitation working papers
and schedules), officers or employees (without substantial
interruption of employment) or other relevant information
necessary or useful in connection with any Contest requiring
any such books, records and files.
The Seller shall have the right to represent the
Subject Companies' interests in any Contest relating to a
Tax matter arising in a period ending on or before the
Effective Date, to employ counsel of their choice at their
expense and to control the conduct of such Contest,
including settlement or other disposition thereof; provided,
however, that the Seller shall consult with the Buyer
regarding any such Contest and shall allow the Buyer to
participate in any such proceeding and provided, further,
that no settlement or other disposition of any claim for Tax
which would adversely affect the Buyer or any Subject
Company in any taxable period ending after the Closing Date
in any manner or to any extent (including, but not limited
to, the imposition of income tax deficiencies, the reduction
of asset basis or cost adjustments and the reduction of loss
or credit carryovers) shall be agreed to without Buyer's
prior written consent, which shall not be unreasonably
withheld.
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The Buyer shall have the right to represent the Subject
Companies' interests in any Contest relating to a Tax matter
arising in a period beginning before the Effective Date and
ending after the Effective Date, to employ counsel of their
choice at their expense and to control the conduct of such
Contest, including settlement or other disposition thereof;
provided, however, that the Buyer shall consult with the
Seller regarding any such Contest and shall allow the Seller
to participate in any such proceeding and provided,
further, that no settlement or other disposition of any
claim for Tax which would adversely affect the Seller in any
taxable period ending before the Closing Date in any manner
or to any extent (including, but not limited to, the
imposition of income tax deficiencies, the reduction of
asset basis or cost adjustments and the reduction of loss or
credit carryovers) shall be agreed to without Seller's prior
written consent, which shall not be unreasonably withheld.
The Buyer's right as set forth in this Section 3.2.1
shall also apply to any liability which could affect Buyer's
obligation to indemnify Seller under Section 3.1.1(b).
3.2.2 Cooperation and Preservation of Books and
Records. The Buyer and the Seller shall provide such
assistance to each other as the other party may reasonably
request in connection with the preparation of any Return
required to be filed in respect of the Subject Companies,
any audit or other examination by any Tax Authority, any
judicial or administrative proceeding relating to liability
for federal, foreign, state or local Taxes, or any claim for
refund in respect of such Taxes, and the Buyer and Seller
will retain, and upon request provide, any records or
information which may be relevant to such Return, audit,
examination, proceeding or claim. Such assistance shall
include (i) making employees or counsel available at and for
reasonable times to provide additional information and
explanation of any material to be provided hereunder and
(ii) furnishing access to, and permitting the copying of any
records, returns, schedules, documents, work papers or other
relevant materials which might reasonably be expected to be
of use in connection with such return, audit, examination,
proceeding or claim.
The Buyer and the Seller recognize that the parties and
their respective affiliates may need access, from time to
time, after the Closing Date, to certain accounting and Tax
records and information held by the Buyer, Seller or the
Subject Companies; therefore, the Buyer and Seller agree (i)
to use their best efforts to properly retain and maintain
such records until such time as the Parties agree that such
retention and maintenance is no longer necessary and (ii) to
allow the requesting party and its respective agents and
other representatives (and agents or other representatives
of any of their respective affiliates), at times and dates
mutually acceptable to the parties, to inspect, review, and
make copies of such records as the requesting party may deem
necessary or appropriate from time to time, such activities
to be conducted during normal business hours and at the
requesting party's expense.
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ARTICLE IV
SECTION 338 ELECTION
4.1.1 Section 338 Election. (a) With respect to the Seller's sale of
the stock of the Subject Companies to the Buyer, the Seller and the Buyer
shall jointly make timely and irrevocable elections under Section 338(h)(10)
of the Code, and, if permissible, similar elections under any applicable
state or local income tax laws. The Buyer, the Seller and the Subject
Companies shall report the transaction consistent with such elections under
Section 338(h)(10) of the Code or any similar state or local tax provision (the
"Elections") and agree not to take any action that could cause such Elections
to be invalid, and shall take no position contrary thereto unless required to
do so pursuant to a determination (as defined in Section 1313(a) of the Code)
or any similar state or local tax provision.
4.1.2 Section 338 Forms. The Buyer, the Seller and
the Subject Companies shall execute any and all forms
necessary to effectuate the Elections (including, without
limitation, Internal Revenue Service Form 8023 and any
similar forms under applicable state and local income tax
laws (the "Section 338 Forms"). The Buyer, the Seller and
the Subject Companies shall prepare and complete each such
Section 338 Form no later than 15 days prior to the date
such Section 338 Form is required to be filed. The Buyer,
the Seller and the Subject Companies shall each cause the
Section 338 Forms to be duly executed by an authorized
person for the Buyer, the Seller and the Subject Companies
in each case, and shall duly and timely file the Section 338
Forms in accordance with applicable tax laws and the terms
of this Agreement.
4.1.3 Section 338 Allocation. As soon as practicable after the Closing
Date, but no later than five (5) days after the Closing Date, the Seller and
the Buyer shall agree on the deemed sales price of the assets of the Subject
Companies, the fair market value of the assets of the Subject Companies and
the allocation of the deemed sales price of the assets of the Subject
Companies resulting from the Elections (as required pursuant to Section 338
(h)(10) of the Code and regulations promulgated thereunder) among such
assets (the "Section 338 Allocation"). The Seller and Buyer shall act together
in good faith to determine the "adjusted grossed-up basis" of the stock within
the meaning of Treasury Regulation 1.338(h)(10) - 1(f) and agree upon
appropriate allocations of the basis among the assets of the Subsidiary in
accordance with Section 338(b)(5) of the Code. The calculation of adjusted
grossed-up basis and the allocation which the parties shall agree upon shall
not include the respective investment banking, legal, accounting and other
fees or costs incurred by each of the Seller and the Buyer as a result of the
transactions contemplated by this Agreement ("Transaction Costs"). The
Seller shall calculate the gain or loss, if any, resulting from the elections
in a manner consistent with the allocations; provided the Seller shall be
entitled to take into account the Transaction Costs of the Seller when
calculating the gain or loss. The Buyer shall be entitled to add to the
basis of the assets its Transaction Costs. If the Buyer and the
Seller are unable to agree on the Section 338 Allocation within 5 days after the
Closing then the procedures
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set forth in Section 3.1.7 shall apply except that a remedy
shall be sought as soon as practical. The Buyer, the Seller
and the Subject Companies shall file all Returns
consistently with the Section 338 Allocation.
ARTICLE V
GENERAL PROVISIONS
5.1 Prior Tax Sharing Agreements. This Agreement
shall terminate and supersede (i) any and all other tax
sharing or allocation agreements or practices in effect on
the date hereof as between the Seller or any predecessor or
affiliate thereof, on the one hand, and the Subject
Companies on the other hand, for all Tax imposed by any
federal, state, local or foreign government or Tax
Authority, and (ii) all rights of any of the parties hereto
with respect to such agreements or practices, regardless of
the period for which such taxes are imposed.
5.2 Transfer Taxes. All transfer, documentary, sales,
use, registration and other such Taxes (including all
applicable real estate transfer or gains Taxes) and related
fees (including any penalties, interest and additions to
Tax) incurred in connection with this Agreement and the
Stock Purchase and Sale Agreement and the transactions
contemplated hereby shall be paid by the Buyer, and the
Seller and the Buyer shall cooperate in timely making all
filings, returns, reports and forms as may be required to
comply with the provisions of such Tax laws.
5.3 Expenses. Unless otherwise expressly provided in
this Agreement, each party shall bear any and all expenses
that result from its fulfillment of its obligations under
this Agreement,
5.4 FIRPTA. The Seller shall deliver to the Buyer at
the Closing a certificate complying with the Code and
Treasury Regulations, in form and substance satisfactory to
the Buyer, duly executed and acknowledged, certifying that
the transactions contemplated hereby are exempt from
withholding under Section 1445 of the Code.
5.5 Execution in Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become a
binding agreement when one or more counterparts have been
signed by each party and delivered to the other parties.
5.6 Confidentiality. All information given by or on
behalf of any party hereto to any other party or any agent
or attorney for or advisor to such other party shall be
considered confidential and shall be used only for the
purposes intended.
5.7 Notices. All notices or other communications
hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by
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certified or registered mail, postage prepaid and return
receipt requested, or by Federal Express, as follows:
a. if to the Buyer,
to it at: Koch Midstream Enterprises, Inc.
4111 E. 37th Street
North Wichita, KS 67220
Attention: Director of Taxes
b. if to the Seller,
to it at: USX Corporation
600 Grant Street
Pittsburgh, PA 15219-4776
Attention: Vice President - Taxes
No change in any of such addresses shall be effective
insofar as notices and communications are concerned, unless
notice of such change shall have been given to the other
party hereto as provided in this Section 5.7.
5.8 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Delaware, regardless of the laws that might otherwise govern
under the applicable principles of conflicts of laws
thereof.
5.9 Titles and Headings. Titles and heading to
Articles and Sections herein are inserted for convenience of
reference only and are not intended to be a part of or to
affect the meaning of interpretation of this Agreement.
5.10 Successors and-Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the
successors and assigns of the parties hereto. Between the
date hereof and the Closing Date, this Agreement shall not
be assignable by any party hereto without the written
consent of the other parties hereto. After the Closing
Date, this Agreement may be assigned by any party hereto,
but no such assignment shall relieve the assignor or its
obligations hereunder if such assignee does not perform such
obligations.
5.11 Entire Agreement; No Oral Waiver. This Agreement
and the agreements and other documents contemplated hereby
or referred to herein constitute the entire agreement among
the parties pertaining to the subject matter hereof and
supersede all prior and contemporaneous agreements,
understandings and representations, whether oral or written,
of the parties in connection therewith except to the extent
incorporated or specifically referred to herein. No
covenant or condition or representation not expressed in
this Agreement shall affect or be effective to interpret,
change or restrict this Agreement. No prior drafts of this
Agreement and no words or phrases from any such prior drafts
shall be admissible into evidence in any action, suit or
other proceeding
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involving this Agreement or the transactions contemplated
hereby. This Agreement may not be changed or terminated
orally, nor shall any change, termination or attempted
waiver of any of the provisions of this Agreement by binding
on any party unless in writing signed by the [President or a
Vice President] of the Seller, and by the [President or a
Vice President] of the Buyer. No modification, waiver,
termination, rescission, discharge or cancellation of this
Agreement and no waiver of any provision of or default under
this Agreement shall affect the right of the Buyer, the
Seller or the Subject Companies thereafter to enforce any
other provision or to exercise any right or remedy in the
event of any other default, whether or not similar.
5.12 Severability. If any provisions of this Agreement
shall be declared by any court of competent jurisdiction to
be illegal, void or unenforceable, all other provisions of
this Agreement shall not be affected and shall remain in
full force and effect.
5.13 No Third-Party Rights. Nothing in this Agreement,
expressed or implied, shall or is intended to confer upon
any Person other than the parties hereto or their respective
successors or assigns.
IN WITNESS WHEREOF, the parties have executed,
delivered and entered into this agreement as of the day and
year first above written.
USX Corporation
By:/s/John T. Mills
-------------------
John T. Mills
Vice President - Taxes
Koch Midstream Enterprises,
Inc.
By:/s/John Gibson
-----------------
John Gibson
President
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SCHEDULE A
i. Returns not timley filed - None
ii. Taxes due but not accrued - None
iii. Material Audits
FEDERAL INCOME TAXES
1. IRS Appeals
2. IRS Examination
STATE TAXES
1. Texas sales and use tax audit for Delhi Gas
Pipe Line Corporation covering December 1993
through July 1997
2. Texas franchise tax audit for Delhi Gas
Pipeline Corporation and Tonkawa Gas Processing
Company covering calendar years 1993 through 1995
3. Texas sales and use tax audit for Tonkawa Gas
Processing Company covering January 1992 through
August 1995.
4. Louisiana income and franchise tax assessments
for Tonkawa Gas Processing Company of $26,745.59
for calendar years 1992 through 1993 is under
appeal with the Louisiana Board of Tax Appeals.
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SCHEDULE B
For federal income tax purposes, the statute of limitations
has been extended to December 31, 1998 for taxable years
1990 through 1994.
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Contact: William E. Keslar
Don H. Herring
(412) 433-6870
FOR IMMEDIATE RELEASE
USX ANNOUNCES THE DISPOSITION OF THE DELHI GROUP
PITTSBURGH, October 22 -- USX Corporation announced
today that it has entered into a definitive agreement for USX to
sell its stock in Delhi Gas Pipeline Corporation and the other
subsidiaries of USX that comprise all of the Delhi Group to Koch
Midstream Enterprises, Inc., an affiliate of Koch Industries,
Inc. (Koch). The transaction involves a gross purchase price of
$762 million, which based upon September 30, 1997, financial
information, USX estimates will result in net proceeds available
for distribution to the holders of USX-Delhi Common Stock
(Delhi Stock) of between $19 and $21 per share of Delhi Stock.
The net proceeds are calculated in accordance with
USX's restated Certificate of Incorporation by deducting from the
gross purchase price amounts of certain liabilities retained by
the Delhi companies as well as amounts necessary to provide for
taxes incurred by USX in connection with the transaction,
transaction fees and expenses, contingent liabilities of the
Delhi Group and certain other liabilities and obligations not
being assumed by the buyer (including the portion of USX's debt
and preferred stock attributed to the Delhi Group). A number of
these factors may change before closing. See Attachment I for
more details.
The transaction is subject to the receipt of Hart-Scott-
Rodino approval and other customary conditions. The parties
expect the closing to occur in November.
Thomas J. Usher, Chairman and CEO of USX, said, "We are
pleased that our enhanced capital investment program and other
strategic initiatives for the Delhi Group have helped to provide
USX with the opportunity to return significant value to the Delhi
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shareholders. Koch is a strong competitor in many energy-related
businesses, and we believe that the customers, suppliers and
employees of the Delhi business will look forward to their future
association with Koch."
Under its restated Certificate of Incorporation, USX is
required to elect one of three options to return the value of the
net proceeds received in the transaction to the Delhi Group
shareholders within 60 days of the closing date. Of the three
options, USX currently anticipates that it will elect to use the
net proceeds to redeem all shares of Delhi Stock. USX is
required to give public notice of which option it has elected not
less than 30 nor more than 60 days after the closing. Due to the
time required to finalize the calculation of the net proceeds,
USX anticipates that it will give the required notice 30 days
after the closing of the transaction.
Lehman Brothers acted as financial advisor to USX in
conjunction with the transaction.
USX-Delhi Group (NYSE:DGP), a Dallas-headquartered unit
of Pittsburgh-based USX Corporation, includes Delhi Gas Pipeline
Corporation and certain other subsidiaries of USX. They are
engaged in the purchasing, gathering, processing, treating,
transporting and marketing of natural gas. Delhi Group owns and
operates extensive pipeline systems and associated treating and
processing plants in Texas and Oklahoma.
Koch Gateway Pipeline Company and other affiliates of
Koch Midstream Enterprises already operate more than 10,000 miles
of natural gas pipelines in Texas, Louisiana, Mississippi and
Florida, in addition to partnering in gas gathering operations
and processing facilities on the Louisiana coast.
Koch Industries, Inc. is the second-largest privately
held company in the United States. Koch Industries and its
subsidiaries employ 13,000 people worldwide and are involved in
virtually all phases of the oil and gas industry, as well as in
agriculture, chemicals, chemical technology products, energy
services, asphalt products, metals and minerals services, real
estate and financial investments.
******
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ATTACHMENT I
USX currently estimates net proceeds available for
distribution to the holders of Delhi Stock will be between $19
and $21 per share. Actual net proceeds will be based on data as
of the effective date of the transaction, currently expected to
be October 31, 1997. Set forth below is a sample calculation of
the midpoint of the $19 to $21 per share estimated range based on
Delhi Group data as of September 30, 1997. A number of factors
may change between September 30 and the effective date including,
among other things, the amount of debt attributed to the Delhi
Group, which is impacted by the Delhi Group's cash flow through
the effective date, and the taxes to be incurred, which are
impacted by changes in the tax basis of the Delhi Group's assets
after September 30. Accordingly, the actual net proceeds may
vary from the estimate set forth below.
<TABLE>
<CAPTION>
$ millions
<S> <C>
Gross Purchase Price $762
Less: Estimated adjustments to purchase
price for liabilities retained by the
Delhi companies 27
----
Estimated Adjusted Purchase Price $735
Less: Estimated attributed debt, preferred stock,
transaction costs and other liabilities of
the Delhi Group 317
Less: Estimated taxes payable 1 220
----
Estimated net proceeds $198
====
Estimated net proceeds per share available
for distribution 2 $ 20
====
- -------------
<FN>
1-Based on estimated tax basis of $165 million at September 30,
1997, and assuming a tax rate of 38.5%.
2-Based on 9.45 million shares outstanding at September 30, 1997,
and assuming the settlement of outstanding employee stock options
to purchase approximately 409,000 shares of Delhi Stock.
</TABLE>
